82 FR 7891 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Shares of the EtherIndex Ether Trust Under NYSE Arca Equities Rule 8.201

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 13 (January 23, 2017)

Page Range		7891-7898
FR Document		2017-01296
Federal Register, Volume 82 Issue 13 (Monday, January 23, 2017)
[Federal Register Volume 82, Number 13 (Monday, January 23, 2017)]
[Notices]
[Pages 7891-7898]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-01296]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79792; File No. SR-NYSEARCA-2016-176]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to the Listing and Trading of Shares 
of the EtherIndex Ether Trust Under NYSE Arca Equities Rule 8.201

January 13, 2017.
    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 December 30, 2016, 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 and II 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following 
under NYSE Arca Equities Rule 8.201: EtherIndex Ether Trust 
(``Trust''). The proposed rule change is available on the Exchange's 
Web site 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 Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Under NYSE Arca Equities Rule 8.201, the Exchange may propose to 
list and/or trade pursuant to unlisted trading privileges (``UTP'') 
``Commodity-Based Trust Shares.'' \4\ The Exchange proposes to list and 
trade shares (``Shares'') of the Trust pursuant to NYSE Arca Equities 
Rule 8.201.\5\
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    \4\ Commodity-Based Trust Shares are securities issued by a 
trust that represent investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
Trust.
    \5\ On November 28, 2016, the Trust filed an amended 
registration statement (``Registration Statement'') on Form S-1 
under the Securities Act of 1933 (15 U.S.C. 77a) (File No. 333-
212533). The descriptions of the Trust, the Shares and ether 
contained herein are based, in part, on the Registration Statement.
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    The sponsor of the Trust is EtherIndex LLC (``Sponsor''), a 
Delaware limited liability company. Delaware Trust Company is the 
trustee of the Trust (``Trustee''). The Bank of New York Mellon will be 
the administrator (``Administrator'') and custodian of cash of the 
Trust (``Cash Custodian''). Coinbase will be the custodian of the ether 
of the Trust (``Ether Custodian'').
    According to the Registration Statement, each Share will represent 
a unit of fractional undivided beneficial interest in and ownership of 
the Trust. The activities of the Trust will be limited to (i) issuing 
``Baskets'' (as described below) to ``Authorized Participants'' (as 
described below) in exchange for the cash or, in the Sponsor's 
discretion, ether (as described below), (ii) selling ether or 
transferring ether, at the Sponsor's discretion, as necessary to cover 
the Sponsor's fee and as necessary to pay Trust expenses not assumed by 
the Sponsor and other liabilities, (iii) selling or transferring ether 
in exchange for Baskets surrendered for redemption by the Authorized 
Participants, (iv) causing the Administrator to sell ether on the 
termination of the Trust and (v) engaging in all administrative and 
custodial procedures necessary to accomplish such activities in 
accordance with the provisions of relevant agreements.
    According to the Registration Statement, the Trust is neither an 
investment company registered under the Investment Company Act of 1940, 
as amended,\6\ nor a commodity pool for purposes of the Commodity 
Exchange Act (``CEA''),\7\ and neither the Sponsor nor the Trustee is 
subject to regulation as a commodity pool operator or a commodity 
trading adviser in connection with the operation of the Trust.
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    \6\ 15 U.S.C. 80a-1.
    \7\ 17 U.S.C. 1.
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Investment Objective
    According to the Registration Statement and as further described 
below, the Trust's purpose will be to provide shareholders with 
exposure to the daily change in the U.S. dollar price of ether, before 
expenses and liabilities of the Trust, as measured by the price of 
ether in U.S. dollars as reported by the Global Digital Asset Exchange 
(``GDAX'') as of 4:00 p.m., Eastern Time (``E.T.''), each day (``GDAX 
Price'').
    The Trust will not be actively managed. It will not engage in any 
activities designed to obtain a profit from, or to ameliorate losses 
caused by, changes in the market prices of ether.
Ether and the Ethereum Network
    According to the Registration Statement, ether is a digital asset 
similar to bitcoin. It is not issued by any government, bank or central 
organization but rather is issued by, and transmitted through, the 
decentralized, open source protocol of the peer-to-peer Ethereum 
computer network (``Ethereum Network''). The Ethereum Network is a 
decentralized network of computers that run applications on a custom 
built ``blockchain'' (``Ethereum Blockchain'') that enables developers 
to create markets, store registries of debts or promises, represent the 
ownership of property and move funds in accordance with instructions 
given in the past, all without the involvement of an intermediary or 
counterparty. The Ethereum Blockchain is a decentralized public 
transaction ledger hosted on the Ethereum Network on which all ether is 
recorded; the blockchain records ether balances and every ether address 
associated with a quantity of ether (see ``Ethereum Blockchain'' 
below). No single entity owns or operates the Ethereum Network.
    According to the Registration Statement, unlike bitcoin, ether was 
not designed to function purely as a store of value. Instead, ether was 
meant to pay for specific actions on the Ethereum Network. However, 
ether's market is

[[Page 7892]]

currently supported by many of the same online exchanges and the same 
infrastructure that has developed around the bitcoin network. Users who 
have historically purchased bitcoin on online exchange platforms can 
now buy ether on these Web sites. Ether can be converted to fiat 
currencies, such as the U.S. dollar, or to bitcoin, at rates determined 
on ether exchanges or in individual end-user-to-end-user transactions 
under a barter system. Each ether transaction is broadcast to the 
Ethereum Network and recorded in the Ethereum Blockchain.
    According to the Registration Statement, unlike bitcoin, which has 
a fixed limit of 21,000,000 bitcoin, no limit has been established on 
the total supply of ether. The initial creation of ether was in 
connection with a crowd funding transaction in 2014 in which 60,000,000 
ether were pre-sold. Another 12,000,000 ether were created for the 
benefit of a development fund. All additional ether have been and will 
be created through the ``mining'' process (see ``Ether Blockchain'' 
below). According to the terms of the 2014 presale, the issuance of 
ether from mining is capped at 18,000,000 ether per year. According to 
the Registration Statement, it has been reported that approximately 
9,700,000 million ether have been created to date through the mining 
process.
Ethereum Blockchain
    According to the Registration Statement, the Ethereum Blockchain is 
a record of every ether transaction (including the creation or 
``mining'' of new ether) and every Ethereum Network public address 
associated with a quantity of ether. A beta version of the live 
blockchain was publicly launched in July 2015, and the initial 
production version was launched in March 2016.
    The Ethereum Blockchain is comprised of a digital file, downloaded 
and stored, in whole or in part, on all Ethereum Network users' 
software programs. The Ethereum Network software can interpret the 
Ethereum Blockchain to determine the exact ether balance, if any, of 
any public ether address listed in the Ethereum Blockchain which has 
taken part in a transaction on the Ethereum Network.
    Mining is the act of using a computer to run computations designed 
to help build the next block in the Ethereum Blockchain. As a computer 
solves a complex computational calculation related to the building of a 
block, its owner is rewarded with ether.\8\ The Ethereum Blockchain 
includes all blocks that have been solved by miners and is updated to 
include new blocks as they are solved. As each newly solved block 
refers back to and connects with the immediately prior solved block, 
the addition of a new block adds to the Ethereum Blockchain in a manner 
similar to a new link being added to a chain. Each new block records 
outstanding ether transactions, and outstanding transactions are 
settled and validated through such recording. Therefore, the Ethereum 
Blockchain represents a complete, transparent and unbroken history of 
all transactions of the Ethereum Network.
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    \8\ Attached as Exhibit 3, Item 1 is a chart illustrating the 
supply growth of ether during the period October 2015 through 
October 2016.
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    According to the Registration Statement, in June 2016, the DAO, a 
decentralized autonomous organization using the Ethereum Network, was 
hacked, resulting in a loss to that organization of approximately 3.6 
million ether. In response to this loss, the Ethereum community agreed 
to create a new ``hard fork'' on the Ethereum Blockchain which returned 
the lost ether to the DAO. A hard fork is a change to the underlying 
Ethereum protocol, which creates new rules for the Ethereum system; all 
Ethereum clients needed to upgrade, otherwise they would remain on the 
old blockchain. In creating the hard fork, the intent was to have all 
users of the Ethereum Network migrate to the new fork, rendering the 
ether on the old blockchain held by the DAO hacker useless. However, a 
number of users have continued to develop the old blockchain, now 
referred to as ``Ethereum Classic,'' resulting in a separate version of 
ether referred to as ``ether classic.'' Ether classic is now traded on 
several crypto currency exchanges. The Shares will provide shareholders 
with exposure to the daily change in the U.S. dollar price of ether, 
before expenses and liabilities of the Trust, as measured by the GDAX 
Price and not the price of ether classic.
Uses of Ether Blockchain
    According to the Registration Statement, the Ethereum Blockchain is 
a general-purpose, global blockchain that can govern both financial and 
non-financial types of application states. Ether can be used to pay for 
goods and services or can be converted to fiat currencies, such as the 
U.S. dollar, at rates determined on ether exchanges (``Ether 
Exchange'') \9\ or in individual end-user-to-end-user transactions 
under a barter system.\10\ An ether private key controls the transfer 
or ``spending'' of ether from its associated public ether address. An 
ether ``wallet'' is a collection of private keys and their associated 
public ether addresses.
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    \9\ An Ether Exchange is an online marketplace with a central 
limit order book, where market participants may buy, sell and trade 
ether. The largest Ether Exchanges are typically open on a 24-hour 
per day, seven-days per week basis, and publish public market data 
such as transaction price and volume data. Examples of Ether 
Exchanges are: (i) Coinbase, a digital currency wallet and platform 
based in San Francisco where merchants and consumers can transact 
with certain digital currencies; (ii) Kraken, an online exchange 
based in San Francisco; (iii) Bitfinex, an online exchange founded 
in Hong Kong; and (iv) Gemini, a New York-based online exchange that 
has obtained a BitLicense from the New York Department of Financial 
Services.
    \10\ Attached as Exhibit 3, Item 2 is a chart setting forth a 
summary of the daily number of ether transactions (i.e., transfers 
of ether between parties on the Ethereum Network, which is different 
than and should not be confused with ether exchange-traded volume) 
from October 2015 through October 2016.
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    According to the Registration Statement, while the bitcoin network 
permits users primarily to execute value transfers, the Ethereum 
Network allows users to program any arbitrary code and execute it, 
including value transfers. Accordingly, the Ethereum Network may be 
viewed as a global, decentralized computer in comparison to the bitcoin 
network, which is more similar to a global, decentralized payment 
network. In addition to value transfers, the Ethereum Network enables 
decentralized business logic, known as ``smart contracts.'' A smart 
contract is a collection of code (its functions) and data (its state) 
that resides at a specific address on the Ethereum Blockchain. Smart 
contracts can interact with other contracts, make decisions, store data 
and send ether to others. Smart contracts are capable of automatically 
enforcing the terms of a given agreement among a number of parties. 
This code can define strict rules and consequences in the same way that 
a traditional legal document would, stating the obligations, benefits 
and penalties which may be due to either party in various different 
circumstances. But, unlike a traditional contract, it can also take 
information as an input, process that information through the rules set 
out in the contract and take any actions required of it as a result.
Custody of the Trust's Ether
    According to the Registration Statement, the private keys that 
control the Trust's ether will be secured by the Ether Custodian and 
stored completely offline in a ``cold storage'' system. The Ether 
Custodian's cold storage system is founded on the principles of (i) 
building

[[Page 7893]]

defense-in-depth against external threats, (ii) protecting against 
human error and (iii) guarding against misuse of insider access. The 
Ether Custodian's cold storage mechanism involves generating private 
keys on an ``air-gapped'' computer, i.e., a computer that has never 
been connected to the internet, then splitting these keys into segments 
using a special algorithm to ensure no one individual knows how the key 
was fragmented, and finally distributing these fragments geographically 
so no one entity can access the cold storage without the other 
individuals contributing their fragment of the key. The Ether Custodian 
maintains insurance against theft and electronic compromise in an 
amount that exceeds the average value of ether and bitcoin that it 
holds online at any one time.
    The Ether Custodian will maintain approximately three times the 
average of the expected creation and redemption Baskets in ether at all 
times in a ``hot wallet,'' which is connected to the internet, in order 
to provide fast access to withdrawal when needed. The average ether 
amount to be held in the hot wallet will initially be determined by the 
Sponsor and Authorized Participants. The Sponsor may direct the Ether 
Custodian to transfer ether from the cold storage system to the hot 
wallet if additional ether is required for creation and redemption 
Baskets. It is anticipated that less than five percent of the Trust's 
ether will be held in the hot wallet. The Ether Custodian will maintain 
the Trust's remaining ether in its cold storage system and will hold 
the Trust's ether in the Trust's ether custody account. The Ether 
Custodian will segregate the Trust's ether which will be held in unique 
Ethereum Network public addresses with balances that can be directly 
verified on the Ethereum Blockchain.
    According to the Registration Statement, each Custodian will 
accept, on behalf of the Trust, cash or the delivery of ether from 
Authorized Participants into the Trust's custody accounts creation 
orders. In order for an Authorized Participant to redeem a Basket and 
receive cash or a distribution of ether from the Trust, the Custodians, 
upon receiving instructions from the Administrator, will sign 
transactions necessary to transfer ether out of the Trust's ether 
custody account for sale or to distribute the ether to the Ethereum 
Network public address specified by the Authorized Participant.
    According to the Registration Statement, the Sponsor will engage an 
independent audit firm to periodically audit the Ether Custodian's 
storage of private keys and its internal controls and report to the 
Sponsor at least annually on such matters. Additionally, the Sponsor 
will engage an independent audit firm to biannually verify that the 
Ether Custodian can demonstrate ``proof of control'' of the private 
keys that control the Trust's ether. One such ``proof of control'' 
audit will be conducted at the end of each calendar year and the other 
at random.
Ether Market Price
    According to the Registration Statement, the value of ether is 
determined by the value that various market participants place on ether 
through their transactions. The most common means of determining the 
value of ether is by surveying one or more Ether Exchanges where ether 
is traded publicly and transparently (e.g., GDAX, Poloniex or 
Kraken).\11\ On each online Ether Exchange, ether is traded with 
publicly disclosed valuations for each executed trade, measured by one 
or more fiat currencies such as the U.S. dollar or euro or by the 
widely used digital asset bitcoin.
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    \11\ Attached as Exhibit 3, Item 3 is a chart comparing the 
ether price on Coinbase, Kraken, Gemini, Poloniex, Cexlo and 
Bitfinex during the period May 27, 2016 through October 21, 2016. 
Attached as Exhibit 3, Item 4 is a chart comparing the ether price, 
in 15 minute intervals, on Coinbase, Kraken and Bitfinex during the 
period of November 21, 2016 and into November 22, 2016.
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    According to the Trust, since its initial trading, ether has 
experienced one-day (i.e., the greatest one-day change in ether price 
experienced on any trading day), one-month (i.e., the greatest change 
in ether price experienced during any calendar month), one-year (i.e., 
the greatest change in ether price experienced during any calendar 
year) and since-inception \12\ changes of 67.5% (or $2.93), 214.8% (or 
$2.04), 2,748.5% (or $20.56) and 32,416% (or $21.33), respectively. All 
changes listed represent increases in the price of ether.\13\
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    \12\ For purposes of this data, the Trust has used August 8, 
2015 as the inception date.
    \13\ Attached as Exhibit 3, Item 5 is a chart illustrating the 
changes in the price of ether during the period September 2015 into 
October 2016. Attached as Exhibit 3, Item 6 is a chart comparing 
three-month volatility in the price of ether compared to three-month 
volatility in the prices of bitcoin, gold, silver, WTI crude oil, 
copper, natural gas, soybeans and coffee (``Comparison 
Commodities'') during the period July 2016 through September 2016. 
Attached as Exhibit 3, Item 7 is a chart comparing the six-month 
volatility in the price of ether compared to the six-month 
volatility in the prices of the Comparison Commodities during the 
period April 2016 through September 2016. Attached as Exhibit 3, 
Item 8 is a chart comparing the twelve-month volatility in the price 
of ether compared to the twelve-month volatility in the prices of 
the Comparison Commodities during the period October 2016 through 
September 2016.
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The Trust
    According to the Registration Statement, the Trust's assets will 
consist of ether. The Trust will occasionally hold cash for short 
periods in connection with the creation and redemption process, and to 
pay certain fees, expenses and liabilities. The ether held by the Ether 
Custodian on behalf of the Trust will only be transferred out of the 
Trust's ether custody account in the following circumstances: (i) 
Transferred to pay the Sponsor's fee; (ii) transferred to be sold for 
cash or distributed to Authorized Participants in connection with the 
redemption of Baskets; (iii) transferred to the Trust's expense account 
to be sold on an as-needed basis to pay Trust expenses not assumed by 
the Sponsor; or (iv) sold on behalf of the Trust in the event the Trust 
terminates and liquidates its assets or as otherwise required by law or 
regulation.
    According to the Registration Statement, while the Sponsor will not 
exercise day-to-day oversight over the Trust, the Sponsor will engage 
the Administrator and the Custodians to assist in implementing the 
creation and redemption process for the Trust. The Sponsor will assume 
certain administrative and marketing expenses incurred by the Trust. 
The Trust will pay the Sponsor a fee.
Net Asset Value
    On each business day, the Administrator will calculate the net 
asset value (``NAV'') of the Trust as measured at 4:00 p.m., E.T., 
using the GDAX Price. The NAV of the Trust is the asset value of the 
Trust less its liabilities (which include accrued but unpaid fees and 
expenses) divided by the number of outstanding Shares as of 4:00 p.m., 
E.T., each business day.
    In the event that the GDAX Price is unavailable or the Sponsor 
determines that the GDAX Price is not an appropriate basis for 
evaluation of the Trust's ether, the Sponsor will instruct the 
Administrator to use as an alternative basis for calculating the 
Trust's NAV either (i) the price of ether in U.S. dollars as reported 
by Kraken Bitcoin Exchange as measured at 4:00 p.m., E.T., on each 
business day, (ii) if the Sponsor determines that the Kraken Bitcoin 
Exchange price is not an appropriate basis for evaluation of the 
Trust's ether, the price of ether in U.S. dollars as reported by the 
Gemini Exchange as measured at the 4:00 p.m., E.T., on each business 
day or (iii) if the Sponsor determines that the Kraken Bitcoin Exchange 
and the Gemini

[[Page 7894]]

Exchange prices are not appropriate bases for evaluation of the Trust's 
ether, the Sponsor's good faith estimate of the market price of ether. 
Any determination that the GDAX Price or the price on the other 
exchanges mentioned above is not an appropriate basis for calculating 
the Trust's NAV would be based upon extraordinary criteria, such as a 
disruption in the operation of the exchange, material reporting or 
calculation inaccuracies by the exchange or a material decrease in 
trading volume not experienced by other exchanges. In determining fair 
market value for ether, the Sponsor may consider the market price for 
ether on other Ether Exchanges or in other forums for which ether 
prices are published publicly.
    The Sponsor will publish the Trust's NAV on the Trust's Web site as 
soon as practicable after calculation by the Administrator. To the 
extent that the NAV has been calculated using a price per ether other 
than the GDAX Price for such business day, the publication on the 
Trust's Web site will note the valuation methodology and the price per 
ether resulting from such calculation.
    According to the Registration Statement, Authorized Participants, 
or their clients or customers, may have an opportunity to realize a 
riskless profit if they can create a Basket at a discount to the public 
trading price of the Shares or can redeem a Basket at a premium over 
the public trading price of the Shares. The Sponsor expects that the 
exploitation of such arbitrage opportunities by Authorized Participants 
and their clients and customers will tend to cause the public trading 
price to track the NAV closely over time.
Creation and Redemption of Shares
    According to the Registration Statement, the Trust will issue and 
redeem Baskets, each equal to a block of 10,000 Shares, principally in 
exchange for the delivery to the Trust or the distribution by the Trust 
of the amount of cash, or at the discretion of the Sponsor, ether 
represented by the NAV of the Baskets being created or redeemed, the 
amount of which will be based on the combined ether represented by the 
number of Shares included in the Baskets being created or redeemed 
determined on the day the order to create or redeem Baskets is properly 
received. The Trust will issue and redeem Shares in Baskets to and from 
Authorized Participants. The size of a Basket is subject to change.
    Orders to create and redeem Baskets may be placed only by 
Authorized Participants.\14\ A transaction fee may be imposed to offset 
transfer and other transaction costs associated with creation or 
redemption.
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    \14\ An Authorized Participant must: (1) Be a registered broker-
dealer or other securities market participant, such as a bank or 
other financial institution, which is not required to register as a 
broker-dealer to engage in securities transactions and (2) be a 
participant in Depository Trust Company (``DTC''). To become an 
Authorized Participant, a person must enter into an ``Authorized 
Participant Agreement'' with the Administrator and the Sponsor on 
behalf of the Trust. The Authorized Participant Agreement provides 
the procedures for the creation and redemption of Baskets as well as 
the amount of ether required for delivery or distribution for such 
creations and redemptions.
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Creation Procedures
    On any business day, an Authorized Participant may place an order 
with the Transfer Agent to create one or more Baskets. Purchase orders 
must be placed by 1:00 p.m., E.T. The day on which the Transfer Agent 
receives a valid purchase order is the purchase order date. Purchase 
orders are irrevocable.
    The total payment required to create each Basket is determined by 
calculating the NAV of 10,000 Shares as of the closing time of the NYSE 
Arca on the purchase order date. Baskets will be issued as of 9:30 
a.m., E.T., on the business day immediately following the purchase 
order date at the applicable NAV as of the closing time of NYSE Arca on 
the purchase order date, but only if the required payment has been 
timely received.
    Orders to purchase Baskets must be placed no later than 1:00 p.m., 
E.T., but the total payment required to create a Basket will not be 
determined until 4:00 p.m., E.T., on the date the purchase order is 
received. Authorized Participants therefore will not know the total 
amount of the payment required to create a Basket at the time they 
submit an irrevocable purchase order for the Basket.
    The payment required to create a Basket typically will be made in 
cash, but it may also be made partially or wholly in-kind at the 
discretion of the Sponsor if the Authorized Participant requests to 
convey ether directly to the Trust. To the extent the Authorized 
Participant places an in-kind order to create, the Authorized 
Participant must deliver ether directly to the Ether Custodian and an 
amount of cash (or ether) referred to as the Balancing Amount \15\ each 
no later than 1:00 p.m., E.T., on the date the purchase order is 
received. The amount of ether delivered by the Authorized Participant 
must be in an amount equal to the number of ether necessary to create a 
Basket as of 4:00 p.m., E.T., on the date the purchase order is 
received. Upon delivery of the ether to the Ether Custodian and the 
Balancing Amount to the Cash Custodian (or the ether component of the 
Balancing Amount, if applicable, to the Ether Custodian), the 
Administrator will cause the Trust to issue a Basket to the Authorized 
Participant.
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    \15\ The Balancing Amount is an amount equal to the difference 
between the NAV of the Shares (per Basket) and the ``Deposit 
Amount,'' which is an amount equal to the market value of ether (per 
Basket) which, for this purpose, is calculated in the same manner as 
the Trust values ether. The Balancing Amount serves to compensate 
for any difference between the NAV per Basket and the Deposit 
Amount.
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    According to the Registration Statement, the Sponsor acting by 
itself or through the Administrator may reject a creation order if: (i) 
It is not in proper form; (ii) it is determined by the Sponsor not to 
be in the best interest of the shareholders; (iii) the acceptance or 
receipt of the creation order would have adverse tax consequences to 
the Trust or shareholders; (iv) the acceptance or receipt of the 
creation order would, in the opinion of counsel to the Sponsor, be 
unlawful; (v) if circumstances outside the control of the Sponsor or 
its designee make it, for all practical purposes, not feasible, as 
determined by the Sponsor in its sole discretion, to process creations 
of Baskets; or (vi) for any other reason set forth in the Authorized 
Participant Agreement entered into with that Authorized Participant.
Redemption Procedures
    According to the Registration Statement, the procedures by which an 
Authorized Participant can redeem one or more Baskets will mirror the 
procedures for the creation of Baskets. On any business day, an 
Authorized Participant may place an order with the Transfer Agent to 
redeem one or more Baskets. Redemption orders must be placed no later 
than 1:00 p.m., E.T. The day on which the Transfer Agent receives a 
valid redemption order is the redemption order date. Redemption orders 
are irrevocable. 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 1:00 p.m., E.T., on the 
business day immediately following the redemption order date.
    The redemption proceeds from the Trust consist of the ``cash 
redemption amount'' and, if making an in-kind redemption, ether. The 
cash redemption amount is equal to the NAV of the number of Baskets of 
the Trust requested in the Authorized

[[Page 7895]]

Participant's redemption order as of the closing time of NYSE Arca on 
the redemption order date. The Cash Custodian will distribute the cash 
redemption amount at 4:00 p.m., E.T., on the business day immediately 
following the redemption order date through DTC to the account of the 
Authorized Participant as recorded on DTC's book-entry system. At the 
discretion of the Sponsor and if the Authorized Participant requests to 
receive ether directly, some or all of the redemption proceeds may be 
distributed to the Authorized Participant in-kind.
    The redemption proceeds due from the Trust are delivered to the 
Authorized Participant at 4:00 p.m., E.T., on the business day 
immediately following the redemption order date if, by such time on 
such business day immediately following the redemption order date, the 
Trust's DTC account has been credited with the Baskets to be redeemed. 
If the Trust's DTC account has not been credited with all of the 
Baskets to be redeemed by such time, the redemption distribution will 
be delivered to the extent of whole Baskets received. Any remainder of 
the redemption distribution is delivered on the next business day to 
the extent of remaining whole Baskets received if the Sponsor receives 
the fee applicable to the extension of the redemption distribution date 
which the Sponsor may, from time to time, determine and the remaining 
Baskets to be redeemed are credited to the Trust's DTC account by 4:00 
p.m., E.T., on such next business day. Any further outstanding amount 
of the redemption order shall be cancelled.
    To the extent that Authorized Participant places an in-kind order 
to redeem a Basket, the Ether Custodian will deliver, on the business 
day immediately following the day the redemption order is received, 
ether to the Authorized Participant in an amount equal to the number of 
ether necessary to redeemed [sic] a Basket as of 4:00 p.m., E.T.
Availability of Information
    The Trust's Web site will provide an intra-day indicative value 
(``IIV'') per Share updated every 15 seconds, as calculated by the 
Exchange or a third party financial data provider during the Exchange's 
Core Trading Session. The IIV will be calculated by using the prior 
day's closing NAV per Share as a base and updating that value during 
the NYSE Arca Core Trading Session to reflect changes in the value of 
the Trust's ether holdings during the trading day.
    The IIV disseminated during the NYSE Arca Core Trading Session 
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 NYSE Arca Core Trading Session by one or more major market 
data vendors. In addition, the IIV will be available through on-line 
information services.
    The Web site 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 day's NAV and the reported closing 
price; (b) the mid-point of the bid-ask price \16\ in relation to the 
NAV as of the time the NAV is calculated (``Bid-Ask Price'') 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 Bid-Ask 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 Trust's holdings on a daily basis on the Trust's Web 
site. The price of ether will be made available by one or more major 
market data vendors, updated at least every 15 seconds during the 
Exchange's Core Trading Session.
---------------------------------------------------------------------------

    \16\ The bid-ask price of the Trust is determined using the 
highest bid and lowest offer on the Consolidated Tape as of the time 
of calculation of the closing day NAV.
---------------------------------------------------------------------------

    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. In addition, ether prices are available from automated 
quotation systems, published or other public sources or on-line 
information services. Quotation and last-sale information regarding the 
Shares will be disseminated through the facilities of the Consolidated 
Tape Association (``CTA'').
    Quotation and last sale information for ether will be widely 
disseminated through a variety of major market data vendors. The spot 
price of ether is available on a 24-hour basis from major market data 
vendors. Information relating to trading, including price and volume 
information, in ether will be available from major market data vendors 
and from the exchanges on which ether are traded. The normal trading 
hours for ether exchanges are 24-hours per day, 365-days per year.
    The Trust will provide Web site disclosure of its ether holdings 
daily. The Web site disclosure of the Trust's portfolio composition 
will occur at the same time as the disclosure by the Sponsor of the 
portfolio composition to Authorized Participants so that all market 
participants are provided portfolio composition information at the same 
time. Therefore, the same portfolio information will be provided on the 
public Web site as well as in electronic files provided to Authorized 
Participants. Accordingly, each investor will have access to the 
current portfolio composition of the Trust through the Trust's Web 
site.
Trading Rules
    The Trust will be subject to the criteria in NYSE Arca Equities 
Rule 8.201, including 8.201(e), for initial and continued listing of 
the Shares. A minimum of 100,000 Shares will be required to be 
outstanding at the start of trading. With respect to application of 
Rule 10A-3 under the Act, the Trust will rely on the exception 
contained in Rule 10A-3(c)(7). The Exchange believes that the 
anticipated minimum number of Shares outstanding at the start of 
trading is sufficient to provide adequate market liquidity.
    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. Trading in the Shares 
on the Exchange will occur in accordance with NYSE Arca Equities Rule 
7.34(a). The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions. As provided in NYSE Arca 
Equities Rule 7.6, 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 Equities Rule 8.201 sets forth certain 
restrictions on Equity Trading Permit Holders (``ETP Holders'') acting 
as registered Market Makers in the Shares to facilitate surveillance. 
Pursuant to NYSE Arca Equities Rule 8.201(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 
ether. Commentary .04 of NYSE Arca Equities Rule 6.3 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,

[[Page 7896]]

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).
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading on the Exchange in the Shares may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. In addition, 
trading in Shares will be subject to trading halts caused by 
extraordinary market volatility pursuant to the Exchange's ``circuit 
breaker''rule.\17\
---------------------------------------------------------------------------

    \17\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

    The Exchange will halt trading in the Shares if the NAV of the 
Trust is not calculated or disseminated daily. The Exchange may halt 
trading during the day in which an interruption occurs to the 
dissemination of the IIV. If the interruption to the dissemination of 
the IIV persists past the trading day in which it occurs, 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.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances administered by the Exchange, as 
well as cross-market surveillances administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\18\ 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.
---------------------------------------------------------------------------

    \18\ FINRA conducts cross market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    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 members of the Intermarket 
Surveillance Group (``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'').\19\
---------------------------------------------------------------------------

    \19\ For the list of current members of ISG, see https://www.isgportal.org/home.html.
---------------------------------------------------------------------------

    Also, pursuant to NYSE Arca Equities Rule 8.201(g), the Exchange is 
able to obtain information regarding trading in the Shares and the 
underlying ether 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.
    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 
(i) the description of the portfolio and (ii) limitations on portfolio 
holdings or reference assets 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 Fund 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 Fund is not in compliance with the applicable 
listing requirements, the Exchange will commence delisting procedures 
under NYSE Arca Equities Rule 5.5(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 procedures for purchases and redemptions of Shares in Baskets 
(including noting that the Shares are not individually redeemable); (2) 
NYSE Arca Equities Rule 9.2(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; (3) how [sic] information 
regarding how GDAX Price and the IIV are disseminated; (4) the 
requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (5) the possibility that trading spreads 
and the resulting premium or discount on the Shares may widen during 
the Opening and Late Trading Sessions, when an updated IIV will not be 
calculated or publicly disseminated; and (6) trading information.
    In addition, the Information Bulletin will reference that the Trust 
is subject to various fees and expenses as described in the 
Registration Statement. The Information Bulletin will disclose that 
information about the Shares of the Trust is publicly available on the 
Trust's Web site.
    The Information Bulletin will also discuss any relief, if granted, 
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \20\ 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.201. 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

[[Page 7897]]

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. In addition, the Exchange may obtain 
information regarding trading in the Shares from markets that are 
members of ISG or with which the Exchange has in place a CSSA. Also, 
pursuant to NYSE Arca Equities Rule 8.201(g), the Exchange is able to 
obtain information regarding trading in the Shares and the underlying 
ether 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.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that there is a considerable amount of ether price and ether market 
information available on public Web sites and through professional and 
subscription services. Investors may obtain on a 24-hour basis ether 
pricing information based on the spot price for ether from various 
financial information service providers. The closing price and 
settlement prices of ether are readily available from the Ether 
Exchanges and other publicly available Web sites. In addition, such 
prices are published in public sources or on-line information services. 
The Trust will provide Web site disclosure of its ether holdings daily.
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the CTA. The IIV will be widely 
disseminated on a per Share basis every 15 seconds during the NYSE Arca 
Core Trading Session by one or more major market data vendors. In 
addition, the IIV will be available through on-line information 
services. The Exchange represents that the Exchange may halt trading 
during the day in which an interruption to the dissemination of the IIV 
occurs. If the interruption to the dissemination of the IIV 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. The NAV 
per Share will be calculated daily and made available to all market 
participants at the same time. One or more major market data vendors 
will disseminate for the Trust on a daily basis information with 
respect to the recent NAV per Share and Shares outstanding.
    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 
an additional type of exchange-traded product 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 relating to trading in the Shares and may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a CSSA. In addition, as noted above, 
investors will have ready access to information regarding the Trust's 
ether holdings, IIV and quotation and last sale information for the 
Shares.

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. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of exchange-traded product, and the first such product 
based on ether, which will enhance competition among market 
participants, to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule 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 
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 self-regulatory organization 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 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 email to [email protected]. Please include 
File Number SR-NYSEARCA-2016-176 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.

All submissions should refer to File Number SR-NYSEARCA-2016-176. 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 Web site (http://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 Web site 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 will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEARCA-2016-176 and should 
be submitted on or before February 13, 2017.


[[Page 7898]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01296 Filed 1-19-17; 8:45 am]
BILLING CODE 8011-01-P
7892 Federal Register / Vol. 82, No. 13 / Monday, January 23, 2017 / Notices

currently supported by many of the owner is rewarded with ether.8 The end-user-to-end-user transactions under
same online exchanges and the same Ethereum Blockchain includes all a barter system.10 An ether private key
infrastructure that has developed blocks that have been solved by miners controls the transfer or ‘‘spending’’ of
around the bitcoin network. Users who and is updated to include new blocks as ether from its associated public ether
have historically purchased bitcoin on they are solved. As each newly solved address. An ether ‘‘wallet’’ is a
online exchange platforms can now buy block refers back to and connects with collection of private keys and their
ether on these Web sites. Ether can be the immediately prior solved block, the associated public ether addresses.
converted to fiat currencies, such as the addition of a new block adds to the According to the Registration
U.S. dollar, or to bitcoin, at rates Ethereum Blockchain in a manner Statement, while the bitcoin network
determined on ether exchanges or in similar to a new link being added to a permits users primarily to execute value
chain. Each new block records transfers, the Ethereum Network allows
individual end-user-to-end-user
outstanding ether transactions, and users to program any arbitrary code and
transactions under a barter system. Each
outstanding transactions are settled and execute it, including value transfers.
ether transaction is broadcast to the Accordingly, the Ethereum Network
validated through such recording.
Ethereum Network and recorded in the may be viewed as a global,
Therefore, the Ethereum Blockchain
Ethereum Blockchain. represents a complete, transparent and decentralized computer in comparison
According to the Registration unbroken history of all transactions of to the bitcoin network, which is more
Statement, unlike bitcoin, which has a the Ethereum Network. similar to a global, decentralized
fixed limit of 21,000,000 bitcoin, no According to the Registration payment network. In addition to value
limit has been established on the total Statement, in June 2016, the DAO, a transfers, the Ethereum Network enables
supply of ether. The initial creation of decentralized autonomous organization decentralized business logic, known as
ether was in connection with a crowd using the Ethereum Network, was ‘‘smart contracts.’’ A smart contract is a
funding transaction in 2014 in which hacked, resulting in a loss to that collection of code (its functions) and
60,000,000 ether were pre-sold. Another organization of approximately 3.6 data (its state) that resides at a specific
12,000,000 ether were created for the million ether. In response to this loss, address on the Ethereum Blockchain.
benefit of a development fund. All the Ethereum community agreed to Smart contracts can interact with other
additional ether have been and will be create a new ‘‘hard fork’’ on the contracts, make decisions, store data
created through the ‘‘mining’’ process Ethereum Blockchain which returned and send ether to others. Smart
(see ‘‘Ether Blockchain’’ below). the lost ether to the DAO. A hard fork contracts are capable of automatically
is a change to the underlying Ethereum enforcing the terms of a given agreement
According to the terms of the 2014
protocol, which creates new rules for among a number of parties. This code
presale, the issuance of ether from
the Ethereum system; all Ethereum can define strict rules and consequences
mining is capped at 18,000,000 ether clients needed to upgrade, otherwise in the same way that a traditional legal
per year. According to the Registration they would remain on the old document would, stating the
Statement, it has been reported that blockchain. In creating the hard fork, obligations, benefits and penalties
approximately 9,700,000 million ether the intent was to have all users of the which may be due to either party in
have been created to date through the Ethereum Network migrate to the new various different circumstances. But,
mining process. fork, rendering the ether on the old unlike a traditional contract, it can also
Ethereum Blockchain blockchain held by the DAO hacker take information as an input, process
useless. However, a number of users that information through the rules set
According to the Registration have continued to develop the old out in the contract and take any actions
Statement, the Ethereum Blockchain is blockchain, now referred to as required of it as a result.
a record of every ether transaction ‘‘Ethereum Classic,’’ resulting in a
Custody of the Trust’s Ether
(including the creation or ‘‘mining’’ of separate version of ether referred to as
new ether) and every Ethereum Network ‘‘ether classic.’’ Ether classic is now According to the Registration
traded on several crypto currency Statement, the private keys that control
public address associated with a
exchanges. The Shares will provide the Trust’s ether will be secured by the
quantity of ether. A beta version of the
shareholders with exposure to the daily Ether Custodian and stored completely
live blockchain was publicly launched offline in a ‘‘cold storage’’ system. The
in July 2015, and the initial production change in the U.S. dollar price of ether,
before expenses and liabilities of the Ether Custodian’s cold storage system is
version was launched in March 2016. founded on the principles of (i) building
Trust, as measured by the GDAX Price
The Ethereum Blockchain is and not the price of ether classic.
comprised of a digital file, downloaded participants may buy, sell and trade ether. The
and stored, in whole or in part, on all Uses of Ether Blockchain largest Ether Exchanges are typically open on a 24-
hour per day, seven-days per week basis, and
Ethereum Network users’ software According to the Registration publish public market data such as transaction
programs. The Ethereum Network Statement, the Ethereum Blockchain is price and volume data. Examples of Ether
software can interpret the Ethereum a general-purpose, global blockchain Exchanges are: (i) Coinbase, a digital currency
that can govern both financial and non- wallet and platform based in San Francisco where
Blockchain to determine the exact ether merchants and consumers can transact with certain
balance, if any, of any public ether financial types of application states. digital currencies; (ii) Kraken, an online exchange
address listed in the Ethereum Ether can be used to pay for goods and based in San Francisco; (iii) Bitfinex, an online
Blockchain which has taken part in a services or can be converted to fiat exchange founded in Hong Kong; and (iv) Gemini,
currencies, such as the U.S. dollar, at a New York-based online exchange that has
mstockstill on DSK3G9T082PROD with NOTICES

transaction on the Ethereum Network. obtained a BitLicense from the New York
rates determined on ether exchanges Department of Financial Services.
Mining is the act of using a computer (‘‘Ether Exchange’’) 9 or in individual 10 Attached as Exhibit 3, Item 2 is a chart setting
to run computations designed to help forth a summary of the daily number of ether
build the next block in the Ethereum 8 Attached as Exhibit 3, Item 1 is a chart transactions (i.e., transfers of ether between parties
Blockchain. As a computer solves a illustrating the supply growth of ether during the on the Ethereum Network, which is different than
period October 2015 through October 2016. and should not be confused with ether exchange-
complex computational calculation 9 An Ether Exchange is an online marketplace traded volume) from October 2015 through October
related to the building of a block, its with a central limit order book, where market 2016.

VerDate Sep<11>2014 19:02 Jan 19, 2017 Jkt 241001 PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 E:\FR\FM\23JAN1.SGM 23JAN1
7898 Federal Register / Vol. 82, No. 13 / Monday, January 23, 2017 / Notices

For the Commission, by the Division of MSRB responded to the comments framework for municipal advisors and
Trading and Markets, pursuant to delegated received by the Commission 5 and filed their associated persons.9
authority.21 Amendment No. 1 to the proposed rule Further, and concurrent with its
Eduardo A. Aleman, change (‘‘Amendment No. 1’’).6 The efforts to develop a comprehensive
Assistant Secretary. Commission is publishing this notice to regulatory framework for municipal
[FR Doc. 2017–01296 Filed 1–19–17; 8:45 am] solicit comments on Amendment No. 1 advisors and their associated persons,
BILLING CODE 8011–01–P to the proposed rule change from the MSRB initiated a review of its rules
interested persons and is approving the and related interpretive guidance for
proposed rule change, as modified by brokers, dealers and municipal
SECURITIES AND EXCHANGE Amendment No. 1, on an accelerated securities dealers (collectively,
COMMISSION basis. ‘‘dealers’’) and municipal advisors
(municipal advisors, together with
[Release No. 34–79801; File No. SR–MSRB– II. Description of Proposed Rule Change dealers, ‘‘regulated entities’’). The
2016–15]
The proposed rule change, as MSRB initiated that review in the
Self-Regulatory Organizations; modified by Amendment No. 1, consists context of the Board’s obligation to
Municipal Securities Rulemaking of (i) proposed amendments to Rule G– protect investors, municipal entities,
Board; Notice of Filing of Amendment 10, on delivery of investor brochure, obligated persons, and the public
No. 1 and Order Granting Accelerated Rule G–8, on books and records to be interest. As part of that review, the
Approval of a Proposed Rule Change, made by brokers, dealers, and municipal MSRB solicited comments from market
as Modified by Amendment No. 1, To securities dealers and municipal participants.10 In response, market
Extend the MSRB’s Customer advisors, and Rule G–9, on preservation participants recommended that the
Complaint and Related Recordkeeping of records, and (ii) a proposed MSRB Board update Rule G–10.11 The MSRB
Rules to Municipal Advisors and To notice regarding electronic delivery and has stated that the proposed rule
Modernize Those Rules receipt of information by municipal change, as modified by Amendment No.
advisors under Rule G–32, on 1, consisting of amendments to Rule G–
January 13, 2017. disclosures in connection with primary 10 and its related recordkeeping rules,
I. Introduction offerings.7 Rules G–8 and G–9, and guidance under
Following the financial crisis of 2008, Rule G–32, is an important element of
On November 1, 2016, the Municipal Congress enacted the Dodd-Frank Wall both MSRB regulatory initiatives.12
Securities Rulemaking Board (the Street Reform and Consumer Protection To extend its customer complaint and
‘‘MSRB’’ or ‘‘Board’’) filed with the Act (the ‘‘Dodd-Frank Act’’).8 The Dodd- recordkeeping rules to municipal
Securities and Exchange Commission Frank Act amended Section 15B of the advisors and to modernize those rules,
(the ‘‘SEC’’ or ‘‘Commission’’), pursuant Exchange Act to establish a new federal the Board filed the proposed rule
to Section 19(b)(1) of the Securities regulatory regime requiring municipal change, as modified by Amendment No.
Exchange Act of 1934 (‘‘Act’’) 1 and Rule advisors to register with the 1, with the Commission. Specifically,
19b–4 thereunder,2 a proposed rule Commission, deeming them to owe a
change consisting of (i) proposed fiduciary duty to their municipal entity
9 MSRB Rule D–11 defines ‘‘associated persons’’

amendments to Rule G–10, on delivery clients and granting the MSRB
as follows:
of investor brochure, Rule G–8, on Unless the context otherwise requires or a rule of
rulemaking authority over them. The the Board otherwise specifically provides, the terms
books and records to be made by MSRB, in the exercise of that ‘‘broker,’’ ‘‘dealer,’’ ‘‘municipal securities broker,’’
brokers, dealers, and municipal rulemaking authority, has been ‘‘municipal securities dealer,’’ ‘‘bank dealer,’’ and
securities dealers and municipal developing a comprehensive regulatory ‘‘municipal advisor’’ shall refer to and include their
advisors, and Rule G–9, on preservation respective associated persons. Unless otherwise
specified, persons whose functions are solely
of records, and (ii) a proposed Board dated December 9, 2016 (the ‘‘PIABA Letter’’); clerical or ministerial shall not be considered
notice regarding electronic delivery and Susan Gaffney, Executive Director, National associated persons for purposes of the Board’s rules.
receipt of information by municipal Association of Municipal Advisors (‘‘NAMA’’), 10 MSRB Notice 2012–63, Request for Comment

advisors under Rule G–32, on dated December 12, 2016 (the ‘‘NAMA Letter’’); and on MSRB Rules and Interpretive Guidance (Dec. 18,
Leo Karwejna, Chief Compliance Officer and Cheryl 2012).
disclosures in connection with primary Maddox, General Counsel, Public Financial 11 See, e.g., Letter from David L. Cohen, Managing
offerings (collectively, the ‘‘proposed Management, Inc. and PFM Financial Advisors LLC Director and Associate General Counsel, Securities
rule change’’). The proposed rule (collectively, ‘‘PFM’’), dated December 13, 2016 (the Industry and Financial Markets Association, dated
change was published for comment in ‘‘PFM Letter’’). February 19, 2013, to Ronald W. Smith, Corporate
5 See Letter to Secretary, Commission, from
the Federal Register on November 18, Secretary, Municipal Securities Rulemaking Board
Pamela K. Ellis, Associate General Counsel, MSRB, (commenting that (i) the requirement to deliver an
2016.3 dated January 10, 2017 (the ‘‘MSRB Response investor brochure under Rule G–10 should be
The Commission received five Letter’’), available at https://www.sec.gov/ eliminated, (ii) the investor brochure is of limited
comment letters on the proposed rule comments/sr-msrb-2016-15/msrb201615-1473509- value, if any, to institutional investors as well as
130471.pdf. investors in municipal fund securities, and (iii)
change.4 On January 10, 2017, the 6 See Letter to Secretary, Commission, from
alternatively, the MSRB could accomplish the
Pamela K. Ellis, Associate General Counsel, MSRB, objective of Rule G–10 by posting the investor
21 17 CFR 200.30–3(a)(12). dated January 10, 2017, available at https:// brochure on its Web site); Letter from Gerald K.
1 15 U.S.C. 78s(b)(1). www.sec.gov/comments/sr-msrb-2016-15/ Mayfield, Senior Counsel, Wells Fargo & Company
2 17 CFR 240.19b–4. msrb201615-1473522-130450.pdf. In Amendment Law Department, dated February 19, 2013, to
3 Securities Exchange Act Release No. 79295 No. 1, the MSRB partially amended the text of the Ronald W. Smith, Corporate Secretary, Municipal
(November 14, 2016) (the ‘‘Notice of Filing’’), 81 FR proposed rule change to provide certain Securities Rulemaking Board (commenting that (i)
mstockstill on DSK3G9T082PROD with NOTICES

81837 (November 18, 2016). clarifications relating to the notifications that would the requirement to deliver an investor brochure
4 See Letters to Secretary, Commission, from Mike be provided by municipal advisors to their under Rule G–10 should be eliminated, (ii) the
Nicholas, Chief Executive Officer, Bond Dealers of municipal advisory clients and to the terms used investor brochure is of limited value, if any, to
America (‘‘BDA’’), dated December 9, 2016 (the with the recordkeeping of municipal advisory client institutional investors as well as investors in
‘‘BDA Letter’’); Matthew J. Gavaghan, Associate complaints, to extend the proposed effective date, municipal fund securities, and (iii) alternatively,
General Counsel, Janney Montgomery Scott LLC and to make other technical changes to clarify or the MSRB could accomplish the objective of Rule
(‘‘Janney’’), dated December 9, 2016 (the ‘‘Janney simplify rule text. G–10 by posting the investor brochure on its Web
7 See Notice of Filing. site).
Letter’’); Marnie Lambert, President, Public
Investors Arbitration Bar Association (‘‘PIABA’’), 8 Public Law No. 111–203, 124 Stat. 1376 (2010). 12 See Notice of Filing.

VerDate Sep<11>2014 19:02 Jan 19, 2017 Jkt 241001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 E:\FR\FM\23JAN1.SGM 23JAN1
Document Created: 2017-01-20 01:30:01
Document Modified: 2017-01-20 01:30:01
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		82 FR 7891