Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Permit Cboe To List and Trade Options on ETPs That Hold Bitcoin, 5075-5079 [2024-01388]

Download as PDF Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– OCC–2024–002 on the subject line. khammond on DSKJM1Z7X2PROD with NOTICES Paper Comments • Send paper comments in triplicate to Vanessa Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–OCC–2024–002. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of OCC and on OCC’s website at https:// www.theocc.com/CompanyInformation/Documents-and-Archives/ By-Laws-and-Rules. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–OCC–2024–002 and should be submitted on or before February 15, 2024. VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.48 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–01385 Filed 1–24–24; 8:45 am] BILLING CODE 8011–01–P 5075 the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99395; File No. SR–CBOE– 2024–005] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Permit Cboe To List and Trade Options on ETPs That Hold Bitcoin January 19, 2024. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) and Rule 19b–4 thereunder,2 notice is hereby given that on January 5, 2024, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) proposes to amend Rule 4.3. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://www.cboe.com/ AboutCBOE/CBOELegalRegulatory Home.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of 48 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00185 Fmt 4703 Sfmt 4703 The Exchange proposes to amend Rule 4.3 regarding the criteria for underlying securities. Specifically, the Exchange proposes to amend Rule 4.3, Interpretation and Policy .06(a)(4) to allow the Exchange to list and trade options on Units 3 that represent interests in a trust that holds bitcoin (‘‘Bitcoin ETPs’’), designating them as ‘‘Units’’ deemed appropriate for options trading on the Exchange. Current Rule 4.3, Interpretation and Policy .06 provides that, subject to certain other criteria set forth in that Rule, securities deemed appropriate for options trading include Units that represent certain types of interests,4 including interests in 3 Rule 1.1 defines a ‘‘Unit’’ (which may also be referred to as an exchange-traded fund (‘‘ETF’’)) as a share or other security traded on a national securities exchange and defined as an NMS stock as set forth in Rule 4.3. 4 See Rule 4.3, Interpretation and Policy .06(a), which permits options trading on Units that represent (1) interests in registered investment companies (or series thereof) organized as open-end management investment companies, unit investment trusts or similar entities that hold portfolios of securities and/or financial instruments including, but not limited to, stock index futures contracts, options on futures, options on securities and indexes, equity caps, collars and floors, swap agreements, forward contracts, repurchase agreements and reverse purchase agreements (the ‘‘Financial Instruments’’), and money market instruments, including, but no limited to, U.S. government securities and repurchase agreements (the ‘‘Money Market Instruments’’) comprising or otherwise based on or representing investments in indexes or portfolios of securities and/or Financial Instruments and Money Market Instruments (or that hold securities in one or more other registered investment companies that themselves hold such portfolios of securities and/or Financial Instruments and Money Market Instruments); (2) interests in a trust or similar entity that holds a specified nonU.S. currency deposited with the trust or similar entity when aggregated in some specified minimum number may be surrendered to the trust by the beneficial owner to receive the specified non-U.S. currency and pays the beneficial owner interest and other distributions on deposited non-U.S. currency, if any, declared and paid by the trust (‘‘Currency Trust Shares’’); (3) commodity pool interests principally engaged, directly or indirectly, in holding and/or managing portfolios or baskets of securities, commodity futures contracts, options on commodity futures contracts, swaps, forward contracts and/or options on physical commodities and/or non-U.S. currency (‘‘Commodity Pool Units’’); (4) interests in the SPDR Gold Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, the Aberdeen Standard Physical Silver Trust, the Aberdeen Standard Physical Gold Trust, the Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard Physical Platinum Trust, the Sprott Physical Gold Trust or the Goldman Sachs Physical Gold ETF; or (5) an interest in a registered Continued E:\FR\FM\25JAN1.SGM 25JAN1 5076 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES certain specific trusts that hold financial instruments, money market instruments, or precious metals (which are deemed commodities). Bitcoin ETPs are bitcoin-backed commodity ETPs structured as trusts.5 Similar to any Unit currently deemed appropriate for options trading under Rule 4.3, Interpretation and Policy .06, the investment objective of a Bitcoin ETP trust is for its shares to reflect the performance of bitcoin (less the expenses of the trust’s operations), offering investors an opportunity to gain exposure to bitcoin without the complexities of bitcoin delivery. As is the case for Units currently deemed appropriate for options trading, a Bitcoin ETP’s shares represent units of fractional undivided beneficial interest in the trust, the assets of which consist principally of bitcoin and are designed to track bitcoin or the performance of the price of bitcoin and offer access to the bitcoin market.6 Bitcoin ETPs provide investors with cost-efficient alternatives that allow a level of participation in the bitcoin market through the securities market. The primary substantive difference between Bitcoin ETPs and Units currently deemed appropriate for options trading are that Units may hold securities, certain financial instruments, and specified precious metals (which are commodities), while Bitcoin ETPs hold bitcoin (which is also deemed a commodity). The Exchange’s initial listing standards for ETFs on which options may be listed and traded on the Exchange will apply to the Bitcoin ETPs. The Exchange expects Bitcoin ETPs to satisfy the initial listing standards as set forth in Rule 4.3(a) and Rule 4.3, Interpretation and Policy .06(b). Pursuant to Rule 4.3(a), a security (which includes a Unit) on which investment company (‘‘Investment Company’’) organized as an open-end management investment company or similar entity, that invests in a portfolio of securities selected by the Investment Company’s investment adviser consistent with the Investment Company’s investment objectives and policies, which is issued in a specified aggregate minimum number in return for a deposit of a specified portfolio of securities and/or a cash amount with a value equal to the next determined net asset value (‘‘NAV’’), and when aggregated in the same specified minimum number, may be redeemed at a holder’s request, which holder will be paid a specified portfolio of securities and/or cash with a value equal to the next determined NAV (‘‘Managed Fund Share’’). 5 The Exchange notes several filings to list and trade Units that hold bitcoin as NMS stocks (and registration statements for those Units) are currently pending with the Securities and Exchange Commission (the ‘‘Commission’’). Pursuant to the Rules, the Exchange would only have authority to list and trade Units that are trading as NMS stocks. 6 The trust may include minimal cash. VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 options may be listed and traded on the Exchange must be duly registered (with the Commission) and be an NMS stock (as defined in Rule 600 of Regulation NMS under the Securities Exchange Act of 1934, as amended (the ‘‘Act’’)), and be characterized by a substantial number of outstanding shares that are widely held and actively traded.7 Rule 4.3, Interpretation and Policy .06 requires that Units must either (1) meet the criteria and standards set forth in Rule 4.3, Interpretation and Policy .01(a),8 or (2) be available for creation or redemption each business day from or through the issuer in cash or in kind at a price related to net asset value, and the issuer must be obligated to issue Units in a specified aggregate number even if some or all of the investment assets required to be deposited have not been received by the issuer, subject to the condition that the person obligated to deposit the investments has undertaken to deliver the investment assets as soon as possible and such undertaking is secured by the delivery and maintenance of collateral consisting of cash or cash equivalents satisfactory to the issuer, as provided in the respective prospectus. The Exchange expects that Bitcoin ETPs would satisfy Rule 4.3, Interpretation and Policy .06(b)(2).9 Options on Bitcoin ETPs will also be subject to the Exchange’s continued listing standards set forth in Rule 4.4, Interpretation and Policy .06 for Units deemed appropriate for options trading pursuant to Rule 4.3, Interpretation and Policy .06. Specifically, Rule 4.4, Interpretation and Policy .06 provides that Units that were initially approved for options trading pursuant to Rule 4.3, Interpretation and Policy .06 shall be deemed not to meet the requirements for continued approval, and the Exchange shall not open for trading any additional series of option contracts of the class covering that [sic] such Units, if the Units cease to be an NMS stock or the 7 As noted above, there are currently no Bitcoin ETPs trading as NMS stocks on a national securities exchange; however, registration statements and filings to list and trade several Bitcoin ETPs are currently pending with the Commission. The Exchange represents it would not list options on a Bitcoin ETP unless it satisfied the criteria in Rule 4.3(a) the proposed listing criteria, and any other applicable listing criteria. 8 Rule 4.3, Interpretation and Policy .01 provides for guidelines to be by the Exchange when evaluating potential underlying securities for Exchange option transactions. 9 See, e.g., Form S–1 Registration Statement filed on November 29, 2023 (Registration No. 333– 275781) (pending registration statement for shares of the Pando Asset Spot Bitcoin Trust); and Form S–1 Registration Statement filed on September 12, 2023 (Registration No. 333–274474) (pending registration statement for shares of the Franklin Bitcoin ETF). PO 00000 Frm 00186 Fmt 4703 Sfmt 4703 Units are halted from trading in their primary market. Additionally, options on Units may be subject to the suspension of opening transactions in any of the following circumstances: (1) in the case of options covering Units approved for trading under Rule 4.3, Interpretation and Policy .06(b)(1), in accordance with the terms of paragraphs (a), (b), and (c) of Rule 4.4, Interpretation and Policy .01; (2) in the case of options covering Units approved for trading under Rule 4.3 Interpretation and Policy .06(b)(2), following the initial twelve-month period beginning upon the commencement of trading in the Units on a national securities exchange and are defined as an NMS stock [sic], there are fewer than 50 record and/or beneficial holders of such Units for 30 or more consecutive trading days; (3) the value of the index or portfolio of securities, non-U.S. currency, or portfolio of commodities including commodity futures contracts, options on commodity futures contracts, swaps, forward contracts and/or options on physical commodities and/or financial instruments and money market instruments on which the Units are based is no longer calculated or available; or (4) such other event shall occur or condition exist that in the opinion of the Exchange makes further dealing in such options on the Exchange inadvisable. Options on a Bitcoin ETP will be physically settled contracts with American-style exercise.10 Consistent with current Rule 4.5, which governs the opening of options series on a specific underlying security (including Units), the Exchange will open at least one expiration month for options on each Bitcoin ETP 11 at the 10 See Rule 4.2, which provides that the rights and obligations of holders and writers are set forth in the Rules of the Options Clearing Corporation (‘‘OCC’’); and Equity Options Product Specifications January 3, 2024), available at Equity Options Specifications (cboe.com); see also OCC Rules, Chapters VIII (which governs exercise and assignment) and Chapter IX (which governs the discharge of delivery and payment obligations arising out of the exercise of physically settled stock option contracts). 11 See Rule 4.5(b). The monthly expirations are subject to certain listing criteria for underlying securities described within Rule 4.3. Monthly listings expire the third Friday of the month. The term ‘‘expiration date’’ (unless separately defined elsewhere in the OCC By-Laws), when used in respect of an option contract (subject to certain exceptions), means the third Friday of the expiration month of such option contract, or if such Friday is a day on which the exchange on which such option is listed is not open for business, the preceding day on which such exchange is open for business. See OCC By-Laws Article I, Section 1. Pursuant to Rule 4.5(c), additional series of options of the same class may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market, to meet customer E:\FR\FM\25JAN1.SGM 25JAN1 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES commencement of trading on the Exchange and may also list series of options on a Bitcoin ETP for trading on a weekly,12 monthly,13 or quarterly 14 basis. The Exchange may also list longterm equity option series (‘‘LEAPS’’) that expire from 12 to 180 months from the time they are listed.15 Pursuant to Rule 4.5, Interpretation and Policy .07, which governs strike prices of series of options on Units, the interval of strikes prices for series of options Bitcoin ETPs will be $1 or greater when the strike price is $200 or less and $5 or greater where the strike price is over $200.16 Additionally, the Exchange may list series of options pursuant to the $1 Strike Price Interval Program,17 the $0.50 Strike Program,18 the $2.50 Strike Price Program,19 and the $5 Strike Program.20 Pursuant to Rule 5.4, where the price of a series of a Bitcoin ETP option is less than $3.00, the minimum increment will be $0.05, and where the price is $3.00 or higher, the minimum increment will be $0.10.21 Any and all new series of Bitcoin ETP options that the Exchange lists will be consistent and comply with the expirations, strike prices, and minimum increments set forth in Rules 4.5 and 5.4, as applicable. Bitcoin ETP options will trade in the same manner as any other Unit options on the Exchange. The Exchange Rules that currently apply to the listing and trading of all Unit options on the Exchange, including, for example, Rules that govern listing criteria, expiration and exercise prices, minimum increments, position and exercise limits, demand or when the market price of the underlying stock moves more than five strike prices from the initial exercise price or prices. New series of options on an individual stock may be added until the beginning of the month in which the options contract will expire. Due to unusual market conditions, the Exchange, in its discretion, may add a new series of options on an individual stock until the close of trading on the business day prior to expiration. 12 See Rule 4.5(d). 13 See Rule 4.5(g). 14 See Rule 4.5(e). 15 See Rule 4.5(f). 16 The Exchange notes that for options listed pursuant to the Short Term Option Series Program, the Monthly Options Series Program, and the Quarterly Options Series Program, Rules 4.5(d), (e), and (g) specifically sets forth intervals between strike prices on Quarterly Options Series, Short Term Option Series, and Monthly Options Series, respectively. 17 See Rule 4.5, Interpretation and Policy .01(a). 18 See Rule 4.5, Interpretation and Policy .01(b). 19 See Rule 4.5, Interpretation and Policy .04. 20 See Rule 4.5, Interpretation and Policy .01(f). 21 If options on a Bitcoin ETP are eligible to participate in the Penny Interval Program, the minimum increment will be $0.01 for series with a price below $3.00 and $0.05 for series with a price at or above $3.00. See 5.4(d) (which describes the requirements for the Penny Interval Program). VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 margin requirements, customer accounts and trading halt procedures will apply to the listing and trading of Bitcoin ETPs on the Exchange in the same manner as they apply to other options on all other Units that are listed and traded on the Exchange, including the precious-metal backed commodity Units already deemed appropriate for options trading on the Exchange pursuant to current Rule 4.3, Interpretation and Policy .06(a)(4). Position and exercise limits for options on Units, including options on Bitcoin ETPs, are determined pursuant to Rules 8.30 and 8.42, respectively. Position and exercise limits for Unit options vary according to the number of outstanding shares and the trading volumes of the underlying Unit over the past six months, where the largest in capitalization and the most frequently traded Units have an option position and exercise limit of 250,000 contracts (with adjustments for splits, recapitalizations, etc.) on the same side of the market; and smaller capitalization Units have position and exercise limits of 200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for splits, re-capitalizations, etc.) on the same side of the market.22 The Exchange further notes that Rule 10.3, which governs margin requirements applicable to the trading of all options on the Exchange, including options on Units, will also apply to the trading of Bitcoin ETP options. The Exchange represents that the same surveillance procedures applicable to all other options on Units currently listed and traded on the Exchange will apply to options on Bitcoin ETPs, and that it has the necessary systems capacity to support the new option series. The Exchange believes that its existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might potentially arise from listing and trading Unit options, including precious metal-commodity backed Unit options, as proposed [sic]. Also, the Exchange may obtain information from CME Group Inc.’s designated contract markets that are members of the Intermarket Surveillance Group related to any financial instrument that is based, in whole or in part, upon an interest in or performance of bitcoin, as applicable. The Exchange has also analyzed its capacity and represents that it believes the Exchange and OPRA have the necessary systems capacity to handle 22 As Bitcoin ETPs do not currently trade, options on Bitcoin ETPs would be subject to the 25,000 option contract limit. PO 00000 Frm 00187 Fmt 4703 Sfmt 4703 5077 the additional traffic associated with the listing of new series that may result from the introduction of options on Bitcoin ETPs up to the number of expirations currently permissible under the Rules. Because the proposal is limited to Units on a single commodity, the Exchange believes any additional traffic that may be generated from the introduction of Bitcoin ETP options will be manageable. The Exchange believes that offering options on Bitcoin ETPs will benefit investors by providing them with an additional, relatively lower cost investing tool to gain exposure to the price of bitcoin and hedging [sic] vehicle to meet their investment needs in connection with bitcoin-related products and positions. The Exchange expects investors will transact in options on Bitcoin ETPs in the unregulated over-the-counter (‘‘OTC’’) options market (if the Commission approves Bitcoin ETPs for exchangetrading),23 but may prefer to trade such options in a listed environment to receive the benefits of trading listing options, including (1) enhanced efficiency in initiating and closing out position; (2) increased market transparency; and (3) heightened contraparty creditworthiness due to the role of OCC as issuer and guarantor of all listed options. The Exchange believes that listing Bitcoin ETP options may cause investors to bring this liquidity to the Exchange, would increase market transparency and enhance the process of price discovery conducted on the Exchange through increased order flow. The Units that hold financial instruments, money market instruments, or precious metal commodities on which the Exchange may already list and trade options are trusts structured in substantially the same manner as Bitcoin ETPs and essentially offer the same objectives and benefits to investors, just with respect to different assets. The Exchange notes that it has not identified any issues with the continued listing and trading of any Unit options, including Units that hold commodities (i.e., precious metals) that it currently lists and trades on the Exchange. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of 23 The Exchange understands from customers that investors have historically transacted in options on Units in the OTC options market if such options were not available for trading in a listed environment. E:\FR\FM\25JAN1.SGM 25JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 5078 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices Section 6(b) of the Act.24 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 25 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 26 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that the proposal to list and trade options on Bitcoin ETPs will remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, protect investors because offering options on Bitcoin ETPs will provide investors with an opportunity to realize the benefits of utilizing options on a bitcoin-based ETP, including cost efficiencies and increased hedging strategies. The Exchange believes that offering Bitcoin ETP options will benefit investors by providing them with a relatively lowercost risk management tool, which will allow them to manage their positions and associated risk in their portfolios more easily in connection with exposure to the price of bitcoin and with bitcoin-related products and positions. Additionally, the Exchange’s offering of Bitcoin ETP options will provide investors with the ability to transact in such options in a listed market environment as opposed to in the unregulated OTC options market, which would increase market transparency and enhance the process of price discovery conducted on the Exchange through increased order flow to the benefit of all investors. The Exchange also notes that it already lists options on other commodity-based Units,27 which, as described above, are trusts structured in substantially the same manner as Bitcoin ETPs and essentially offer the same objectives and benefits to investors, just with respect to 24 15 25 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 26 Id. 27 See Rule 4.3, Interpretation and Policy .06(a)(4). VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 a different commodity (i.e., bitcoin rather than precious metals) and for which the Exchange has not identified any issues with the continued listing and trading of commodity-backed Unit options it currently lists for trading. The Exchange also believes the proposed rule change will remove impediments to and perfect the mechanism of a free and open market and a national market system, because it is consistent with current Exchange Rules, previously filed with the Commission. Options on Bitcoin ETPs must satisfy the initial listing standards and continued listing standards currently in the Exchange Rules, applicable to options on all Units, including Units that hold other commodities already deemed appropriate for options trading on the Exchange. Bitcoin ETP options will trade in the same manner as any other Unit options—the same Exchange Rules that currently govern the listing and trading of all Unit options, including permissible expirations, strike prices and minimum increments, and applicable position and exercise limits and margin requirements, will govern the listing and trading of options on Bitcoin ETPs in the same manner. The Exchange represents that it has the necessary systems capacity to support the new Unit option series. The Exchange believes that its existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might arise from listing and trading Unit options, including Bitcoin ETP options. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act as Bitcoin ETPs would need to satisfy the initial listing standards set forth in the Exchange Rules in the same manner as any other Unit before the Exchange could list options on them. Additionally, Bitcoin ETP options will be equally available to all market participants who wish to trade such options. The Exchange Rules currently applicable to the listing and trading of options on Units on the Exchange will apply in the same manner to the listing and trading of all options on Bitcoin ETPs. Also, and as stated above, the PO 00000 Frm 00188 Fmt 4703 Sfmt 4703 Exchange already lists options on other commodity-based Units.28 The Exchange does not believe that the proposal to list and trade options on Bitcoin ETPs will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. To the extent that the advent of Bitcoin ETP options trading on the Exchange may make the Exchange a more attractive marketplace to market participants at other exchanges, such market participants are free to elect to become market participants on the Exchange. Additionally, other options exchanges are free to amend their listing rules, as applicable, to permit them to list and trade options on Bitcoin ETPs. Additionally, the Exchange notes that listing and trading Bitcoin ETP options on the Exchange will subject such options to transparent exchange-based rules as well as price discovery and liquidity, as opposed to alternatively trading such options in the OTC market. The Exchange believes that the proposed rule change may relieve any burden on, or otherwise promote, competition as it is designed to increase competition for order flow on the Exchange in a manner that is beneficial to investors by providing them with a lower-cost option to hedge their investment portfolios. The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues that offer similar products. Ultimately, the Exchange believes that offering Bitcoin ETP options for trading on the Exchange will promote competition by providing investors with an additional, relatively low-cost means to hedge their portfolios and meet their investment needs in connection with bitcoin prices and bitcoin-related products and positions on a listed options exchange. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period 28 See Rule 4.3, Interpretation and Policy .06(a)(4). E:\FR\FM\25JAN1.SGM 25JAN1 Federal Register / Vol. 89, No. 17 / Thursday, January 25, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: A. by order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. submissions should refer to file number SR–CBOE–2024–005 and should be submitted on or before February 15, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Sherry R. Haywood, Assistant Secretary. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: [FR Doc. 2024–01388 Filed 1–24–24; 8:45 am] Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– CBOE–2024–005 on the subject line. Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing of a Proposed Rule Change To Amend Exchange Rule 402, Criteria for Underlying Securities Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–CBOE–2024–005. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All VerDate Sep<11>2014 17:22 Jan 24, 2024 Jkt 262001 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99397; File No. SR–MIAX– 2024–03] January 19, 2024. Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 12, 2024, Miami International Securities Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend Exchange Rule 402, Criteria for Underlying Securities. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxglobal.com/markets/ us-options/miax-options/rule-filings at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the 29 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00189 Fmt 4703 Sfmt 4703 5079 places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Exchange Rule 402, Criteria for Underlying Securities,3 to allow the Exchange to list and trade options on Exchange-Traded Fund Shares (‘‘ETFs’’) that represent interests in a trust that holds bitcoin (‘‘Bitcoin ETPs’’), designating them as ETFs deemed appropriate for options trading on the Exchange.4 Current Exchange Rule 402(i)(4) provides that, subject to certain other criteria set forth in that Rule, securities deemed appropriate for options trading include ETFs that represent certain types of interests,5 including interests in 3 The Exchange notes that its affiliate exchange, MIAX Pearl, has submitted a substantively identical proposal. 4 The Exchange notes that all the rules of Chapter IV of the MIAX Options Exchange, including Rule 402, are incorporated by reference to MIAX Emerald. 5 See Exchange Rule 402(i), which permits options trading on ETFS that: (1) represent interests in registered investment companies (or series thereof) organized as open-end management investment companies, unit investment trusts or similar entities that hold portfolios of securities and/or financial instruments (‘‘Funds’’), including, but not limited to, stock index futures contracts, options on futures, options on securities and indices, equity caps, collars and floors, swap agreements, forward contracts, repurchase agreements and reverse repurchase agreements (the ‘‘Financial Instruments’’), and money market instruments, including, but not limited to, U.S. government securities and repurchase agreements (the ‘‘Money Market Instruments’’) comprising or otherwise based on or representing investments in broad-based indexes or portfolios of securities and/ or Financial Instruments and Money Market Instruments (or that hold securities in one or more other registered investment companies that themselves hold such portfolios of securities and/ or Financial Instruments and Money Market Instruments); (2) represent interests in a trust or similar entity that holds a specified non-U.S. currency or currencies deposited with the trust which when aggregated in some specified minimum number may be surrendered to the trust or similar entity by the beneficial owner to receive the specified non-U.S. currency or currencies and pays the beneficial owner interest and other distributions on the deposited non-U.S. currency or currencies, if any, declared and paid by the trust (‘‘Currency Trust Shares’’); (3) represent commodity pool interests principally engaged, directly or indirectly, in holding and/or managing portfolios or baskets of securities, commodity futures contracts, options on commodity futures contracts, swaps, forward contracts and/or options on physical commodities and/or non-U.S. currency (‘‘Commodity Pool ETFs’’); (4) are issued by the SPDR® Gold Trust or the iShares COMEX Gold Trust or the iShares Silver Continued E:\FR\FM\25JAN1.SGM 25JAN1

Agencies

[Federal Register Volume 89, Number 17 (Thursday, January 25, 2024)]
[Notices]
[Pages 5075-5079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01388]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99395; File No. SR-CBOE-2024-005]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Permit Cboe To List and Trade 
Options on ETPs That Hold Bitcoin

January 19, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 5, 2024, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 4.3. The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 4.3 regarding the criteria for 
underlying securities. Specifically, the Exchange proposes to amend 
Rule 4.3, Interpretation and Policy .06(a)(4) to allow the Exchange to 
list and trade options on Units \3\ that represent interests in a trust 
that holds bitcoin (``Bitcoin ETPs''), designating them as ``Units'' 
deemed appropriate for options trading on the Exchange. Current Rule 
4.3, Interpretation and Policy .06 provides that, subject to certain 
other criteria set forth in that Rule, securities deemed appropriate 
for options trading include Units that represent certain types of 
interests,\4\ including interests in

[[Page 5076]]

certain specific trusts that hold financial instruments, money market 
instruments, or precious metals (which are deemed commodities).
---------------------------------------------------------------------------

    \3\ Rule 1.1 defines a ``Unit'' (which may also be referred to 
as an exchange-traded fund (``ETF'')) as a share or other security 
traded on a national securities exchange and defined as an NMS stock 
as set forth in Rule 4.3.
    \4\ See Rule 4.3, Interpretation and Policy .06(a), which 
permits options trading on Units that represent (1) interests in 
registered investment companies (or series thereof) organized as 
open-end management investment companies, unit investment trusts or 
similar entities that hold portfolios of securities and/or financial 
instruments including, but not limited to, stock index futures 
contracts, options on futures, options on securities and indexes, 
equity caps, collars and floors, swap agreements, forward contracts, 
repurchase agreements and reverse purchase agreements (the 
``Financial Instruments''), and money market instruments, including, 
but no limited to, U.S. government securities and repurchase 
agreements (the ``Money Market Instruments'') comprising or 
otherwise based on or representing investments in indexes or 
portfolios of securities and/or Financial Instruments and Money 
Market Instruments (or that hold securities in one or more other 
registered investment companies that themselves hold such portfolios 
of securities and/or Financial Instruments and Money Market 
Instruments); (2) interests in a trust or similar entity that holds 
a specified non-U.S. currency deposited with the trust or similar 
entity when aggregated in some specified minimum number may be 
surrendered to the trust by the beneficial owner to receive the 
specified non-U.S. currency and pays the beneficial owner interest 
and other distributions on deposited non-U.S. currency, if any, 
declared and paid by the trust (``Currency Trust Shares''); (3) 
commodity pool interests principally engaged, directly or 
indirectly, in holding and/or managing portfolios or baskets of 
securities, commodity futures contracts, options on commodity 
futures contracts, swaps, forward contracts and/or options on 
physical commodities and/or non-U.S. currency (``Commodity Pool 
Units''); (4) interests in the SPDR Gold Trust, the iShares COMEX 
Gold Trust, the iShares Silver Trust, the Aberdeen Standard Physical 
Silver Trust, the Aberdeen Standard Physical Gold Trust, the 
Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard 
Physical Platinum Trust, the Sprott Physical Gold Trust or the 
Goldman Sachs Physical Gold ETF; or (5) an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity, that invests in a 
portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's 
investment objectives and policies, which is issued in a specified 
aggregate minimum number in return for a deposit of a specified 
portfolio of securities and/or a cash amount with a value equal to 
the next determined net asset value (``NAV''), and when aggregated 
in the same specified minimum number, may be redeemed at a holder's 
request, which holder will be paid a specified portfolio of 
securities and/or cash with a value equal to the next determined NAV 
(``Managed Fund Share'').
---------------------------------------------------------------------------

    Bitcoin ETPs are bitcoin-backed commodity ETPs structured as 
trusts.\5\ Similar to any Unit currently deemed appropriate for options 
trading under Rule 4.3, Interpretation and Policy .06, the investment 
objective of a Bitcoin ETP trust is for its shares to reflect the 
performance of bitcoin (less the expenses of the trust's operations), 
offering investors an opportunity to gain exposure to bitcoin without 
the complexities of bitcoin delivery. As is the case for Units 
currently deemed appropriate for options trading, a Bitcoin ETP's 
shares represent units of fractional undivided beneficial interest in 
the trust, the assets of which consist principally of bitcoin and are 
designed to track bitcoin or the performance of the price of bitcoin 
and offer access to the bitcoin market.\6\ Bitcoin ETPs provide 
investors with cost-efficient alternatives that allow a level of 
participation in the bitcoin market through the securities market. The 
primary substantive difference between Bitcoin ETPs and Units currently 
deemed appropriate for options trading are that Units may hold 
securities, certain financial instruments, and specified precious 
metals (which are commodities), while Bitcoin ETPs hold bitcoin (which 
is also deemed a commodity).
---------------------------------------------------------------------------

    \5\ The Exchange notes several filings to list and trade Units 
that hold bitcoin as NMS stocks (and registration statements for 
those Units) are currently pending with the Securities and Exchange 
Commission (the ``Commission''). Pursuant to the Rules, the Exchange 
would only have authority to list and trade Units that are trading 
as NMS stocks.
    \6\ The trust may include minimal cash.
---------------------------------------------------------------------------

    The Exchange's initial listing standards for ETFs on which options 
may be listed and traded on the Exchange will apply to the Bitcoin 
ETPs. The Exchange expects Bitcoin ETPs to satisfy the initial listing 
standards as set forth in Rule 4.3(a) and Rule 4.3, Interpretation and 
Policy .06(b). Pursuant to Rule 4.3(a), a security (which includes a 
Unit) on which options may be listed and traded on the Exchange must be 
duly registered (with the Commission) and be an NMS stock (as defined 
in Rule 600 of Regulation NMS under the Securities Exchange Act of 
1934, as amended (the ``Act'')), and be characterized by a substantial 
number of outstanding shares that are widely held and actively 
traded.\7\ Rule 4.3, Interpretation and Policy .06 requires that Units 
must either (1) meet the criteria and standards set forth in Rule 4.3, 
Interpretation and Policy .01(a),\8\ or (2) be available for creation 
or redemption each business day from or through the issuer in cash or 
in kind at a price related to net asset value, and the issuer must be 
obligated to issue Units in a specified aggregate number even if some 
or all of the investment assets required to be deposited have not been 
received by the issuer, subject to the condition that the person 
obligated to deposit the investments has undertaken to deliver the 
investment assets as soon as possible and such undertaking is secured 
by the delivery and maintenance of collateral consisting of cash or 
cash equivalents satisfactory to the issuer, as provided in the 
respective prospectus. The Exchange expects that Bitcoin ETPs would 
satisfy Rule 4.3, Interpretation and Policy .06(b)(2).\9\
---------------------------------------------------------------------------

    \7\ As noted above, there are currently no Bitcoin ETPs trading 
as NMS stocks on a national securities exchange; however, 
registration statements and filings to list and trade several 
Bitcoin ETPs are currently pending with the Commission. The Exchange 
represents it would not list options on a Bitcoin ETP unless it 
satisfied the criteria in Rule 4.3(a) the proposed listing criteria, 
and any other applicable listing criteria.
    \8\ Rule 4.3, Interpretation and Policy .01 provides for 
guidelines to be by the Exchange when evaluating potential 
underlying securities for Exchange option transactions.
    \9\ See, e.g., Form S-1 Registration Statement filed on November 
29, 2023 (Registration No. 333-275781) (pending registration 
statement for shares of the Pando Asset Spot Bitcoin Trust); and 
Form S-1 Registration Statement filed on September 12, 2023 
(Registration No. 333-274474) (pending registration statement for 
shares of the Franklin Bitcoin ETF).
---------------------------------------------------------------------------

    Options on Bitcoin ETPs will also be subject to the Exchange's 
continued listing standards set forth in Rule 4.4, Interpretation and 
Policy .06 for Units deemed appropriate for options trading pursuant to 
Rule 4.3, Interpretation and Policy .06. Specifically, Rule 4.4, 
Interpretation and Policy .06 provides that Units that were initially 
approved for options trading pursuant to Rule 4.3, Interpretation and 
Policy .06 shall be deemed not to meet the requirements for continued 
approval, and the Exchange shall not open for trading any additional 
series of option contracts of the class covering that [sic] such Units, 
if the Units cease to be an NMS stock or the Units are halted from 
trading in their primary market. Additionally, options on Units may be 
subject to the suspension of opening transactions in any of the 
following circumstances: (1) in the case of options covering Units 
approved for trading under Rule 4.3, Interpretation and Policy 
.06(b)(1), in accordance with the terms of paragraphs (a), (b), and (c) 
of Rule 4.4, Interpretation and Policy .01; (2) in the case of options 
covering Units approved for trading under Rule 4.3 Interpretation and 
Policy .06(b)(2), following the initial twelve-month period beginning 
upon the commencement of trading in the Units on a national securities 
exchange and are defined as an NMS stock [sic], there are fewer than 50 
record and/or beneficial holders of such Units for 30 or more 
consecutive trading days; (3) the value of the index or portfolio of 
securities, non-U.S. currency, or portfolio of commodities including 
commodity futures contracts, options on commodity futures contracts, 
swaps, forward contracts and/or options on physical commodities and/or 
financial instruments and money market instruments on which the Units 
are based is no longer calculated or available; or (4) such other event 
shall occur or condition exist that in the opinion of the Exchange 
makes further dealing in such options on the Exchange inadvisable.
    Options on a Bitcoin ETP will be physically settled contracts with 
American-style exercise.\10\ Consistent with current Rule 4.5, which 
governs the opening of options series on a specific underlying security 
(including Units), the Exchange will open at least one expiration month 
for options on each Bitcoin ETP \11\ at the

[[Page 5077]]

commencement of trading on the Exchange and may also list series of 
options on a Bitcoin ETP for trading on a weekly,\12\ monthly,\13\ or 
quarterly \14\ basis. The Exchange may also list long-term equity 
option series (``LEAPS'') that expire from 12 to 180 months from the 
time they are listed.\15\
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    \10\ See Rule 4.2, which provides that the rights and 
obligations of holders and writers are set forth in the Rules of the 
Options Clearing Corporation (``OCC''); and Equity Options Product 
Specifications January 3, 2024), available at Equity Options 
Specifications (cboe.com); see also OCC Rules, Chapters VIII (which 
governs exercise and assignment) and Chapter IX (which governs the 
discharge of delivery and payment obligations arising out of the 
exercise of physically settled stock option contracts).
    \11\ See Rule 4.5(b). The monthly expirations are subject to 
certain listing criteria for underlying securities described within 
Rule 4.3. Monthly listings expire the third Friday of the month. The 
term ``expiration date'' (unless separately defined elsewhere in the 
OCC By-Laws), when used in respect of an option contract (subject to 
certain exceptions), means the third Friday of the expiration month 
of such option contract, or if such Friday is a day on which the 
exchange on which such option is listed is not open for business, 
the preceding day on which such exchange is open for business. See 
OCC By-Laws Article I, Section 1. Pursuant to Rule 4.5(c), 
additional series of options of the same class may be opened for 
trading on the Exchange when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the 
market price of the underlying stock moves more than five strike 
prices from the initial exercise price or prices. New series of 
options on an individual stock may be added until the beginning of 
the month in which the options contract will expire. Due to unusual 
market conditions, the Exchange, in its discretion, may add a new 
series of options on an individual stock until the close of trading 
on the business day prior to expiration.
    \12\ See Rule 4.5(d).
    \13\ See Rule 4.5(g).
    \14\ See Rule 4.5(e).
    \15\ See Rule 4.5(f).
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    Pursuant to Rule 4.5, Interpretation and Policy .07, which governs 
strike prices of series of options on Units, the interval of strikes 
prices for series of options Bitcoin ETPs will be $1 or greater when 
the strike price is $200 or less and $5 or greater where the strike 
price is over $200.\16\ Additionally, the Exchange may list series of 
options pursuant to the $1 Strike Price Interval Program,\17\ the $0.50 
Strike Program,\18\ the $2.50 Strike Price Program,\19\ and the $5 
Strike Program.\20\ Pursuant to Rule 5.4, where the price of a series 
of a Bitcoin ETP option is less than $3.00, the minimum increment will 
be $0.05, and where the price is $3.00 or higher, the minimum increment 
will be $0.10.\21\ Any and all new series of Bitcoin ETP options that 
the Exchange lists will be consistent and comply with the expirations, 
strike prices, and minimum increments set forth in Rules 4.5 and 5.4, 
as applicable.
---------------------------------------------------------------------------

    \16\ The Exchange notes that for options listed pursuant to the 
Short Term Option Series Program, the Monthly Options Series 
Program, and the Quarterly Options Series Program, Rules 4.5(d), 
(e), and (g) specifically sets forth intervals between strike prices 
on Quarterly Options Series, Short Term Option Series, and Monthly 
Options Series, respectively.
    \17\ See Rule 4.5, Interpretation and Policy .01(a).
    \18\ See Rule 4.5, Interpretation and Policy .01(b).
    \19\ See Rule 4.5, Interpretation and Policy .04.
    \20\ See Rule 4.5, Interpretation and Policy .01(f).
    \21\ If options on a Bitcoin ETP are eligible to participate in 
the Penny Interval Program, the minimum increment will be $0.01 for 
series with a price below $3.00 and $0.05 for series with a price at 
or above $3.00. See 5.4(d) (which describes the requirements for the 
Penny Interval Program).
---------------------------------------------------------------------------

    Bitcoin ETP options will trade in the same manner as any other Unit 
options on the Exchange. The Exchange Rules that currently apply to the 
listing and trading of all Unit options on the Exchange, including, for 
example, Rules that govern listing criteria, expiration and exercise 
prices, minimum increments, position and exercise limits, margin 
requirements, customer accounts and trading halt procedures will apply 
to the listing and trading of Bitcoin ETPs on the Exchange in the same 
manner as they apply to other options on all other Units that are 
listed and traded on the Exchange, including the precious-metal backed 
commodity Units already deemed appropriate for options trading on the 
Exchange pursuant to current Rule 4.3, Interpretation and Policy 
.06(a)(4).
    Position and exercise limits for options on Units, including 
options on Bitcoin ETPs, are determined pursuant to Rules 8.30 and 
8.42, respectively. Position and exercise limits for Unit options vary 
according to the number of outstanding shares and the trading volumes 
of the underlying Unit over the past six months, where the largest in 
capitalization and the most frequently traded Units have an option 
position and exercise limit of 250,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market; and 
smaller capitalization Units have position and exercise limits of 
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market.\22\ 
The Exchange further notes that Rule 10.3, which governs margin 
requirements applicable to the trading of all options on the Exchange, 
including options on Units, will also apply to the trading of Bitcoin 
ETP options.
---------------------------------------------------------------------------

    \22\ As Bitcoin ETPs do not currently trade, options on Bitcoin 
ETPs would be subject to the 25,000 option contract limit.
---------------------------------------------------------------------------

    The Exchange represents that the same surveillance procedures 
applicable to all other options on Units currently listed and traded on 
the Exchange will apply to options on Bitcoin ETPs, and that it has the 
necessary systems capacity to support the new option series. The 
Exchange believes that its existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might potentially arise from listing and trading Unit 
options, including precious metal-commodity backed Unit options, as 
proposed [sic]. Also, the Exchange may obtain information from CME 
Group Inc.'s designated contract markets that are members of the 
Intermarket Surveillance Group related to any financial instrument that 
is based, in whole or in part, upon an interest in or performance of 
bitcoin, as applicable.
    The Exchange has also analyzed its capacity and represents that it 
believes the Exchange and OPRA have the necessary systems capacity to 
handle the additional traffic associated with the listing of new series 
that may result from the introduction of options on Bitcoin ETPs up to 
the number of expirations currently permissible under the Rules. 
Because the proposal is limited to Units on a single commodity, the 
Exchange believes any additional traffic that may be generated from the 
introduction of Bitcoin ETP options will be manageable.
    The Exchange believes that offering options on Bitcoin ETPs will 
benefit investors by providing them with an additional, relatively 
lower cost investing tool to gain exposure to the price of bitcoin and 
hedging [sic] vehicle to meet their investment needs in connection with 
bitcoin-related products and positions. The Exchange expects investors 
will transact in options on Bitcoin ETPs in the unregulated over-the-
counter (``OTC'') options market (if the Commission approves Bitcoin 
ETPs for exchange-trading),\23\ but may prefer to trade such options in 
a listed environment to receive the benefits of trading listing 
options, including (1) enhanced efficiency in initiating and closing 
out position; (2) increased market transparency; and (3) heightened 
contra-party creditworthiness due to the role of OCC as issuer and 
guarantor of all listed options. The Exchange believes that listing 
Bitcoin ETP options may cause investors to bring this liquidity to the 
Exchange, would increase market transparency and enhance the process of 
price discovery conducted on the Exchange through increased order flow. 
The Units that hold financial instruments, money market instruments, or 
precious metal commodities on which the Exchange may already list and 
trade options are trusts structured in substantially the same manner as 
Bitcoin ETPs and essentially offer the same objectives and benefits to 
investors, just with respect to different assets. The Exchange notes 
that it has not identified any issues with the continued listing and 
trading of any Unit options, including Units that hold commodities 
(i.e., precious metals) that it currently lists and trades on the 
Exchange.
---------------------------------------------------------------------------

    \23\ The Exchange understands from customers that investors have 
historically transacted in options on Units in the OTC options 
market if such options were not available for trading in a listed 
environment.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of

[[Page 5078]]

Section 6(b) of the Act.\24\ Specifically, the Exchange believes the 
proposed rule change is consistent with the Section 6(b)(5) \25\ 
requirements that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. Additionally, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) \26\ requirement that the rules of an exchange not be designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposal to list and 
trade options on Bitcoin ETPs will remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, protect investors because offering options on Bitcoin 
ETPs will provide investors with an opportunity to realize the benefits 
of utilizing options on a bitcoin-based ETP, including cost 
efficiencies and increased hedging strategies. The Exchange believes 
that offering Bitcoin ETP options will benefit investors by providing 
them with a relatively lower-cost risk management tool, which will 
allow them to manage their positions and associated risk in their 
portfolios more easily in connection with exposure to the price of 
bitcoin and with bitcoin-related products and positions. Additionally, 
the Exchange's offering of Bitcoin ETP options will provide investors 
with the ability to transact in such options in a listed market 
environment as opposed to in the unregulated OTC options market, which 
would increase market transparency and enhance the process of price 
discovery conducted on the Exchange through increased order flow to the 
benefit of all investors. The Exchange also notes that it already lists 
options on other commodity-based Units,\27\ which, as described above, 
are trusts structured in substantially the same manner as Bitcoin ETPs 
and essentially offer the same objectives and benefits to investors, 
just with respect to a different commodity (i.e., bitcoin rather than 
precious metals) and for which the Exchange has not identified any 
issues with the continued listing and trading of commodity-backed Unit 
options it currently lists for trading.
---------------------------------------------------------------------------

    \27\ See Rule 4.3, Interpretation and Policy .06(a)(4).
---------------------------------------------------------------------------

    The Exchange also believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because it is consistent with current 
Exchange Rules, previously filed with the Commission. Options on 
Bitcoin ETPs must satisfy the initial listing standards and continued 
listing standards currently in the Exchange Rules, applicable to 
options on all Units, including Units that hold other commodities 
already deemed appropriate for options trading on the Exchange. Bitcoin 
ETP options will trade in the same manner as any other Unit options--
the same Exchange Rules that currently govern the listing and trading 
of all Unit options, including permissible expirations, strike prices 
and minimum increments, and applicable position and exercise limits and 
margin requirements, will govern the listing and trading of options on 
Bitcoin ETPs in the same manner.
    The Exchange represents that it has the necessary systems capacity 
to support the new Unit option series. The Exchange believes that its 
existing surveillance and reporting safeguards are designed to deter 
and detect possible manipulative behavior which might arise from 
listing and trading Unit options, including Bitcoin ETP options.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as Bitcoin ETPs would need to 
satisfy the initial listing standards set forth in the Exchange Rules 
in the same manner as any other Unit before the Exchange could list 
options on them. Additionally, Bitcoin ETP options will be equally 
available to all market participants who wish to trade such options. 
The Exchange Rules currently applicable to the listing and trading of 
options on Units on the Exchange will apply in the same manner to the 
listing and trading of all options on Bitcoin ETPs. Also, and as stated 
above, the Exchange already lists options on other commodity-based 
Units.\28\
---------------------------------------------------------------------------

    \28\ See Rule 4.3, Interpretation and Policy .06(a)(4).
---------------------------------------------------------------------------

    The Exchange does not believe that the proposal to list and trade 
options on Bitcoin ETPs will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. To the extent that the advent of Bitcoin ETP 
options trading on the Exchange may make the Exchange a more attractive 
marketplace to market participants at other exchanges, such market 
participants are free to elect to become market participants on the 
Exchange. Additionally, other options exchanges are free to amend their 
listing rules, as applicable, to permit them to list and trade options 
on Bitcoin ETPs. Additionally, the Exchange notes that listing and 
trading Bitcoin ETP options on the Exchange will subject such options 
to transparent exchange-based rules as well as price discovery and 
liquidity, as opposed to alternatively trading such options in the OTC 
market. The Exchange believes that the proposed rule change may relieve 
any burden on, or otherwise promote, competition as it is designed to 
increase competition for order flow on the Exchange in a manner that is 
beneficial to investors by providing them with a lower-cost option to 
hedge their investment portfolios. The Exchange notes that it operates 
in a highly competitive market in which market participants can readily 
direct order flow to competing venues that offer similar products. 
Ultimately, the Exchange believes that offering Bitcoin ETP options for 
trading on the Exchange will promote competition by providing investors 
with an additional, relatively low-cost means to hedge their portfolios 
and meet their investment needs in connection with bitcoin prices and 
bitcoin-related products and positions on a listed options exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period

[[Page 5079]]

to be appropriate and publishes its reasons for so finding or (ii) as 
to which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CBOE-2024-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CBOE-2024-005. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CBOE-2024-005 and should be 
submitted on or before February 15, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01388 Filed 1-24-24; 8:45 am]
BILLING CODE 8011-01-P
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