Nasdaq files proposal seeking SEC rule change to allow spot Ethereum ETF

Nas­daq filed a pro­pos­al with the SEC seek­ing approval to list BlackRock’s spot Ethereum exchange-trad­ed fund (ETF) based on the regulator’s recent approval of ETH-based futures ETFs in October.

The exchange pro­posed that the reg­u­la­tor allow it to cre­ate the iShares Ethereum Trust under its Nas­daq Rule 5711(d) — which gov­erns the list­ing and trad­ing of com­mod­i­ty-based Trust shares on the exchange.

Advo­cat­ing for increased uni­for­mi­ty in the reg­u­la­tion of dig­i­tal and tra­di­tion­al assets, Nas­daq posits that both Bit­coin (BTC) and Ethereum (ETH) should be gov­erned as com­modi­ties and that the rules for spot ETFs for these dig­i­tal assets should align with those of gold ETF.

The argu­ments pro­posed in the fil­ing are sim­i­lar to those used in the spot Bit­coin ETF appli­ca­tions. Nas­daq believes the SEC has no grounds to block a spot Bit­coin or Ethereum-based ETF because it allows the CME to host futures-based ETFs for both dig­i­tal assets.

Nas­daq urged the SEC to approve the appli­ca­tions for spot ETFs as it will allow U.S. investors to gain expo­sure to Bit­coin and Ethereum safely.

Surveillance issue

Nas­daq fur­ther argued that it meets every require­ment set by the reg­u­la­tor to ensure that investors are pro­tect­ed and has a sur­veil­lance agree­ment to mon­i­tor mar­ket fraud and manipulation.

The exchange used the same argu­ments pre­sent­ed in the spot Bit­coin ETF appli­ca­tions. Essen­tial­ly, Nas­daq claimed that, like the CME, it is a mem­ber of the Inter­mar­ket Sur­veil­lance Group (ISG), which mon­i­tors and reports on illic­it activ­i­ty to all its members.

Accord­ing to the exchange, this and its part­ner­ship with Coin­base, which mon­i­tors spot mar­kets, are suf­fi­cient to ensure that investors are ade­quate­ly pro­tect­ed from fraud and manipulation.

Tak­ing on poten­tial con­cerns about mar­ket sur­veil­lance, Nas­daq empha­sized that the sur­veil­lance mech­a­nisms for a spot Bit­coin or Ethereum mar­ket are just as robust as those for a futures mar­ket. It added that the CME futures mar­ket meets the SEC’s cri­te­ria of a mar­ket of sig­nif­i­cant size that is appro­pri­ate­ly monitored.

ETF details

The pro­posed iShares Ethereum Trust will be a col­lab­o­ra­tive effort, oper­at­ing under a trust agree­ment between iShares Delaware Trust Spon­sor, an indi­rect sub­sidiary of lead­ing invest­ment man­age­ment cor­po­ra­tion Black­Rock Inc., and Black­Rock Fund Advi­sors. The ETF will reflect the per­for­mance of the price of ETH, the cryp­tocur­ren­cy under­ly­ing the Trust.

Coin­base Cus­tody Trust Com­pa­ny will serve as the “Ether Cus­to­di­an” and hold the bulk of the ETH in cold stor­age. The fil­ing empha­sized that the hard­ware, soft­ware, sys­tems, and pro­ce­dures of the Ether Cus­to­di­an may not be eas­i­ly acces­si­ble to investors.

The  ETF’s net asset val­ue (NAV) will be deter­mined based on the total assets, includ­ing ETH and cash, minus total lia­bil­i­ties. The fil­ing states that the NAV cal­cu­la­tion may not be con­sis­tent with U.S. gen­er­al­ly accept­ed account­ing prin­ci­ples (GAAP) and that iShared Delaware Trust Spon­sor will have the exclu­sive author­i­ty to deter­mine the ETF’s NAV.

The ETF will rely on the CME CF Ether-Dol­lar Ref­er­ence Rate – New York Vari­ant (“CF Bench­marks Index”) for val­u­a­tion pur­pos­es, cal­cu­lat­ed dai­ly based on Ether‑U.S. dol­lar trad­ing activ­i­ty across major spot trad­ing platforms.