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.