United States securities and exchange commission logo
January 5, 2024
David Mann
President and Chief Executive Officer
Franklin Templeton Digital Holdings Trust
One Franklin Parkway
San Mateo, CA 94403
Re: Franklin Templeton
Digital Holdings Trust
Amendment No. 2 to
Registration Statement on Form S-1
Filed December 29,
2023
File No. 333-274474
Dear David Mann:
We have reviewed your amended registration statement and have the
following
comments.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe a comment applies to your
facts and circumstances
or do not believe an amendment is appropriate, please tell us why in
your response.
After reviewing any amendment to your registration statement and
the information you
provide in response to this letter, we may have additional comments.
Unless we note otherwise,
any references to prior comments are to comments in our December 12,
2023 letter.
Amendment No. 2 to Registration Statement on Form S-1
General
1. Please revise to
disclose the material terms of each of your agreements with your service
providers, including
disclosure regarding the term and termination provisions of each.
2. Refer to comment 2 of
our letter dated September 29, 2023. We note that your registration
statement includes a
number of blanks or bracketed information, including, for example,
the amount of the
Sponsor Fee. Please revise to include this information in your next
amendment. In addition,
please refer to comment 1 of our letter dated December 12, 2023
and, to the extent you
intend to use a fact sheet, please provide us with a copy for our
review. Please also
update your Table of Contents.
David Mann
FirstName LastNameDavid Mann
Franklin Templeton Digital Holdings Trust
Comapany
January NameFranklin Templeton Digital Holdings Trust
5, 2024
January
Page 2 5, 2024 Page 2
FirstName LastName
Key Service Providers - The Sponsor, Trustee, Custodian, Administrator and
Marketing Agent,
page 7
3. Refer to your response to comment 4. We note your disclosure on page 7
of the
prospectus that the Fund may incur certain other non-recurring
expenses that are not
assumed by the Sponsor, including "Bitcoin network fees and similar
transaction fees" and
your response that "Bitcoin network fees and similar transaction fees
incurred in
connection with the creation and redemption process will be borne by
authorized
participants (and not the Fund)." Please revise your disclosure on
page 7 of the prospectus
so that it is consistent with your response.
Prospectus Summary, page 7
4. We note your revised disclosure that "[s]ubject to the Cboe BZX
Exchange, Inc. receiving
the necessary regulatory approval to permit the Fund to create and
redeem Shares in-kind
for bitcoin (the In-Kind Regulatory Approval ), these transaction
may also take place in
exchange for bitcoin." We have the following comments:
Please revise your cover page and throughout to clarify that the
timing of In-Kind
Regulatory Approval is unknown and that there is no guarantee
that the Exchange
will receive In-Kind Regulatory Approval.
Please revise to clarify throughout how you will inform
shareholders if the Exchange
receives In-Kind Regulatory Approval and if the Sponsor chooses
to allow in-kind
creations and redemptions.
Please revise throughout to remove any detailed discussion of
in-kind creations and
redemptions. In this regard, we note that the Fund initially only
will support in-cash
creations and redemptions and it is not known at this time how
In-Kind Regulatory
Approval may impact the structure/mechanics of permissible
in-kind creations and
redemptions.
Please confirm your understanding, consistent with the undertaking
required by Item
512(a)(1)(iii) of Regulation S-K, that you will file a
post-effective amendment to
include any material information with respect to the plan of
distribution not
previously disclosed in the registration statement or any
material change to such
information.
The Fund's Objective, page 8
5. Refer to your response to comment 5. Please revise to disclose whether
and to what
extent the Fund, Sponsor, Prime Broker, or any other entity is
permitted to loan, pledge or
re-hypothecate any of the Fund's assets. In this regard, we note your
revised disclosure on
page 9 that the "Bitcoin Custodian may not loan, pledge or hypothecate
or re-hypothecate
Fund assets."
David Mann
FirstName LastNameDavid Mann
Franklin Templeton Digital Holdings Trust
Comapany
January NameFranklin Templeton Digital Holdings Trust
5, 2024
January
Page 3 5, 2024 Page 3
FirstName LastName
Backed by bitcoin held by the Bitcoin Custodian on behalf of the Fund, page 9
6. Refer to your response to comment 9. Please revise your disclosure on
page 9 to quantify
the portion of the Fund's bitcoin holdings and cash holdings that may
be held with the
Prime Broker in the Trading Balance or describe the Fund's policy as
to the amount that
will be held with the Prime Broker, if any, after the end-of-day sweep
process. If the
company does not have such a policy, please disclose. In this regard,
we note your
disclosure on page 39 that "[e]ven though bitcoin is only moved into
the Trading Balance
in connection with and to the extent of purchases and sales of bitcoin
by the Fund and
such bitcoin is swept from the Fund s Trading Balance to the Fund
s Vault Balance daily
pursuant to a regular end-of-day sweep process, there are no policies
that would limit the
amount of bitcoin that can be held temporarily in the Trading Balance
maintained by the
Prime Broker."
Summary of the Risk Factors, page 9
7. Refer to your response to comment 7. Please revise here to briefly
address the risk that
your timing in reaching the market and your fee structure relative to
other bitcoin ETPs
could have a detrimental effect on the scale and sustainability of
your products.
The Offering
Forks, page 16
8. We note your disclosure on page 15 regarding the sale of Incidental
Rights and IR Virtual
Currency by the Fund for the payment of Fund expenses and your
disclosure here and
throughout regarding the Sponsor s evaluation of whether to take
possession or otherwise
establish dominion and control over Incidental Rights or IR Virtual
Currency. Please
revise this section and throughout the prospectus to clarify, if true,
that with respect to any
fork, airdrop or similar event, the Sponsor will cause the Fund to
irrevocably abandon the
Incidental Rights or IR Virtual Currency and in the event the Fund
seeks to change this
position, an application would need to be filed with the SEC by your
listing exchange
seeking approval to amend its listing rules. In addition, we note your
disclosure on page
15 that the Fund "does not intend to hold assets other than bitcoin
and cash." Please also
revise to clarify, if true, that the only crypto asset to be held by
the Fund will be bitcoin.
Business of the Fund
Net Asset Value, page 65
9. Refer to your responses to comment 7 in our September 29, 2023 letter
and related
subsequent comments. We note your revised disclosure that the Fund
will only allow cash
redemptions, and observe that this change may have an impact on your
fair value
accounting policy, including principal market determination under ASC
Topic 820.
Please confirm your understanding that our decision not to issue
additional comments
should not be interpreted to mean that we either agree or disagree
with your responses and
your current fair value accounting policy. Please also confirm your
understanding that we
David Mann
FirstName LastNameDavid Mann
Franklin Templeton Digital Holdings Trust
Comapany
January NameFranklin Templeton Digital Holdings Trust
5, 2024
January
Page 4 5, 2024 Page 4
FirstName LastName
may comment further on this matter in future filing reviews once the
Fund is operational.
10. Refer to your response to comment 19. Please revise to disclose
whether the Sponsor has
any agreements with any third-parties for use of their valuation
methods, and disclose
whether the Sponsor has a license to use a Secondary Index. If so,
please identify the
third-parties and the Secondary Index, and describe how the value of
bitcoin is calculated
by the valuation methods of such third-parties and the Secondary
Index.
Valuation of Bitcoin: The CF Benchmarks Index, page 67
11. Refer to your response to comment 23. Please revise to disclose how
the Fund will notify
Shareholders of material changes made to the methodology of the CF
Benchmarks Index.
Fund Expenses, page 72
12. Refer to your response to comment 33. Please revise to clarify whether
the Fund or the
Sponsor pays for the transaction costs related to the sale of bitcoin
to cover the Sponsor's
Fee and the fund expenses or liabilities not assumed by the Sponsor.
Description of the Shares and the Trust, page 74
13. Refer to your response to comment 34. Please revise to disclose how
and when you will
notify Shareholders that the Sponsor has amended the Declaration of
Trust. In addition,
we note your disclosure on page 75 that "[t]he federal district courts
of the United States
of America shall be the exclusive forum for the resolution of any
complaint asserting a
cause of action arising under the Securities Act, or the rules and
regulations promulgated
thereunder." Please revise to state that investors cannot waive
compliance with the
federal securities laws and the rules and regulations thereunder. In
this regard, we note
that Section 22 of the Securities Act creates concurrent jurisdiction
for federal and state
courts over all suits brought to enforce any duty or liability created
by the Securities Act
or the rules and regulations thereunder. We also note your disclosure
on page 101 that
"the forum selection provisions do not apply to suits brought to
enforce a duty or liability
created by the Exchange Act" is inconsistent with the provision in the
Agreement and
Declaration of Trust. Please revise for consistency. Further, please
revise your disclosure
on page 76 to describe how the ability to bring a derivative action is
restricted.
Intraday Indicative Value, page 74
14. Refer to your response to comment 20. Please revise to disclose where
the Fund intends
to publish the IIV.
Creations and Redemptions, page 76
15. We note your revised disclosure on pages 76 and 77 that "[t]he Fund
will conduct its
bitcoin purchase and sale transaction by, in its sole discretion,
choosing to trade directly
with third parties (each, a Bitcoin Trading Counterparty ), who
are not registered broker-
dealers pursuant to written agreements between such Bitcoin Trading
Counterparties and
David Mann
Franklin Templeton Digital Holdings Trust
January 5, 2024
Page 5
the Fund, or choosing to trade through the Prime Broker acting in an
agency capacity with
third parties through its Coinbase Prime service pursuant to the Prime
Broker
Agreement." Please revise to identify the Bitcoin Trading
Counterparties and describe the
material terms of agreements that you have with each.
Suspension of Redemption Orders, page 80
16. Refer to your response to comment 32. Please expand this subsection or
add a separate
subsection that describes the suspension of creations. Please revise
to disclose how you
will notify Shareholders if the Fund has suspended creations and
redemptions.
The Sponsor
Key Personnel of the Sponsor, page 84
17. Refer to your response to comment 27. Please revise your disclosure on
page 85 to
include the information required by Item 401 of Regulation S-K.
The Custodians, page 87
18. Refer to your response to comment 37. Please revise here to disclose
the percentage of
private keys held in cold storage, the limit on the amount of bitcoin
that may be held in
each cold storage wallet, the percentage of the Fund's bitcoin that is
held in the Cold Vault
Balance and whether the insurance provider or another third-party will
be responsible for
verifying the existence of the bitcoin. In addition, please disclose
the instructions the
Sponsor has provided to the Bitcoin Custodian regarding airdrops or
forks.
Trade Credit Lender, page 93
19. Please revise to disclose material terms of the Post-Trade Financing
Agreement to
disclose the maximum amount of Trades Credits it permits to be
outstanding at any one
time, the term of the agreement and the termination provisions of the
agreement. In
addition, please revise the prospectus summary to identify the Trade
Credit Lender. Also,
to the extent the execution price of the bitcoin acquired exceeds the
cash deposit amount,
disclose who bears the responsibility for this difference. Further,
for creation and
redemption transactions, please revise to clarify whether or not the
interest payable on
Trade Credits utilized under the Trade Financing Agreement are
included in the execution
price and therefore the responsibility of the Authorized Participants.
If they are the
responsibility of the Fund, please revise your risk factor disclosure
accordingly to explain
the impact such interest payments will have on the net assets of the
Fund over time.
U.S. Federal
FirstName Tax Consequences,
LastNameDavid Mannpage 94
Comapany
20. NameFranklin
Please Templeton
revise the disclosure Digital
in this Holdings
section Trust that it is the
opinion of Stradley
to disclose
JanuaryRonon Stevens
5, 2024 Page 5& Young, LLP.
FirstName LastName
David Mann
FirstName LastNameDavid Mann
Franklin Templeton Digital Holdings Trust
Comapany
January NameFranklin Templeton Digital Holdings Trust
5, 2024
January
Page 6 5, 2024 Page 6
FirstName LastName
Seed Capital Investor, page 99
21. Refer to response to comment 42. Please revise to disclose here that
the costs incurred in
connection with the Seed Creation Units were paid by the purchaser and
not by the Fund.
In addition, please describe how the proceeds from the sale of the
Seed Creation Baskets
will be converted to bitcoin.
Please contact David Irving at 202-551-3321 or Robert Telewicz at
202-551-3438 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Sonia Bednarowski at 202-551-3666 or Sandra Hunter Berkheimer at
202-551-3758 with
any other questions.
Sincerely,
Division of
Corporation Finance
Office of Crypto
Assets
cc: Miranda L. Sturgis