Correspondence 0001999371-24-011992 from Tidal Trust II (CIK 0001924868)
Tidal Trust II (CIK 0001924868)
Date: Sept. 17, 2024 · CIK: 0001924868 · Accession: 0001999371-24-011992
AI Filing Summary & Sentiment
File numbers found in text: 333-264478, 811-23793
Letter
VIA EDGAR TRANSMISSION Division of Investment Management Washington, DC 20549 Re: Tidal Trust II (the “Trust”) Post-Effective Amendment No. 231 to the Trust’s Registration Statement on Form N-1A (the “Amendment”) File Nos. 811-23793; 333-264478
Dear Ms. Rossotto:
This correspondence responds to comments the Trust received from the staff of the U.S. Securities and Exchange Commission (the “Staff” or the “Commission”) on September 10, 2024, with respect to the Registration Statement of the Trust’s proposed new series, the STKD Bitcoin & Gold ETF (the “Fund”). For your convenience, each comment has been reproduced with a response following the comment. Capitalized terms not otherwise defined have the same meaning as in the Registration Statement.
Prospectus
1. Please supplementally provide the Staff with a completed Fee Table pre-effectively. If the Fund is expected to experience greater than 0.01% in Acquired Fund Fees and Expenses, please add a line item for this expense.
Response: The Fund’s completed Fees and Expenses table and Expense Example are as shown in the attached Appendix A.
2. Regarding the Fund’s Principal Investment Strategies, the disclosure in general indicates that the Fund will invest in bitcoin futures contracts and gold futures contracts as well as underlying funds that provide exposure to bitcoin and/or bitcoin futures and gold and/or gold futures. However, disclosure on page 2 indicates that the Fund will seek to capture the price return of these asset classes through investments in underlying funds that provide exposure to bitcoin and/or bitcoin futures and gold and/or gold futures. Please reconcile. If the Fund will not invest in futures, please explain how it will obtain 100% exposure to bitcoin and 100% exposure to gold. Regardless of whether futures will be used, please disclose whether the Fund will invest in underlying funds with two times price performance of bitcoin or gold through the use of derivatives contracts, such as futures and swaps.
Response: The Trust responds supplementally by confirming that the Fund will invest in bitcoin and gold futures contracts, as well as underlying funds providing exposure to these asset classes. Revisions will be made to clarify this. The Trust also responds supplementally by confirming that the Fund will not invest in underlying funds with two times price performance of bitcoin or gold as part of its principal investment strategies, but may do so on a non-principal basis and will include relevant disclosure in the Fund’s SAI.
3. If the Fund will have concentrated exposure to any underlying fund, please revise to disclose the underlying fund. In addition, in terms of any spot bitcoin exchange-traded product to which the Fund will have concentrated exposure, demonstrate supplementally that the underlying fund is eligible to use Form S-3 for a primary offering of non-investment grade securities pursuant to General Instruction 1(b) of Form S-3, or alternatively, explain why there is sufficient market interest and publicly available information regarding the underlying issuer, notwithstanding its inability to use form S-3 for such an offering. With respect to such underlying funds to which there will be concentrated exposure, please provide in the Fund’s principal investment strategies:
a. a brief discussion of the underlying funds and their operations, including with regard to creations/redemptions, custody and valuation;
b. a statement that the underlying funds are subject to the informational requirements of the federal securities laws, and in accordance therewith, file reports and other information with the SEC;
c. a statement that the SEC maintains an internet site that contains reports, proxies, information statements and other information regarding the underlying funds that are filed electronically with the SEC at www.sec.gov;
d. the name of the national securities exchange on which an underlying fund’s securities are listed, and the associated ticker symbol; and
e. whether the underlying fund will only invest in cash settled bitcoin futures contracts that trade on a U.S. regulated exchange.
Response: The Trust responds supplementally by confirming that it will not have concentrated exposure (i.e. invest greater than 25% of its assets) to any individual underlying fund.
4. In the Principal Investment Strategies section, with respect to the disclosure stating that bitcoin and gold are complementary asset classes providing complementary benefits, please revise to explain how this is the case. Revise to explain why bitcoin has been called “digital gold” and why it has not been invested in and traded as such, and thus has historically had a low correlation with gold.
Response: The Trust responds by making revisions explaining how bitcoin and gold are complementary asset classes, and providing the additional requested explanations.
5. In the Principal Investment Strategies section, with respect to the disclosure stating that “your single dollar investment is doubled to follow and potentially profit (or experience losses) from two different investment strategies,” the Staff considers this misleading since the doubling is accomplished with leverage. Please delete or revise accordingly.
Response: The Trust respectfully disagrees that the language in question is misleading, especially considering the multiple explanations provided on how the Fund stacks returns. However, the Trust will revise the sentence to clarify that the referenced sentiment is attributable to the Fund's use of leverage.
6. Regarding the Fund’s investment through a Cayman Subsidiary, please:
a. Disclose that the Fund complies with the provisions of the Investment Company Act governing investment policies (Section 8) on an aggregate basis with the Subsidiary.
b. Disclose that the Fund complies with the provisions of the Investment Company Act governing capital structure and leverage (Section 18) on an aggregate basis with the Subsidiary so that the Fund treats the Subsidiary’s debt as its own for purposes of Section 18.5.
c. Disclose that the Adviser, as the investment adviser to the Subsidiary, complies with provisions of the Investment Company Act relating to investment advisory contracts (Section 15) as if it were an investment adviser to the Fund under Section 2(a)(20) of the Investment Company Act. Any investment advisory agreement between the Subsidiary and its investment adviser is a material contract that should be included as an exhibit to the registration statement. For purposes of complying with Section 15(c), the reviews of the Fund’s and the Subsidiary’s investment advisory agreements may be combined.
d. Disclose that the Subsidiary complies with provisions relating to affiliated transactions and custody (Section 17). Identify the custodian of the Subsidiary, if any.
e. Disclose the Subsidiary’s principal investment strategies or principal risks that constitute principal investment strategies or risks of the Fund. The principal investment strategies and principal risk disclosures of a Fund that invests in a Subsidiary should reflect aggregate operations of the Fund and the Subsidiary.
f. Explain in correspondence whether the financial statements of the Subsidiary will be consolidated with those of the Fund. If not, please explain why not.
g. Confirm in correspondence that the Subsidiary and its board of directors will agree to inspection by the staff of the Subsidiary’s books and records, which will be maintained in accordance with Section 31 of the Investment Company Act and the rules thereunder.
h. Please confirm in correspondence the Subsidiary and its board of directors will agree to designate an agent for service of process in the United States.
i. Please confirm the Subsidiary’s management fee (including any performance fee), if any, will be included in “Management Fees,” and the Subsidiary’s expenses will be included in “Other Expenses” in the Fund’s fee table.
j. Please disclose that the Fund does not intend to create or acquire primary control of any entity which primarily engages in investment activities in securities or other assets, other than entities wholly-owned by the Fund.
Response: The Trust responds by revising the Prospectus to make the requested disclosures to the extent not already disclosed. The Trust also confirms supplementally:
● The financial statements of the Subsidiary will be consolidated with those of the Fund.
● The Subsidiary and/or its board of directors will agree to inspection by the Staff of the Subsidiary’s books and records, which will be maintained in accordance with Section 31 of the Investment Company Act and the rules thereunder.
● The Subsidiary and its board of directors will agree to designate an agent for service of process in the United States.
● The Subsidiary’s management fee (if any) will be included in Fund’s “Management Fees,” and the Subsidiary’s expenses (if any) will be included in “Other Expenses” in the Fund’s fee table.
7. In the Principal Investment Strategies section, with respect to the disclosure regarding reverse repurchase agreements, please revise to clarify the purpose of these instruments as the current disclosure suggests they will be used for tax purposes.
Response: The Trust responds by revising the disclosure to add additional context around the Fund’s use of reverse repurchase agreements.
8. In the Principal Investment Strategies section, with respect to the section entitled “Information About Bitcoin”:
a. For clarity, ensure all references to Bitcoin Blockchain are capitalized, and all references to the bitcoin native currency are not capitalized.
b. In the “Bitcoin Description” sub-section, please revise the disclosure to clarify that although bitcoin is called a crypto or digital currency, it is not presently accepted widely as a means of payment. Please also revise to generally use the term crypto asset or digital asset when referring to bitcoin.
c. In the “Bitcoin Description” sub-section, the statement, “the first and most well-known cryptocurrency,” is not consistent with the first reference to bitcoin in the prospectus where it refers to bitcoin as “a modern digital asset class.” Please revise to reconcile here and throughout the prospectus.
d. In the “Bitcoin Blockchain Description” sub-section, please refrain from characterizing the Bitcoin Blockchain as absolutely irreversible. In this regard, we note that the Bitcoin Blockchain relies on probabilistic settlement finality, not deterministic settlement finality, such that bitcoin users of the Bitcoin Blockchain generally do not view settlement of transactions as being secure or irreversible until five additional blocks are included in the Blockchain, a process that takes approximately one hour to play out.
e. In the “Bitcoin and Bitcoin Blockchain Use Cases” sub-section, with respect to “Decentralized Transactions,” please disclose that bitcoin and the Bitcoin Blockchain were designed to be used as an alternative general purpose payment system and while bitcoin may be an attractive option for cross border transfers and remittances, it is presently not widely used as a means of payment.
f. In the “Bitcoin and Bitcoin Blockchain Use Cases” sub-section, with respect to “Smart Contracts” and “Asset Tokenization,” please clarify that these uses are extremely limited or speculative. In this regard, please disclose that unlike the scripting language of blockchain platforms like Ethereum, the scripting language of the Bitcoin Blockchain is not Turing complete, and thus is much more limited in terms of the types of smart contracts it can support.
Response: The Trust responds by making the requested revisions.
9. Revise the Principal Investment Risks section, where appropriate, to highlight that the Fund’s
Show Raw Text
CORRESP
1
filename1.htm
Tidal
Trust II
234
West Florida Street, Suite 203
Milwaukee,
Wisconsin 53204
September
17, 2024
VIA
EDGAR TRANSMISSION
Karen
Rossotto
U.S.
Securities and Exchange Commission
Division
of Investment Management
100
F Street NE
Washington,
DC 20549
Re: Tidal
Trust II (the “Trust”)
Post-Effective
Amendment No. 231 to the Trust’s Registration Statement on Form N-1A (the “Amendment”)
File
Nos. 811-23793; 333-264478
Dear
Ms. Rossotto:
This
correspondence responds to comments the Trust received from the staff of the U.S. Securities and Exchange Commission (the “Staff”
or the “Commission”) on September 10, 2024, with respect to the Registration Statement of the Trust’s proposed new
series, the STKD Bitcoin & Gold ETF (the “Fund”). For your convenience, each comment has been reproduced with a response
following the comment. Capitalized terms not otherwise defined have the same meaning as in the Registration Statement.
Prospectus
1. Please
supplementally provide the Staff with a completed Fee Table pre-effectively. If the Fund
is expected to experience greater than 0.01% in Acquired Fund Fees and Expenses, please add
a line item for this expense.
Response:
The Fund’s completed Fees and Expenses table and Expense Example are as shown in the attached Appendix A.
2. Regarding
the Fund’s Principal Investment Strategies, the disclosure in general indicates that
the Fund will invest in bitcoin futures contracts and gold futures contracts as well as underlying
funds that provide exposure to bitcoin and/or bitcoin futures and gold and/or gold futures.
However, disclosure on page 2 indicates that the Fund will seek to capture the price return
of these asset classes through investments in underlying funds that provide exposure to bitcoin
and/or bitcoin futures and gold and/or gold futures. Please reconcile. If the Fund will not
invest in futures, please explain how it will obtain 100% exposure to bitcoin and 100% exposure
to gold. Regardless of whether futures will be used, please disclose whether the Fund will
invest in underlying funds with two times price performance of bitcoin or gold through the
use of derivatives contracts, such as futures and swaps.
Response:
The Trust responds supplementally by confirming that the Fund will invest in bitcoin and gold futures contracts, as well as underlying
funds providing exposure to these asset classes. Revisions will be made to clarify this. The Trust also responds supplementally by confirming
that the Fund will not invest in underlying funds with two times price performance of bitcoin or gold as part of its principal investment
strategies, but may do so on a non-principal basis and will include relevant disclosure in the Fund’s SAI.
1
3. If
the Fund will have concentrated exposure to any underlying fund, please revise to disclose
the underlying fund. In addition, in terms of any spot bitcoin exchange-traded product to
which the Fund will have concentrated exposure, demonstrate supplementally that the underlying
fund is eligible to use Form S-3 for a primary offering of non-investment grade securities
pursuant to General Instruction 1(b) of Form S-3, or alternatively, explain why there is
sufficient market interest and publicly available information regarding the underlying issuer,
notwithstanding its inability to use form S-3 for such an offering. With respect to such
underlying funds to which there will be concentrated exposure, please provide in the Fund’s
principal investment strategies:
a. a
brief discussion of the underlying funds and their operations, including with regard to creations/redemptions,
custody and valuation;
b. a
statement that the underlying funds are subject to the informational requirements of the
federal securities laws, and in accordance therewith, file reports and other information
with the SEC;
c. a
statement that the SEC maintains an internet site that contains reports, proxies, information
statements and other information regarding the underlying funds that are filed electronically
with the SEC at www.sec.gov;
d. the
name of the national securities exchange on which an underlying fund’s securities are
listed, and the associated ticker symbol; and
e. whether
the underlying fund will only invest in cash settled bitcoin futures contracts that trade
on a U.S. regulated exchange.
Response:
The Trust responds supplementally by confirming that it will not have concentrated exposure (i.e. invest greater than 25% of its
assets) to any individual underlying fund.
4. In
the Principal Investment Strategies section, with respect to the disclosure stating that
bitcoin and gold are complementary asset classes providing complementary benefits, please
revise to explain how this is the case. Revise to explain why bitcoin has been called “digital
gold” and why it has not been invested in and traded as such, and thus has historically
had a low correlation with gold.
Response:
The Trust responds by making revisions explaining how bitcoin and gold are complementary asset classes, and providing the additional
requested explanations.
5. In
the Principal Investment Strategies section, with respect to the disclosure stating that
“your single dollar investment is doubled to follow and potentially profit (or experience
losses) from two different investment strategies,” the Staff considers this misleading
since the doubling is accomplished with leverage. Please delete or revise accordingly.
Response:
The Trust respectfully disagrees that the language in question is misleading, especially considering the multiple explanations provided
on how the Fund stacks returns. However, the Trust will revise the sentence to clarify that the referenced sentiment is attributable
to the Fund's use of leverage.
6. Regarding
the Fund’s investment through a Cayman Subsidiary, please:
a. Disclose
that the Fund complies with the provisions of the Investment Company Act governing investment policies (Section 8) on an aggregate basis
with the Subsidiary.
b. Disclose
that the Fund complies with the provisions of the Investment Company Act governing capital structure and leverage (Section 18) on an
aggregate basis with the Subsidiary so that the Fund treats the Subsidiary’s debt as its own for purposes of Section 18.5.
2
c. Disclose
that the Adviser, as the investment adviser to the Subsidiary, complies with provisions of the Investment Company Act relating to investment
advisory contracts (Section 15) as if it were an investment adviser to the Fund under Section 2(a)(20) of the Investment Company Act.
Any investment advisory agreement between the Subsidiary and its investment adviser is a material contract that should be included as
an exhibit to the registration statement. For purposes of complying with Section 15(c), the reviews of the Fund’s and the
Subsidiary’s investment advisory agreements may be combined.
d. Disclose
that the Subsidiary complies with provisions relating to affiliated transactions and custody (Section 17). Identify the custodian of
the Subsidiary, if any.
e. Disclose
the Subsidiary’s principal investment strategies or principal risks that constitute principal investment strategies or risks of
the Fund. The principal investment strategies and principal risk disclosures of a Fund that invests in a Subsidiary should reflect aggregate
operations of the Fund and the Subsidiary.
f. Explain
in correspondence whether the financial statements of the Subsidiary will be consolidated with those of the Fund. If not, please explain
why not.
g. Confirm
in correspondence that the Subsidiary and its board of directors will agree to inspection by the staff of the Subsidiary’s books
and records, which will be maintained in accordance with Section 31 of the Investment Company Act and the rules thereunder.
h. Please
confirm in correspondence the Subsidiary and its board of directors will agree to designate an agent for service of process in the United
States.
i. Please
confirm the Subsidiary’s management fee (including any performance fee), if any, will be included in “Management Fees,”
and the Subsidiary’s expenses will be included in “Other Expenses” in the Fund’s fee table.
j. Please
disclose that the Fund does not intend to create or acquire primary control of any entity which primarily engages in investment activities
in securities or other assets, other than entities wholly-owned by the Fund.
Response:
The Trust responds by revising the Prospectus to make the requested disclosures to the extent not already disclosed. The Trust also
confirms supplementally:
● The
financial statements of the Subsidiary will be consolidated with those of the Fund.
● The
Subsidiary and/or its board of directors will agree to inspection by the Staff of the Subsidiary’s
books and records, which will be maintained in accordance with Section 31 of the Investment
Company Act and the rules thereunder.
● The
Subsidiary and its board of directors will agree to designate an agent for service of process
in the United States.
● The
Subsidiary’s management fee (if any) will be included in Fund’s “Management
Fees,” and the Subsidiary’s expenses (if any) will be included in “Other
Expenses” in the Fund’s fee table.
7. In
the Principal Investment Strategies section, with respect to the disclosure regarding reverse
repurchase agreements, please revise to clarify the purpose of these instruments as the current
disclosure suggests they will be used for tax purposes.
Response:
The Trust responds by revising the disclosure to add additional context around the Fund’s use of reverse repurchase agreements.
3
8. In
the Principal Investment Strategies section, with respect to the section entitled “Information
About Bitcoin”:
a. For
clarity, ensure all references to Bitcoin Blockchain are capitalized, and all references
to the bitcoin native currency are not capitalized.
b. In
the “Bitcoin Description” sub-section, please revise the disclosure to clarify
that although bitcoin is called a crypto or digital currency, it is not presently accepted
widely as a means of payment. Please also revise to generally use the term crypto asset or
digital asset when referring to bitcoin.
c. In
the “Bitcoin Description” sub-section, the statement, “the first and most
well-known cryptocurrency,” is not consistent with the first reference to bitcoin in
the prospectus where it refers to bitcoin as “a modern digital asset class.”
Please revise to reconcile here and throughout the prospectus.
d. In
the “Bitcoin Blockchain Description” sub-section, please refrain from characterizing
the Bitcoin Blockchain as absolutely irreversible. In this regard, we note that the Bitcoin
Blockchain relies on probabilistic settlement finality, not deterministic settlement finality,
such that bitcoin users of the Bitcoin Blockchain generally do not view settlement of transactions
as being secure or irreversible until five additional blocks are included in the Blockchain,
a process that takes approximately one hour to play out.
e. In
the “Bitcoin and Bitcoin Blockchain Use Cases” sub-section, with respect to “Decentralized
Transactions,” please disclose that bitcoin and the Bitcoin Blockchain were designed
to be used as an alternative general purpose payment system and while bitcoin may be an attractive
option for cross border transfers and remittances, it is presently not widely used as a means
of payment.
f. In
the “Bitcoin and Bitcoin Blockchain Use Cases” sub-section, with respect to “Smart
Contracts” and “Asset Tokenization,” please clarify that these uses are
extremely limited or speculative. In this regard, please disclose that unlike the scripting
language of blockchain platforms like Ethereum, the scripting language of the Bitcoin Blockchain
is not Turing complete, and thus is much more limited in terms of the types of smart contracts
it can support.
Response:
The Trust responds by making the requested revisions.
9. Revise
the Principal Investment Risks section, where appropriate, to highlight that the Fund’s