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Page1of* 50 SECURITIESANDEXCHANGECOMMISSION FileNo.*SR-2018 -* 02
WASHINGTON,D.C. 20549
Form19b-4 AmendmentNo.(req.forAmendments*)
Filingby NYSEArca,Inc.
PursuanttoRule19b-4undertheSecuritiesExchangeActof1934
Initial* Amendment* Withdrawal Section19(b)(2)* Section19(b)(3)(A)* Section19(b)(3)(B)*
Rule
Pilot ExtensionofTimePeriod DateExpires* 19b-4(f)(1) 19b-4(f)(4)
forCommissionAction* 19b-4(f)(2) 19b-4(f)(5)
19b-4(f)(3) 19b-4(f)(6)
NoticeofproposedchangepursuanttothePayment,Clearing,andSettlementActof2010 Security-BasedSwapSubmissionpursuant
totheSecuritiesExchangeActof1934
Section806(e)(1)* Section806(e)(2)* Section3C(b)(2)*
Exhibit2SentAsPaperDocument Exhibit3SentAsPaperDocument
Description
Provideabriefdescriptionoftheaction(limit250characters,requiredwhenInitialischecked*).
ProposaltolistandtradethesharesoftheDirexionDailyBitcoinBear1XShares,DirexionDailyBitcoin1.25XBull
Shares,DirexionDailyBitcoin1.5XBullShares,DirexionDailyBitcoin2XBullSharesandDirexionDailyBitcoin2X
BearSharesunderNYSEArcaRule8.200-E
ContactInformation
Providethename,telephonenumber,ande-mailaddressofthepersononthestaffoftheself-regulatoryorganization
preparedtorespondtoquestionsandcommentsontheaction.
FirstName*Eugene LastName*Schlanger
Title* CounselNYSEGroupInc
E-mail* [email protected]
Telephone* [phone] Fax [phone]
Signature
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,
hasdulycausedthisfilingtobesignedonitsbehalfbytheundersignedthereuntodulyauthorized.
(Title*)
Date 01/04/2018 AssistantSecretary
By MarthaRedding
(Name*)
NOTE:Clickingthebuttonatrightwilldigitallysignandlock MarthaRedding,[email protected]
thisform. Adigitalsignatureisaslegallybindingasaphysical
signature,andoncesigned,thisformcannotbechanged.
Requiredfieldsareshownwithyellowbackgroundsandasterisks.
SECURITIESANDEXCHANGECOMMISSION
WASHINGTON,D.C. 20549
ForcompleteForm19b-4instructionspleaserefertotheEFFSwebsite.
Theself-regulatoryorganizationmustprovideallrequiredinformation,presentedina
Form19b-4Information*
clearandcomprehensiblemanner,toenablethepublictoprovidemeaningful
commentontheproposalandfortheCommissiontodeterminewhethertheproposal
Add Remove View isconsistentwiththeActandapplicablerulesandregulationsundertheAct.
TheNoticesectionofthisForm19b-4mustcomplywiththeguidelinesforpublication
Exhibit1-NoticeofProposedRuleChange* intheFederalRegisteraswellasanyrequirementsforelectronicfilingaspublished
bytheCommission(ifapplicable). TheOfficeoftheFederalRegister(OFR)offers
guidanceonFederalRegisterpublicationrequirementsintheFederalRegister
Add Remove View DocumentDraftingHandbook,October1998Revision. Forexample,allreferencesto
thefederalsecuritieslawsmustincludethecorrespondingcitetotheUnitedStates
Codeinafootnote. AllreferencestoSECrulesmustincludethecorrespondingcite
totheCodeofFederalRegulationsinafootnote. AllreferencestoSecurities
ExchangeActReleasesmustincludethereleasenumber,releasedate,Federal
Registercite,FederalRegisterdate,andcorrespondingfilenumber(e.g.,SR-[SRO]
-xx-xx). Amaterialfailuretocomplywiththeseguidelineswillresultintheproposed
rulechangebeingdeemednotproperlyfiled. SeealsoRule0-3undertheAct(17
CFR240.0-3)
Exhibit1A-NoticeofProposedRule TheNoticesectionofthisForm19b-4mustcomplywiththeguidelinesforpublication
Change,Security-BasedSwapSubmission, intheFederalRegisteraswellasanyrequirementsforelectronicfilingaspublished
bytheCommission(ifapplicable). TheOfficeoftheFederalRegister(OFR)offers
orAdvanceNoticebyClearingAgencies*
guidanceonFederalRegisterpublicationrequirementsintheFederalRegister
DocumentDraftingHandbook,October1998Revision.Forexample,allreferencesto
Add Remove View thefederalsecuritieslawsmustincludethecorrespondingcitetotheUnitedStates
Codeinafootnote. AllreferencestoSECrulesmustincludethecorrespondingcite
totheCodeofFederalRegulationsinafootnote. AllreferencestoSecurities
ExchangeActReleasesmustincludethereleasenumber,releasedate,Federal
Registercite,FederalRegisterdate,andcorrespondingfilenumber(e.g.,SR-[SRO]
-xx-xx).Amaterialfailuretocomplywiththeseguidelineswillresultintheproposed
rulechange,security-basedswapsubmission,oradvancenoticebeingdeemednot
properlyfiled. SeealsoRule0-3undertheAct(17CFR240.0-3)
Exhibit2-Notices,WrittenComments,
Copiesofnotices,writtencomments,transcripts,othercommunications. Ifsuch
Transcripts,OtherCommunications documentscannotbefiledelectronicallyinaccordancewithInstructionF,theyshallbe
filedinaccordancewithInstructionG.
Add Remove View
ExhibitSentAsPaperDocument
Exhibit3-Form,Report,orQuestionnaire
Copiesofanyform,report,orquestionnairethattheself-regulatoryorganization
proposestousetohelpimplementoroperatetheproposedrulechange,orthatis
Add Remove View
referredtobytheproposedrulechange.
ExhibitSentAsPaperDocument
Exhibit4-MarkedCopies Thefulltextshallbemarked,inanyconvenientmanner,toindicateadditionstoand
deletionsfromtheimmediatelyprecedingfiling. ThepurposeofExhibit4istopermit
Add Remove View
thestafftoidentifyimmediatelythechangesmadefromthetextoftherulewithwhich
ithasbeenworking.
Exhibit5-ProposedRuleText Theself-regulatoryorganizationmaychoosetoattachasExhibit5proposedchanges
toruletextinplaceofprovidingitinItemIandwhichmayotherwisebemoreeasily
Add Remove View readableifprovidedseparatelyfromForm19b-4. Exhibit5shallbeconsideredpart
oftheproposedrulechange.
Iftheself-regulatoryorganizationisamendingonlypartofthetextofalengthy
PartialAmendment proposedrulechange,itmay,withtheCommission'spermission,fileonlythose
portionsofthetextoftheproposedrulechangeinwhichchangesarebeingmadeif
Add Remove View thefiling(i.e.partialamendment)isclearlyunderstandableonitsface. Suchpartial
amendmentshallbeclearlyidentifiedandmarkedtoshowdeletionsandadditions.
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1. Text oftheProposedRuleChange
(a) Pursuant totheprovisions ofSection19(b)(1)oftheSecurities Exchange
Act of1934(“Act”),1 andRule19b-4thereunder,2 NYSEArca, Inc.
(“NYSEArca”orthe“Exchange”),proposes tolist andtradetheshares of
thefollowingunderNYSEArcaRule8.200-E,Commentary.02 (“Trust
Issued Receipts”): DirexionDailyBitcoinBear1XShares, Direxion
DailyBitcoin1.25X Bull Shares, DirexionDailyBitcoin1.5XBull
Shares, DirexionDailyBitcoin2XBull Shares andDirexionDailyBitcoin
2XBearShares.
Anoticeoftheproposed rulechangeforpublicationintheFederal
Registeris attachedheretoas Exhibit 1.
(b) TheExchangedoes not believethat theproposedrulechange will have
anydirect effect,oranysignificant indirect effect, onanyotherExchange
ruleineffect at thetime ofthis filing.
(c) Not applicable.
2. Procedures oftheSelf-RegulatoryOrganization
Seniormanagement has approvedtheproposedrulechangepursuant toauthority
delegatedtoit bytheboardoftheExchange.No furtheractionis required under
theExchange’s governingdocuments. Therefore, theExchange’s internal
procedures withrespect totheproposedrule change are complete.
Theperson ontheExchangestaffpreparedtorespondtoquestions andcomments
ontheproposedrule changeis:
EugeneSchlanger
Counsel
NYSEGroup, Inc.
[phone]
3. Self-RegulatoryOrganization’s Statement ofthe Purposeof,andStatutoryBasis
for,theProposedRuleChange
(a) Purpose
TheExchangeproposes tolist andtradeshares (“Shares”)ofthefollowingunder
NYSEArcaRule8.200-E,Commentary.02,whichgoverns thelistingandtrading
ofTrust IssuedReceipts: TheDirexionDailyBitcoinBear1XShares (the “1X
1 15U.S.C.78s(b)(1).
2 17CFR 240.19b-4.
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BearFund”),the DirexionDailyBitcoin1.25X Bull Shares (the“1.25X Bull
Fund”),theDirexionDailyBitcoin1.5X Bull Shares (the“1.5XBull Fund”),the
DirexionDailyBitcoin2XBull Shares (the“2X Bull Fund”)andtheDirexion
DailyBitcoin2X BearShares (the “2X BearShares”)(each a“Fund” and,
collectively,the“Funds”).3
EachFundis aseries oftheDirexionShares ETFTrust II(the“Trust”),a
Delawarestatutorytrust.4 TheTrust andthe Funds aremanagedand controlled
byDirexionAssetManagement,LLC (the“Sponsor”). TheSponsoris registered
as acommoditypool operator(“CPO”)withtheCommodityFutures Trading
Commission(“CFTC”)andis amemberoftheNational Futures Association
(“NFA”).
Inits capacityas theCustodianfortheFunds, BankofNewYorkMellon
(“BNYM”orthe“Custodian”)mayholdthe Funds’investment assets and cash
andcash equivalents pursuant toacustodianagreement. TheCustodianis also
thetransferagent forthe Funds. Inaddition,inits capacityas Administratorfor
theFunds, U.S.Bancorp FundServices, LLC (the “Administrator”)prepares and
files certain regulatoryfilings onbehalfofthe Funds.
3 Commentary.02toNYSEArcaRule8.200-Eapplies toTrust IssuedReceipts
that invest in“Financial Instruments.” Theterm “Financial Instruments,”as
definedinCommentary.02(b)(4)toNYSEArca Rule8.200-E,means any
combinationofinvestments, includingcash; securities; options onsecurities and
indices; futures contracts; options onfutures contracts; forwardcontracts; equity
caps, collars, andfloors; andswapagreements.
4 TheTrust is registeredundertheSecurities Act of 1933. OnDecember15, 2017,
theTrust submittedtotheSecurities andExchangeCommission(“Commission”)
its draft registrationstatement onForm S-1(the“RegistrationStatement”) under
theSecurities Act of1933(15U.S.C.77a)(“Securities Act”). TheJumpstart Our
Business Startups Act,enactedonApril 5,2012,addedSection6(e)tothe
Securities Act. Section6(e)oftheSecurities Act provides that an“emerging
growthcompany”mayconfidentiallysubmit totheCommissionadraft
registrationstatement for confidential,non-public reviewbytheCommissionstaff
priortopublicfiling,providedthat theinitial confidential submissionandall
amendments theretoshall bepubliclyfilednot laterthan21days beforethe date
onwhichtheissuerconducts aroadshow, as such term is definedinSecurities
Act Rule433(h)(4). An emerginggrowthcompanyis definedinSection2(a)(19)
oftheSecurities Act as anissuerwithless than$1,000,000,000total annual gross
revenues duringits mostrecentlycompletedfiscal year. TheTrust meets the
definitionofanemerginggrowthcompanyand consequentlyhas submittedits
Form S-1RegistrationStatement onaconfidential basis withtheCommission.
ThedescriptionoftheoperationoftheTrust andtheFunds hereinis based, in
part,ontheRegistration Statement.
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Foreside FundServices, LLC serves as thedistributoroftheShares (the
“Distributor”).
Investment Objectives of theFunds
AccordingtotheRegistrationStatement,theFunds will offerinvestors the
opportunitytoobtaindailyshort,leveragedlongorleveragedshort exposureto
theleadmonthbitcoinfutures contract tradedontheChicagoMercantile
Exchange (“CME”)oronCboeGlobal Markets, Inc.(“CBOE”) oronanyother
U.S.exchangethat subsequentlytrades bitcoinfutures contracts (the“Bitcoin
Futures Contract”),thetarget benchmarkbeforefees andexpenses.5 Thetarget
benchmark’s valuewill becalculatedas thelast salepricepublishedbythe CME
ortheCBOE,6 oranyotherU.S.exchangethat subsequentlytrades bitcoinfutures
contracts onorbefore11:00a.m.E.T.(the“DailyLast Sale Value”)forthe
BitcoinFutures Contract andmayreflect trades occurringandpublishedbythe
CMEand/orCBOEor anotherU.S.exchangethat subsequentlytrades bitcoin
futures contracts outside thenormal tradingsessionforthe BitcoinFutures
Contract.7
5 Afutures contract is astandardizedcontract traded on,andsubject totherules of,
anexchangethat calls for thefuturedeliveryofaspecifiedquantityandtypeofa
commodityat aspecified timeandplace. Bitcoin Futures Contracts will becash-
settled. The“lead month”contract is themonthlycontract withtheearliest
expirationdate.
6 TheCME andCBOE are registeredwiththeCFTC andseektoprovideaneutral,
regulatedmarketplaceforthetradingofderivatives contracts for commodities,
suchas futures, options andcertainswaps. BoththeCMEandCBOE are
members ofthe Intermarket SurveillanceGroup(“ISG”). Seeftnt.18,infra. The
CMEannouncedthat its bitcoinfutures contracts werescheduledtobegintrading
onDecember18,2017,andbegantradingonthat date. See“CMEGroup Self-
Certifies BitcoinFutures to LaunchDec.18,”December1,2017,available at
http://www.cmegroup.com/media-room/press-
releases/2017/12/01/cme_group_self-certifiesbitcoinfuturestolaunchdec18.html.
CBOEannouncedthat thebitcoinfutures contracts onits subsidiaryCboe Futures
Exchange arescheduledtobegintradingon December10,2017,andbegan
tradingonthat date. See “CboePlans December10 Launchof BitcoinFutures
Trading,”December4,2017,availableat http://ir.cboe.com/press-
releases/2017/12-04-2017. Seealso “CFTC Statement onSelf-Certificationof
BitcoinProducts byCME,CFEandCantorExchange,”datedDecember1,2017
(“CFTC Release”), availableat
http://www.cftc.gov/PressRoom/PressReleases/pr7654-17.
7 Thoughthis timemayvaryduetodifferences inwhendaylight savings timeis
effectivebetween LondonandNewYork,11:00a.m.E.T.will govern.
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EachFundwill seekdailycorrelationtothetarget benchmark andshouldnot be
expectedtotracktheperformanceofthetarget benchmarkfor anyperiodlonger
thanonebusiness day. Additionally, whileeachFundwill seekdailycorrelation
tothetarget benchmark, it shouldnot beexpectedtotrackdollarfordollar the
spot priceofbitcoinbecausetheFundwill invest inBitcoinFutures Contracts
ratherthandirectlyinbitcoin,andthespot price movements ofbitcoinmaynot
correspond directlytopricemovements ofthe BitcoinFutures Contracts. In this
regard,theFunds expect thenotional valueofthe BitcoinFutures Contracts held
bya Fundtoequal thetarget exposureforsuch Fund(i.e.125%,150%, etc.).
EachFundwill seektoengageindailyrebalancingtopositionits portfolioso that
its exposuretothetarget benchmarkis consistent withits dailyinvestment
objective. Theimpact of thetarget benchmark’s movements duringthedaywill
affect whethera Fund’s portfolioneeds toberepositioned.8
As describedbelow,undernormal market conditions, each Fundintends toobtain
exposuretoits target benchmarkbyinvestingintheBitcoinFutures Contract
tradedintheU.S.,swaps ontheBitcoinFutures Contract orlistedoptions on
bitcoinorBitcoinFutures Contracts (together,“BitcoinFinancial Instruments”).9
TheFunds’investments inBitcoinFinancial Instruments areusedtoproduce
economically“leveraged”or“inverseleveraged”investment results forthe Funds.
Anyremainingassets will beinvestedincash or cash equivalents.
Investment Objectives of the Leveraged Bull Funds
AccordingtotheRegistrationStatement,the1.25XBull Fund,1.5X Bull Fund
and2XBull Fund(each a“Bull Fund”and collectively,the “Bull Funds”) seeks
dailyleveragedinvestment results (beforefees andexpenses)that correlate
positivelyto either125%,150%or200%thedailyreturnofthetarget benchmark.
TheBull Funds donot seektoachievetheirinvestment objectiveover aperiod
greaterthanasingletradingday.10 Ifa Bull Fundis successful inmeetingits
8 Dailyrebalancingandthecompoundingofeachday’s returnovertimemeans that
thereturnof each Fundforaperiodlongerthana singletradingdaywill be the
result ofeachday’s returns compoundedoverthe period,whichwill verylikely
differfrom eitherthemultiple,inversemultipleorinverse,as applicable,of the
returnofthetarget benchmarkforthe Funds forthesameperiod.
9 Theterm “normal market conditions”includes, but is not limitedto,theabsence
oftradinghalts intheapplicablefinancial markets generally; operational issues
(e.g.,systems failure)causingdisseminationofinaccuratemarket information; or
forcemajeuretypeevents suchas natural ormanmadedisaster,act ofGod,armed
conflict,act ofterrorism, riot orlabordisruptionor anysimilarintervening
circumstance.
10 A“single tradingday” is measuredfrom thetimea Fundcalculates its Net Asset
Value(“NAV”)tothetimeofaFund’s next NAVcalculation. See also, Net
Asset Value,infra.
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objective,its valueona givenday(before fees and expenses)shouldgain
approximately1.25times, 1.5times or2times, as applicable,as muchon a
percentagebasis as thelevel ofits target benchmarkwhenthetarget benchmark
rises. Conversely,its valueona givenday(before fees and expenses)shouldlose
approximately1.25times, 1.5times or2times, as applicable,as muchon a
percentagebasis as thelevel ofthetarget benchmarkwhenthebenchmark
declines. EachBull Fundacquires longexposure throughanyoneof,or
combinations of,Bitcoin Financial Instruments, includingBitcoinFinancial
Instruments withrespect tothetarget benchmark, suchthat each Bull Fund has
exposureintendedtoapproximateeither125%,150%or200%,as applicable,of
thetarget benchmarkat thetimeofits NAVcalculation.
Investment Objectiveofthe2XBear Fund
The2XBear Fundseeks dailyleveragedinverseinvestment results (before fees
andexpenses)that correlatetotwotimes theinverse(-200%)ofthedailyreturn
ofthetarget benchmark. The2XBear Funddoes not seektoachieveits
investment objectiveoveraperiod greaterthanasingletradingday. Ifthe 2X
BearFundis successful inmeetingits investment objective,its valueona given
day(beforefees and expenses)should gainapproximatelytwotimes as muchona
percentagebasis as thelevel ofthetarget benchmarkwhenthetarget benchmark
declines. Conversely,its valueona givenday(beforefees and expenses)should
loseapproximatelytwotimes as muchonapercentagebasis as thelevel of the
target benchmarkwhenthetarget benchmark rises. The2XBear Fundacquires
short exposurethrough anyone,orcombinations of,BitcoinFinancial
Instruments, includingBitcoinFinancial Instruments withrespect tothetarget
benchmark,suchthat the 2XBull Fundhas exposureintendedtoapproximatetwo
times theinverse(-200%)ofits target benchmark at thetimeofits NAV
calculation.
Investment Objectiveofthe1XBear Fund
The1XBear Fundseeks dailyinvestment results (before fees andexpenses)that
correlatetotheinverse (-100%)ofthedailyreturn ofthetarget benchmark. The
1XBear Funddoes not seektoachieveits investment objectiveover aperiod
greaterthanasingletradingday. Ifthe1X Bear Fundis successful inmeetingits
investment objective,its valueona givenday(beforefees andexpenses)should
gain approximatelyas muchonapercentagebasis as thelevel ofthetarget
benchmarkwhenthetarget benchmarkdeclines. Conversely,its valueon agiven
day(beforefees and expenses)shouldloseapproximatelyas muchon a
percentagebasis as thelevel ofits target benchmarkwhenthetarget benchmark
rises. The1X BearFund acquires short exposurethrough anyoneof,or
combinations of,Bitcoin Financial Instruments, includingBitcoinFinancial
Instruments withrespect tothetarget benchmark, suchthat the1XBull Fundhas
exposureintendedtoapproximatelyequal theinverse(-100%)ofits target
benchmark at thetimeof its NAVcalculation.
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Principal Investment Strategies
AccordingtotheRegistrationStatement,inseekingtoachieve each Fund’s daily
investment objective,the Sponsorwill usestatistical andquantitativeanalysis to
determinetheinvestments each Fundmakes andthetechniques it employs. Using
this approach,theSponsordetermines thetype,quantityandmix ofinvestment
positions that theSponsorbelieves incombination shouldproducedailyreturns
consistent withaFund’s investment objective. TheSponsorrelies uponapre-
determinedmodel to generateorders that result inrepositioningeach Fund’s
investments inaccordancewithits dailyinvestment objective. As aconsequence,
ifaFundis performingas designed,thereturnofthetarget benchmark will
dictatethereturn forthat Fund. EachFundpursues its investment objective
regardless ofthemarket conditions anddoes not takedefensivepositions.
EachFund,undernormal market conditions, will seektoachieveits daily
investment objectivebyinvestinginBitcoin Financial Instruments. AFund may
invest inlistedoptions onbitcoinandBitcoinFutures Contracts andswaps on
BitcoinFutures Contracts inamannerconsistent withits investment objectivein
situations wheretheSponsorbelieves that investinginsuchfinancial instruments
is inthebest interests ofaFund. In addition,aFundmayinvest inswap contracts
referencingBitcoinFutures Contracts ifthemarket foraspecificbitcoinfutures
contract experiences emergencies orifpositionpriceoraccountabilitylimits (if
any) arereachedwithrespect toanyBitcoin Futures Contracts. At thecloseof
theU.S.equitymarkets eachtradingday, eachFundwill positionits portfolioto
ensurethat the Fund’s exposuretothetarget benchmarkis consistent withthe
Fund’s investment objective. Theimpact ofmarket movements duringthe day
will determinewhethera portfolioneeds toberepositioned.
AccordingtotheRegistrationStatement,withfutures contracts, thereis minimal
but somecounterpartyrisk totheFunds sincefutures contracts are exchange
tradedandthe exchange’s clearinghouse, as counterpartytoall exchange-traded
futures contracts, effectivelyguarantees futures contracts against default. Many
futures exchanges andboards oftradelimit theamount offluctuationpermittedin
futures contract prices duringasingletradingday. Oncethedailylimit has been
reachedinaparticular contract,notrades maybe madethat dayat a price beyond
that limit ortradingmaybesuspendedforspecifiedtimes duringthetradingday.
AccordingtotheRegistrationStatement,withrespect totheBitcoin Futures
Contracts, as thefutures contracts heldbythe Funds nearexpiration,theFunds do
not intendtoholdfutures contracts throughexpiration,but insteadto“roll”their
respectivepositions. Whenthemarket forthese contracts is suchthat theprices
arehigherinthemoredistant deliverymonths thaninthenearerdeliverymonths,
thesaleduringthecourse ofthe“rollingprocess” ofthemorenearbycontract
wouldtakeplaceat apricethat is lowerthanthe priceofthemoredistant
contract. This patternof higher futures prices forlongerexpirationfutures
contracts is oftenreferredtoas “contango.” Alternatively,whenthemarket for
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thesecontracts is suchthat theprices arehigherin thenearermonths thaninthe
moredistant months, thesaleduringthecourseof the“rollingprocess”ofthe
morenearbycontract wouldtakeplace at apricethat is higherthanthepriceof
themoredistant contract. This patternofhigher futures prices forshorter
expirationfutures contracts is referredtoas “backwardation.” Thepresenceof
contangoincertainfutures contracts at thetimeofrollingwouldbe expectedto
adverselyaffect the Funds withlongpositions, andpositivelyaffect the Funds
withshort positions. Similarly,thepresenceofbackwardationincertainfutures
contracts at thetimeof rollingsuchcontracts wouldbeexpectedtoadversely
affect theFunds withshort positions andpositivelyaffect theFunds withlong
positions.
Toreducethecredit risk that arises inconnectionwithswaps, aFund will
generallyenterintoanagreement witheachcounterpartybasedontheMaster
Agreement publishedbythe International Swaps andDerivatives Association,
Inc.11
Assets ofeachFundnot investedintheBitcoin Financial Instruments will beheld
incash orinvestedincashequivalents suchas U.S.TreasurySecurities or other
highcredit qualityshort- term fixed-incomeorsimilarsecurities (includingshares
ofmoneymarket funds, bankdeposits, bankmoneymarket accounts, certain
variablerate-demandnotes andrepurchaseagreements collateralizedby
government securities)(collectively”MoneyMarket Investments”)that serveas
collateral for,orpendinginvestments in,theFunds’investments.
Inthe future,the Funds will disclosecertaininformationrelatingtomargin levels
heldat theFCM basedonhoweach Fundwill be managed. Whiletheportfolio
compositionmayvaryovertime,it is not expectedthat anyFundwill ever have
futures exposure greaterthan300%of Fundassets. Thusthemaximum margin
heldat anFCM wouldnot exceedthreetimes the margin requirement.
OverviewofBitcoin
AccordingtotheRegistrationStatement,Bitcoinis adigital asset that is not
issuedbyanygovernment,bankororganization. Bitcoinis adigital asset based
11 TheSponsoronbehalfof thecorrespondingFund intends toenterintoOTC
swaps onlywithcounterparties whoare,or are affiliates of,(a)banks regulatedby
afederal bank regulator, (b)broker-dealers regulatedbytheCommission,(c)
insurance companies domiciledintheU.S.,and(d)producers, users ortraders of
anunderlyingcommodityor currency,whetheror not regulatedbytheCFTC.
Anyentityactingas acounterpartymust also beregulatedineitherthe U.S.orthe
U.K.unless otherwise approvedbytheSponsor. AFundwill also require that the
counterpartybehighlyratedand/orprovide collateral orothercredit support. The
Sponsoralso assesses or reviews, as appropriate,thecreditworthiness ofeach
potential orexistingcounterpartypursuant toestablishedguidelines.
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onthedecentralized,opensourceprotocol ofthe peer-to-peerbitcoincomputer
network(the “BitcoinNetwork”). Nosingle entityowns oroperates the Bitcoin
Network; theinfrastructureis collectivelymaintainedbyadecentralizeduser
base. The BitcoinNetworkis accessedthroughsoftware, andsoftware governs
bitcoin’s creation,movement,andownership. Thevalueofbitcoinis determined
bythesupplyanddemandforbitcoinonwebsites that facilitatethetransfer of
bitcoininexchangefor government-issuedcurrencies (“BitcoinExchanges”),and
inprivateend-user-to-end-usertransactions.
Bitcointransactions and ownershiprecords arereflectedonthe“Blockchain”,
whichis adigital publicrecordorledger. Copies ofthis ledgerarestoredina
decentralizedmanneron thecomputers ofeach BitcoinNetworkuser.
Transactiondateis permanentlyrecordedinfiles called“blocks,”whichreflect
transactions that havebeenrecorded andauthenticatedbyBitcoinNetwork
participants. The BitcoinNetworksoftwaresourcecodes includes protocols that
governthecreationofbitcoinandthecryptographicsystem that secures and
verifies Bitcointransactions.
OverviewofBitcoin Futures Contracts
AccordingtotheRegistrationStatement,unlikethefutures markets fortraditional
physical commodities, themarket forexchange-tradedbitcoinfutures contract has
limitedtradinghistoryandoperational experience andmayberiskier,less liquid,
morevolatileandmorevulnerabletoeconomic,market andindustrychanges than
moreestablishedfutures markets. Theliquidityof themarket will dependon,
amongotherthings, the adoptionofbitcoinandthecommercial andspeculative
interest inthemarket for theabilitytohedge against thepriceofbitcoinwith
exchange-tradedbitcoinfutures contracts.
TheCFTC has notedthat theU.S.futures exchanges that will tradebitcoinfutures
haveagreedtosignificant enhancements toprotect customers andmaintain
orderlymarkets, andannouncedits expectationthat futures exchanges that list and
tradebitcoinfutures contracts will,throughinformationsharingagreements,
monitorthetradingactivityontherelevant cash platforms forpotential impacts
onthepricediscoveryprocess forbitcoinfutures contracts, includingpotential
market manipulationand market dislocations due toflash rallies andcrashes and
tradingoutages.12
Net Asset Value
AccordingtotheRegistrationStatement,theNAVperShareofeach Fundis
computedbydividingthevalueofthenet assets ofsuchFund (i.e.,thevalueofits
total assets less total liabilities)byits total numberofShares outstanding.
Expenses andfees are accrueddailyandtakenintoaccount forpurposes of
determiningNAV. Each Fund’s NAVis calculatedoneachbusiness daythat the
12 SeeCFTC Release,supra,ftnt.6.