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MEMORANDUM TO: File No. SR-CboeBZX-2021-019 FROM: Stacia Sowerby Office of Market Supervision, Division of Trading and Markets DATE: May 19, 2021 SUBJECT: Meeting with VanEck Digital Assets, LLC and Cboe BZX Exchange, Inc. __________________________________________________________________________ On May 12, 2021, David Shillman, Molly Kim, Steve Oh, Neel Maitra, Edward Cho, Sarah Schandler, David Remus, Lauren Yates, and Stacia Sowerby from the Division of Trading and Markets; Valerie Szczepanik and Amy Starr from the Strategic Hub for Innovation and Financial Technology; Jennifer McHugh from the Division of Investment Management; Burt Porter from the Division of Economic and Risk Analysis; and Robert Walker from the Division of Examinations, participated in a meeting with the following individuals: Jan van Eck, VanEck Digital Assets, LLC Adam Phillips, VanEck Digital Assets, LLC Jonathan Simon, VanEck Digital Assets, LLC Gabor Gurbacs, VanEck Digital Assets, LLC James Kim, VanEck Digital Assets, LLC Matthew Babinsky, VanEck Digital Assets, LLC Kyle Murray, Cboe BZX Exchange, Inc. The discussion concerned Cboe BZX Exchange, Inc.’s proposed rule change to list and trade shares of the VanEck Bitcoin Trust under Cboe BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. VanEck Digital Assets, LLC also provided the attached presentation. May 12, 2021 DIGITAL ASSETS VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin ETP Approval Jan van Eck Adam Phillips Jonathan Simon Gabor Gurbacs James Kim Matthew Babinsky VanEck Overview 3 VanEck Bitcoin Trust 9 Pricing & Methodology 11 Custody and Service Providers 16 Capital Markets Mechanics 20 Appendix 21 VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin ETP Approval Mission and History vaneck.com/digital-assets VanEck’s mission is to strengthen portfolios by offering forward looking, intelligent solutions . Transformative Investments: Started offering active strategies in international equities (1955), gold shares (1968), emerging markets (1993); added passive strategies in 2006 and has emerged as top 10 ETF sponsor globally . Private Ownership: As an independent, private firm we can focus on client interests with a long-term perspective . Accessible Management: We pride ourselves on being available to clients and engaging directly with them 3 VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin ETP Approval Corporate Overview vaneck.com/digital-assets Today, VanEck manages approximately $71.2 billion in assets $0.9B $2.1B . Global headquarters in New York with robust lineups of local funds in Europe and Australia $4.4B Global and International Equity . 311 full-time staff, including 49 investment professionals; portfolio Emerging Markets Equity managers average 24 years of experience $5.5B . Institutional and wealth management clients Municipal Bonds . Active funds and smart beta ETFs have won numerous performance $5.6B Corporate Bonds awards U.S. Equity $40.3B $6.0B Emerging Markets and International Bonds $6.4B Equity Income Asset Allocation, Commodities and Digital Assets Data as of March 31, 2021. Awards received available at https://www.vaneck.com/news-and-insights/media-coverage/awards/ 4 VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin ETP Approval VanEck Digital Asset Capabilities vaneck.com/digital-assets VanEck is committed to supporting long-term, structural innovation of digital asset products and market innovation We believe: . Bitcoin is a valuable diversifying addition to investment portfolios that has historically increased risk-adjusted returns while maintaining relatively low correlation with traditional asset classes* . A professionally-managed regulated pooled investment vehicle that provides exposure to bitcoin may address risks which investors face with direct bitcoin investment, including loss of private keys, fragmented pricing and no standardized tax reporting Professional Pricing and Regulatory and Market Structure and Experience and Research and Media Indexing Institutionalization Industry Relationships Execution Capability VanEck’s subsidiary MV Index VanEck is advancing the VanEck and MVIS have access VanEck regularly publishes VanEck is experienced in Solutions (MVIS) was the first institutionalization of digital to reputable organizations professional research and successfully running an regulated index provider to offer assets by closely interfacing necessary for the operating of a actively participates in forms of efficient, regulated bitcoin ETP digital asset indices to meet with global regulators on digital pooled investment vehicle mainstream and social media in Europe. As a leading ETF industry benchmarking asset ETPs, indexing, including indexing, custodians, regarding bitcoin and other provider, VanEck trades with standards** surveillance and other traders, administration, digital assets professional market important market issues accounting and other partners participants * Source: Morningstar. Data as of 3/31/2021. ** https://www.mvis-indices.com/news/corporate-news/mvis-and-cryptocompare-launch-digital-assets-crypto-index-series-press-release 5 VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin ETP Approval Digital Assets Leadership vaneck.com/digital-assets Global scope of product and market innovation . VanEck is a leader in digital asset product construction and institutionalization . Diverse experience across various elements of the burgeoning digital asset market including indexing, product development and regulatory * The fund does not invest in cryptocurrencies directly or indirectly. 6 VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin ETP Approval Why Approve a Bitcoin ETP Now? vaneck.com/digital-assets Public Companies Buying Bitcoin on their Balance Sheets . A number of public and private companies started investing in bitcoin as an alternative to holding cash on their balance sheet. These public companies buy bitcoin on crypto exchanges as no bitcoin ETFs are available to them. Tesla, Square, MicroStrategy, Marathon Patent Group are just a few examples that amassed hundreds of millions to billions of dollars in bitcoin exposure U.S. Approved Bitcoin Product . The U.S. SEC approved a 1940 Act bitcoin interval fund that invests in bitcoin futures (NYDIG, Stone Ridge Trust VI) Public Payments Companies with Tens of Millions of Users Offer Bitcoin . Paypal launched a new service enabling bitcoin and digital asset buying and selling capability to their network. They service 26 million merchants and 346 million clients globally. SoFi, Robinhood and others offer similar solutions and banks seeking to offer bitcoin to compete with fintech offerings to serve their client-base in a regulatory-conscious way Other Developed Market Regulators Approved Bitcoin ETPs . Canada, Brazil, Germany and other nations have approved bitcoin ETPs for trading on public markets. U.S. investors are getting bitcoin fund exposure in foreign jurisdictions because regulated U.S. bitcoin ETPs are not available BTC Available via CFTC Supervised Markets . CFTC approved CME Bitcoin Futures markets are now of significant size and used for hedging OTC Traded Funds are Growing In Assets and Number . Investors are getting exposure to bitcoin through pooled investment vehicles that are traded OTC with significant premiums/discounts. Individuals, mutual funds and pension funds are forced to get access to bitcoin through these highly inefficient vehicles as regulated U.S. bitcoin ETPs are not available IPOs . Digital asset companies are increasingly going public. Investors are getting indirect exposure to digital assets in the public markets anyways 7 VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin ETP Approval Why VanEck? vaneck.com/digital-assets . VanEck has been actively engaging in dialogue with the SEC and the staff and commissioners since 2017 — We worked and engaged with regulators in Europe and Canada. Those jurisdictions approved bitcoin ETPs — VanEck has earliest current bitcoin ETP on file under consideration (VanEck S-1, CBOE 19b-4) . Experienced manager with approximately $71.2 billion in assets . We successfully offer efficient daily creation-redemption ETPs on BTC and ETH in Europe . Over $3.0 billion in exchange traded digital asset funds tracking VanEck’s MVIS indices . VanEck’s MVIS incorporates data from multiple crypto exchanges, ranked by CryptoCompare’s exchange review . Data products available to VanEck include order book, derivatives, and DeFi data via CryptoCompare . Addressed concerns in the SEC’s letter to the ICI regarding bitcoin ETPs (this presentations walks through those items) 8 VanEck Bitcoin Trust VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin ETP Approval VanEck Bitcoin Trust (U.S. Offering) Overview vaneck.com/digital-assets The VanEck Bitcoin Trust will be a 1933 Act Physical Bitcoin Trust/Bitcoin ETP registered for distribution in the United States . Will use the MVIS CryptoCompare Bitcoin Benchmark Rate . Bitcoin held will be custodied at a licensed custodian with cold-storage, operational risk management, insurance and regulatory capital . Creations and redemptions will be facilitated in-kind by professional authorized participants . Will be listed on a national securities exchange — Furthermore, CBOE has surveillance sharing agreements with a regulated market of significant size (CME) - which are components of the CME Bitcoin Futures contract and underlie our index . Negligible/ETF-like premium and discounts expected 10 VanEck – SEC Bitcoin Meeting: Discussion of U.S. Bitcoin
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