Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Proposed Rule Change To List and Trade Options on the iShares Ethereum Trust, 65690-65694 [2024-17842]
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65690
Federal Register / Vol. 89, No. 155 / Monday, August 12, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Sherry R. Haywood,
Assistant Secretary.
Dated: August 8, 2024.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–18006 Filed 8–8–24; 11:15 am]
BILLING CODE 8011–01–P
[FR Doc. 2024–17844 Filed 8–9–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100661; File No. SR–ISE–
2024–35]
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August 15, 2024.
PLACE: The meeting will be held via
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Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
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the public.
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Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
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certified that, in her opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
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TIME AND DATE:
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing of Proposed
Rule Change To List and Trade
Options on the iShares Ethereum Trust
August 6, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’),1 and Rule 19b–4
thereunder,2 notice is hereby given that
on July 22, 2024, Nasdaq ISE, LLC
(‘‘ISE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the 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 proposes to amend
Options 4, Section 3, Criteria for
Underlying Securities.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, at the principal
office of the Exchange, 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.
1 15
13 17
CFR 200.30–3(a)(57).
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CFR 240.19b–4.
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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
Options 4, Section 3, Criteria for
Underlying Securities, to allow the
Exchange to list and trade options on
iShares Ethereum Trust (the ‘‘Trust’’) 3
as a Unit deemed appropriate for
options trading on the Exchange.
Currently, Options 4, Section 3(h)
provides that securities deemed
appropriate for options trading shall
include shares or other securities
(‘‘Exchange-Traded Fund Shares’’ or
‘‘ETFs’’) that are traded on a national
securities exchange and are defined as
an ‘‘NMS’’ stock under Rule 600 of
Regulation NMS, and that meet certain
criteria specified in Options 4, Section
3(h), including that they:
(i) 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,
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 broadbased 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) or
(ii) represent interests in a trust or similar
entity that holds a specified non-U.S.
currency or currencies deposited with the
trust 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’’) or
(iii) represent commodity pool interests
principally engaged, directly or indirectly, in
3 The Commission recently approved a rule
change to list and trade shares of the Trust pursuant
to Rule 5711(d) of The Nasdaq Stock Exchange LLC
(‘‘Commodity-Based Trust Shares’’). See Securities
Exchange Act Release No. 100224 (May 23, 2024),
89 FR 46937 (May 30, 2024) (SR–NASDAQ–2023–
045) (hereinafter ‘‘SR–NASDAQ–2023–045’’). The
Exchange represents it would not list options on the
Trust unless it satisfied all applicable criteria in
Options 4, Section 3.
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Federal Register / Vol. 89, No. 155 / Monday, August 12, 2024 / Notices
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 nonU.S. currency (‘‘Commodity Pool ETFs’’) or
(iv) represent interests in the SPDR® Gold
Trust, the iShares COMEX Gold Trust, the
iShares Silver Trust, or the ETFS Gold Trust
or
(v) represents an interest in a registered
investment company (‘‘Investment
Company’’) organized as an open-end
management 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’’).
In addition to the aforementioned
requirements, Options 4, Section 3(h)(1)
and (2) must be met to list options on
ETFs.4
Proposal
The Exchange proposes to expand the
list of ETFs that are appropriate for
options trading on the Exchange in
Options 3, Section 4(h)(iv) to include
the Trust.5
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Description of the Trust 6
The Shares are issued by the Trust, a
Delaware statutory trust. The Trust will
operate pursuant to a trust agreement
4 Options 4, Section 3(h)(1) and (2) state that the
Exchange-Traded Fund Shares either (i) meet the
criteria and guidelines set forth in paragraphs (a)
and (b) described herein; or (ii) the ExchangeTraded Fund Shares are available for creation or
redemption each business day from or through the
issuing trust, investment company, commodity pool
or other entity in cash or in kind at a price related
to net asset value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in a specified
aggregate number even if some or all of the
investment assets and/or cash required to be
deposited have not been received by the issuer,
subject to the condition that the person obligated
to deposit the investment assets has undertaken to
deliver them 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 of the
Exchange-Traded Fund Shares, all as described in
the Exchange-Traded Fund Shares’ prospectus.
Also, the Exchange-Traded Fund Shares based on
international or global indexes, or portfolios that
include non-U.S. securities, shall meet the criteria
in Options 4, Section 3(h)(2)(A)–(F).
5 Specifically, the Exchange proposes to amend
Options 3, Section 4(h)(iv) to include the name of
the Trust to enable options to be listed on the Trust
on the Exchange.
6 See SR–NASDAQ–2023–045 for a complete
description of the Trust.
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(the ‘‘Trust Agreement’’) between the
Sponsor, BlackRock Fund Advisors (the
‘‘Trustee’’) as the trustee of the Trust
and will appoint Wilmington Trust,
National Association, as Delaware
Trustee of the Trust (the ‘‘Delaware
Trustee’’) by such time that the
Registration Statement is effective. The
Trust issues Shares representing
fractional undivided beneficial interests
in its net assets. The assets of the Trust
will consist only of ether (‘‘ether’’ or
‘‘ETH’’) held by a custodian on behalf of
the Trust, except under limited
circumstances when transferred through
the Trust’s prime broker temporarily
(described below), and cash. Neither the
Trust, nor the Sponsor, nor the Ether
Custodian (as defined below), nor any
other person associated with the Trust
will, directly or indirectly, engage in
action where any portion of the Trust’s
ETH becomes subject to the Ethereum
proof-of-stake validation or is used to
earn additional ETH or generate income
or other earnings. Coinbase Custody
Trust Company, LLC (the ‘‘Ether
Custodian’’), is the custodian for the
Trust’s ether holdings, and maintains a
custody account for the Trust (‘‘Custody
Account’’); Coinbase, Inc. (the ‘‘Prime
Execution Agent’’), an affiliate of the
Ether Custodian, is the prime broker for
the Trust and maintains a trading
account for the Trust (‘‘Trading
Account’’); and The Bank of New York
Mellon is the custodian for the Trust’s
cash holdings (the ‘‘Cash Custodian’’
and together with the Ether Custodian,
the ‘‘Custodians’’) and the administrator
of the Trust (the ‘‘Trust Administrator’’).
Under the Trust Agreement, the Trustee
may delegate all or a portion of its
duties to any agent, and has delegated
the bulk of the day-to-day
responsibilities to the Trust
Administrator and certain other
administrative and record-keeping
functions to its affiliates and other
agents. The Trust is not an investment
company registered under the
Investment Company Act of 1940, as
amended (the ‘‘1940 Act’’).
The investment objective of the Trust
is to reflect generally the performance of
the price of ether. The Trust seeks to
reflect such performance before
payment of the Trust’s expenses and
liabilities. The Shares are intended to
constitute a simple means of making an
investment similar to an investment in
ether through the public securities
market rather than by acquiring, holding
and trading ether directly on a peer-topeer or other basis or via a digital asset
platform. The Shares have been
designed to remove the obstacles
represented by the complexities and
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65691
operational burdens involved in a direct
investment in ether, while at the same
time having an intrinsic value that
reflects, at any given time, the
investment exposure to the ether owned
by the Trust at such time, less the
Trust’s expenses and liabilities.
Although the Shares are not the exact
equivalent of a direct investment in
ether, they provide investors with an
alternative method of achieving
investment exposure to ether through
the public securities market, which may
be more familiar to them.
Custody of the Trust’s Ether and
Creation and Redemption
An investment in the Shares is backed
by ether held by the Ether Custodian on
behalf of the Trust. All of the Trust’s
ether will be held in the Custody
Account, other than the Trust’s ether
which is temporarily maintained in the
Trading Account under limited
circumstances, i.e., in connection with
creation and redemption Basket 7
activity or sales of ether deducted from
the Trust’s holdings in payment of Trust
expenses or the Sponsor’s fee (or, in
extraordinary circumstances, upon
liquidation of the Trust). The Custody
Account includes all of the Trust’s ether
held at the Ether Custodian, but does
not include the Trust’s ether
temporarily maintained at the Prime
Execution Agent in the Trading Account
from time to time. The Ether Custodian
will keep all of the private keys
associated with the Trust’s ether held in
the Custody Account in ‘‘cold storage’’.8
The hardware, software, systems, and
procedures of the Ether Custodian may
not be available or cost-effective for
many investors to access directly.
The Exchange believes that offering
options on the Trust will benefit
investors by providing them with an
additional, relatively lower cost
investing tool to gain exposure to spot
ether as well as a hedging vehicle to
meet their investment needs in
connection with ether products and
positions. Similar to other commodity
ETFs in which options may be listed on
ISE (e.g. SPDR® Gold Trust, the iShares
COMEX Gold Trust, the iShares Silver
7 The Trust issues and redeems Shares only in
blocks of 40,000 or integral multiples thereof. A
block of 40,000 Shares is called a ‘‘Basket.’’ These
transactions take place in exchange for ether.
8 The term ‘‘cold storage’’ refers to a safeguarding
method by which the private keys corresponding to
the Trust’s ether are generated and stored in an
offline manner, subject to layers of procedures
designed to enhance security. Private keys are
generated by the Ether Custodian in offline
computers that are not connected to the internet so
that they are more resistant to being hacked.
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Federal Register / Vol. 89, No. 155 / Monday, August 12, 2024 / Notices
Trust, or the ETFS Gold Trust),9 the
proposed ETF is a trust that essentially
offers the same objectives and benefits
to investors.
Options on the Trust will trade in the
same manner as options on other ETFs
on the Exchange. Exchange Rules that
currently apply to the listing and
trading of all options on ETFs on the
Exchange, including, for example, Rules
that govern listing criteria, expirations,
exercise prices, minimum increments,
position and exercise limits, margin
requirements, customer accounts and
trading halt procedures, will apply to
the listing and trading of options on the
Trust on the Exchange. Today, these
rules apply to options on the various
commodities ETFs deemed appropriate
for options trading on the Exchange
pursuant to Options 4, Section 3(h)(iv).
The Exchange’s initial listing
standards for ETFs on which options
may be listed and traded on the
Exchange will apply to the Trust. The
initial listing standard as set forth in
Options 4, Section 3(a) provides that:
Underlying securities with respect to
which put or call options contracts are
approved for listing and trading on the
Exchange must meet the following criteria:
(1) the security must be registered and be an
‘‘NMS stock’’ as defined in Rule 600 of
Regulation NMS under the Exchange Act;
and (2) the security shall be characterized by
a substantial number of outstanding shares
that are widely held and actively traded.
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Pursuant to ISE Options 4, Section 3,
ETFs on which options may be listed
and traded must satisfy the listing
standards set forth in Options 4, Section
3(h). Specifically, the Trust must meet
either:
(1) the criteria and guidelines for
underlying securities set forth in Options 4,
Section 3(h), or
(2) it must be available for creation or
redemption each business day from or
through the issuing trust, investment
company, commodity pool or other entity in
cash or in kind at a price related to net asset
value, and the issuer is obligated to issue
Exchange-Traded Fund Shares in a specified
aggregate number even if some or all of the
investment assets and/or cash required to be
deposited have not been received by the
issuer, subject to the condition that the
person obligated to deposit the investment
assets has undertaken to deliver them 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 of the ExchangeTraded Fund Shares, all as described in the
Exchange-Traded Fund Shares’ prospectus,
or the Exchange-Traded Fund Shares must be
based on international or global indexes, or
portfolios that include non-U.S. securities,
and meet other criteria.
9 See
ISE Options 4, Section 3(h)(iv).
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Options on the Trust will also be
subject to the Exchange’s continued
listing standards for options on ETFs set
forth in Options 4, Section 4(g).
Specifically, options approved for
trading pursuant to Options 4, Section
3(h) will not be deemed 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 such
ETFs if the ETFs are delisted from
trading as provided in subparagraph
(b)(5) of Options 4, Section 4 10 or the
ETFs are halted or suspended from
trading on their primary market.11 In
addition, the Exchange shall consider
the suspension of opening transactions
in any series of options of the class
covering ETFs in any of the following
circumstances:
(1) in the case of options covering
Exchange-Traded Fund Shares approved
pursuant to Options 4, Section 3(h)(A)(i), in
accordance with the terms of subparagraphs
(b)(1), (2), (3) and (4) of Options 4, Section
4; 12
(2) in the case of options covering Fund
Shares approved pursuant to Options 4,
Section 3(h)(A)(ii),13 following the initial
twelve-month period beginning upon the
commencement of trading in the ExchangeTraded Fund Shares on a national securities
exchange and are defined as an ‘‘NMS stock’’
under Rule 600 of Regulation NMS, there
were fewer than 50 record and/or beneficial
holders of such Exchange-Traded Fund
Shares for 30 or more consecutive trading
days;
(3) the value of the index or portfolio of
securities or non-U.S. currency, portfolio of
commodities including commodity futures
contracts, options on commodity futures
contracts, swaps, forward contracts, options
on physical commodities and/or Financial
Instruments and Money Market Instruments,
10 Options 4, Section 4(b)(5) provides, if an
underlying security is approved for options listing
and trading under the provisions of Options 4,
Section 3(c), the trading volume of the Original
Security (as therein defined) prior to but not after
the commencement of trading in the Restructure
Security (as therein defined), including ‘whenissued’ trading, may be taken into account in
determining whether the trading volume
requirement of (3) of this paragraph (b) is satisfied.
Options 4, Section 4(b)(3) provides, ‘‘The trading
volume (in all markets in which the underlying
security is traded) has been less than 1,800,000
shares in the preceding twelve (12) months.’’
11 See Options 4, Section 4(g).
12 Options 4, Section 4(b)(5)(1) through (4)
provides, if: (1) there are fewer than 6,300,000
shares of the underlying security held by persons
other than those who are required to report their
security holdings under Section 16(a) of the Act, (2)
there are fewer than 1,600 holders of the underlying
security, (3) the trading volume (in all markets in
which the underlying security is traded) has been
less than 1,800,000 shares in the preceding twelve
(12) months, or (4) the underlying security ceases
to be an ‘NMS stock’ as defined in Rule 600 of
Regulation NMS under the Exchange Act.
13 Options 4, Section 3(h)(ii) refers to Currency
Trust Shares.
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on which the Exchange-Traded Fund Shares
are based is no longer calculated or available;
or
(4) such other event occurs or condition
exists that in the opinion of the Exchange
makes further dealing in such options on the
Exchange inadvisable.
Options on the Trust would be
physically settled contracts with
American-style exercise.14 Consistent
with current Options 4, Section 5,
which governs the opening of options
series on a specific underlying security
(including ETFs), the Exchange will
open at least one expiration month 15 for
options on the Trust and may also list
series of options on the Trust for trading
on a weekly 16 or quarterly 17 basis. The
Exchange may also list long-term equity
option series (‘‘LEAPS’’) 18 that expire
from twelve to thirty-nine from the time
they are listed.
Pursuant to Options 4, Section 5(d),
which governs strike prices of series of
options on ETFs, the interval between
strike prices of series of options on ETFs
approved for options trading pursuant
to Section 3(h) of Options 4 will be $1
or greater where the strike price is $200
or less and $5.00 or greater where the
strike price is greater than $200.19 With
respect to the Short Term Options Series
or Weekly Program, during the month
prior to expiration of an option class
that is selected for the Short Term
Option Series Program, the strike price
intervals for the related non-Short Term
Option (‘‘Related non-Short Term
Option’’) shall be the same as the strike
14 See Options 4, Section 2, Rights and
Obligations of Holders and Writers, which provides
that the rights and obligations of holders and
writers shall be as set forth in the Rules of the
Clearing Corporation. See also OCC Rules, Chapter
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. OCC
Rules can be located at: https://www.theocc.com/
getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/
occ_rules.pdf.
15 See Options 4, Section 5(b).
16 See Supplementary .03 to Options 4, Section 5.
17 See Supplementary .04 to Options 4, Section 5.
18 See Options 4, Section 8.
19 See Options 5, Section 5(d). The interval
between strike prices of series of options on
Exchange-Traded Fund Shares approved for options
trading pursuant to Section 3(h) of this Options 4
may also be fixed at a price per share which is
reasonably close to the price per share at which the
underlying security is traded in the primary market
at or about the same time such series of options is
first open for trading on the Exchange, or at such
intervals as may have been established on another
options exchange prior to the initiation of trading
on the Exchange. See also Options 4, Section 5(h).
The Exchange notes that for options listed pursuant
to the Short Term Option Series Program, the
Quarterly Options Series Program, and the Monthly
Options Series Program, Supplementary Material
.03, .04 and .08 to Options 4, Section 5 specifically
sets forth intervals between strike prices on Short
Term Option Series, Quarterly Options Series, and
Monthly Options Series, respectively.
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price intervals for the Short Term
Option.20 Specifically, the Exchange
may open for trading Short Term Option
Series at strike price intervals of (i)
$0.50 or greater where the strike price
is less than $100, and $1 or greater
where the strike price is between $100
and $150 for all option classes that
participate in the Short Term Options
Series Program; (ii) $0.50 for option
classes that trade in one dollar
increments and are in the Short Term
Option Series Program; or (iii) $2.50 or
greater where the strike price is above
$150.21 Additionally, the Exchange may
list series of options pursuant to the $1
Strike Price Interval Program,22 the
$0.50 Strike Program,23 the $2.50 Strike
Price Program,24 and the $5 Strike
Program.25 Options 3, Section 3 governs
the minimum increment for bids and
offers for both equity and index options.
Pursuant to Options 3, Section 3, where
the price of a series of options for the
Trust 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 26 consistent
with the minimum increments for
options on other ETFs listed on the
Exchange. Any and all new series of
Trust options that the Exchange lists
will be consistent and comply with the
expirations, strike prices, and minimum
increments set forth in Options 4,
Section 5 and Options 3, Section 3, as
applicable.
Position and exercise limits for
options on ETFs, including options on
the Trust, are determined pursuant to
Options 9, Sections 13 and 15,
respectively. Position and exercise
limits for ETFs options vary according
to the number of outstanding shares and
the trading volumes of the underlying
ETF over the past six months, where the
largest in capitalization and the most
frequently traded ETFs 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
ETFs have position and exercise limits
of 200,000, 75,000, 50,000 or 25,000
20 See Supplementary Material .03(e) to Options
4, Section 5.
21 Id.
22 See Supplementary Material .01 to Options 4,
Section 5.
23 See Supplementary Material .05 to Options 4,
Section 5.
24 See Supplementary Material .02 to Options 4,
Section 5.
25 See Supplementary Material .06 to Options 4,
Section 5.
26 Options that are eligible to participate in the
Penny Interval Program have a minimum increment
of $0.01 below $3.00 and $0.50 above $3.00. See
Supplementary Material .01 to Options 3, Section
3.
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contracts (with adjustments for splits,
re-capitalizations, etc.) on the same side
of the market. Further, Options 6C,
Section 3, which governs margin
requirements applicable to the trading
of all options on the Exchange including
options on ETFs, will also apply to the
trading of the Trust options.
The Exchange represents that the
same surveillance procedures applicable
to all other options on other ETFs
currently listed and traded on the
Exchange will apply to options on the
Trust. Also, the Exchange represents
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 options on ETFs,
including the proposed Trust options.
ISE would implement any new
surveillance procedures it deemed
necessary to effectively monitor the
trading of options on the Trust.
Additionally, ISE may obtain trading
information via the Intermarket
Surveillance Group (‘‘ISG’’) from other
exchanges who are members or affiliates
of the ISG.
The Exchange has also analyzed its
capacity and represents that it believes
the Exchange and the Options Price
Reporting Authority or ‘‘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 the Trust up to the number of
expirations currently permissible under
the Exchange Rules. Because the
proposal is limited to one class, the
Exchange believes any additional traffic
that may be generated from the
introduction of the Trust options will be
manageable.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,27 in general, and furthers the
objectives of Section 6(b)(5) of the Act,28
in particular, in that it is 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
27 15
28 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00113
Fmt 4703
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 29 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 the Trust 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 the Trust will
provide investors with a greater
opportunity to realize the benefits of
utilizing options on an ETF based on
spot ether, including cost efficiencies
and increased hedging strategies. The
Exchange believes that offering options
on a competitively priced ETF based on
spot ether will benefit investors by
providing them with an additional,
relatively lower cost risk management
tool allowing them to manage, more
easily, their positions, and associated
risks, in their portfolios in connection
with exposure to spot ether. Today, the
Exchange lists options on other
commodity ETFs structured as a trust,
which essentially offer the same
objectives and benefits to investors, and
for which the Exchange has not
identified any issues with the continued
listing and trading of options on those
ETFs.
The Exchange also believes the
proposal to permit options on the Trust
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system,
because options on the Trust will
comply with current Exchange Rules.
Options on the Trust must satisfy the
initial listing standards and continued
listing standards currently in the
Exchange Rules, applicable to options
on all ETFs, including options on other
commodity ETFs already deemed
appropriate for options trading on the
Exchange pursuant to Options 4,
Section 3(h)(iv). Further, Exchange
Rules that currently govern the listing
and trading of options on ETFs,
including permissible expirations, strike
prices, minimum increments, position
and exercise limits, and margin
requirements, will govern the listing
and trading of options on the Trust. The
Exchange represents that it has the
necessary systems capacity to support
options on the Trust. The Exchange
believes that its existing surveillance
and reporting safeguards are designed to
deter and detect possible manipulative
behavior which might arise from listing
29 15
Sfmt 4703
65693
E:\FR\FM\12AUN1.SGM
U.S.C. 78(f)(b)(5).
12AUN1
65694
Federal Register / Vol. 89, No. 155 / Monday, August 12, 2024 / Notices
and trading options on ETFs, including
the Trust options.
Finally, the Commission has
previously approved the listing and
trading of options on other commodity
ETFs structured as a trust, such as
SPDR® Gold Trust,30 the iShares
COMEX Gold Trust 31 the iShares Silver
Trust,32 the ETFS Gold Trust,33 and the
ETFS Silver Trust.34
khammond on DSKJM1Z7X2PROD with NOTICES
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 options on the Trust will be subject
to initial listing standards and
continued listing standards the same as
other options on ETFs listed on the
Exchange. Further, options on the Trust
will be subject to Exchange Rules that
currently govern the listing and trading
of options on ETFs, including
permissible expirations, strike prices,
minimum increments, position and
exercise limits, and margin
requirements. Options on the Trust will
be equally available to all market
participants who wish to trade such
options. Also, and as stated above, the
Exchange already lists options on other
commodity ETFs structured as a trust.
The Exchange does not believe that
the proposal to list and trade options on
the Trust will impose any burden on
intermarket competition that is not
30 See Securities Exchange Act Release No. 57897
(May 30, 2008), 73 FR 32061 (June 5, 2008) (SR–
Amex–2008–15; SR–CBOE–2005–11; SR–ISE–2008–
12; SR–NYSEArca–2008–52; and SR–Phlx–2008–
17) (Order Granting Approval of a Proposed Rule
Change, as Modified, and Notice of Filing and
Order Granting Accelerated Approval of Proposed
Rule Changes, as Modified, Relating to Listing and
Trading Options on the SPDR Gold Trust).
31 See Securities Exchange Act Release No. 59055
(December 4, 2008), 73 FR 75148 (December 10,
2008) (SR–Amex–2008–68; SR–BSE–2008–51; SR–
CBOE–2008–72; SR–ISE–2008–58; SR–NYSEArca–
2008–66; and SR–Phlx–2008–58) (Notice of Filing
and Order Granting Accelerated Approval of
Proposed Rule Changes Relating to the Listing and
Trading Options on Shares of the iShares COMEX
Gold Trust and the iShares Silver Trust).
32 Id.
33 See Securities Exchange Act Release No. 61483
(February 3, 2010), 75 FR 6753 (February 10, 2010)
(SR–CBOE–2010–007; SR–ISE–2009–106; SR–
NYSEAmex–2009–86; and SR–NYSEArca–2009–
110) (Order Granting Approval of Proposed Rule
Changes and Notice of Filing and Order Granting
Accelerated Approval of a Proposed Rule Change
Relating to Listing and Trading Options on the
ETFS Gold Trust and the ETFS Silver Trust).
34 Id.
VerDate Sep<11>2014
17:30 Aug 09, 2024
Jkt 262001
necessary or appropriate in furtherance
of the purposes of the Act. To the extent
that permitting options on the Trust to
trade on the Exchange may make the
Exchange a more attractive marketplace
to market participants, 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 the Trust. 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 options
on the Trust 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 spot ether prices and
ether related products and positions.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
the 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:
PO 00000
Frm 00114
Fmt 4703
Sfmt 9990
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–
ISE–2024–35 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–ISE–2024–35. 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–ISE–2024–35 and should be
submitted on or before September 3,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–17842 Filed 8–9–24; 8:45 am]
BILLING CODE 8011–01–P
35 17
E:\FR\FM\12AUN1.SGM
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 89, Number 155 (Monday, August 12, 2024)]
[Notices]
[Pages 65690-65694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17842]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100661; File No. SR-ISE-2024-35]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Proposed Rule Change To List and Trade Options on the iShares
Ethereum Trust
August 6, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on July 22, 2024, Nasdaq ISE, LLC (``ISE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the 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.
---------------------------------------------------------------------------
\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
The Exchange proposes to amend Options 4, Section 3, Criteria for
Underlying Securities.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, at the
principal office of the Exchange, 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 4, Section 3, Criteria for
Underlying Securities, to allow the Exchange to list and trade options
on iShares Ethereum Trust (the ``Trust'') \3\ as a Unit deemed
appropriate for options trading on the Exchange.
---------------------------------------------------------------------------
\3\ The Commission recently approved a rule change to list and
trade shares of the Trust pursuant to Rule 5711(d) of The Nasdaq
Stock Exchange LLC (``Commodity-Based Trust Shares''). See
Securities Exchange Act Release No. 100224 (May 23, 2024), 89 FR
46937 (May 30, 2024) (SR-NASDAQ-2023-045) (hereinafter ``SR-NASDAQ-
2023-045''). The Exchange represents it would not list options on
the Trust unless it satisfied all applicable criteria in Options 4,
Section 3.
---------------------------------------------------------------------------
Currently, Options 4, Section 3(h) provides that securities deemed
appropriate for options trading shall include shares or other
securities (``Exchange-Traded Fund Shares'' or ``ETFs'') that are
traded on a national securities exchange and are defined as an ``NMS''
stock under Rule 600 of Regulation NMS, and that meet certain criteria
specified in Options 4, Section 3(h), including that they:
(i) 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, 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) or
(ii) represent interests in a trust or similar entity that holds
a specified non-U.S. currency or currencies deposited with the trust
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'') or
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in
[[Page 65691]]
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'') or
(iv) represent interests in the SPDR[supreg] Gold Trust, the
iShares COMEX Gold Trust, the iShares Silver Trust, or the ETFS Gold
Trust or
(v) represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management 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'').
In addition to the aforementioned requirements, Options 4, Section
3(h)(1) and (2) must be met to list options on ETFs.\4\
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\4\ Options 4, Section 3(h)(1) and (2) state that the Exchange-
Traded Fund Shares either (i) meet the criteria and guidelines set
forth in paragraphs (a) and (b) described herein; or (ii) the
Exchange-Traded Fund Shares are available for creation or redemption
each business day from or through the issuing trust, investment
company, commodity pool or other entity in cash or in kind at a
price related to net asset value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in a specified aggregate number
even if some or all of the investment assets and/or cash required to
be deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investment assets
has undertaken to deliver them 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 of
the Exchange-Traded Fund Shares, all as described in the Exchange-
Traded Fund Shares' prospectus. Also, the Exchange-Traded Fund
Shares based on international or global indexes, or portfolios that
include non-U.S. securities, shall meet the criteria in Options 4,
Section 3(h)(2)(A)-(F).
---------------------------------------------------------------------------
Proposal
The Exchange proposes to expand the list of ETFs that are
appropriate for options trading on the Exchange in Options 3, Section
4(h)(iv) to include the Trust.\5\
---------------------------------------------------------------------------
\5\ Specifically, the Exchange proposes to amend Options 3,
Section 4(h)(iv) to include the name of the Trust to enable options
to be listed on the Trust on the Exchange.
---------------------------------------------------------------------------
Description of the Trust \6\
---------------------------------------------------------------------------
\6\ See SR-NASDAQ-2023-045 for a complete description of the
Trust.
---------------------------------------------------------------------------
The Shares are issued by the Trust, a Delaware statutory trust. The
Trust will operate pursuant to a trust agreement (the ``Trust
Agreement'') between the Sponsor, BlackRock Fund Advisors (the
``Trustee'') as the trustee of the Trust and will appoint Wilmington
Trust, National Association, as Delaware Trustee of the Trust (the
``Delaware Trustee'') by such time that the Registration Statement is
effective. The Trust issues Shares representing fractional undivided
beneficial interests in its net assets. The assets of the Trust will
consist only of ether (``ether'' or ``ETH'') held by a custodian on
behalf of the Trust, except under limited circumstances when
transferred through the Trust's prime broker temporarily (described
below), and cash. Neither the Trust, nor the Sponsor, nor the Ether
Custodian (as defined below), nor any other person associated with the
Trust will, directly or indirectly, engage in action where any portion
of the Trust's ETH becomes subject to the Ethereum proof-of-stake
validation or is used to earn additional ETH or generate income or
other earnings. Coinbase Custody Trust Company, LLC (the ``Ether
Custodian''), is the custodian for the Trust's ether holdings, and
maintains a custody account for the Trust (``Custody Account'');
Coinbase, Inc. (the ``Prime Execution Agent''), an affiliate of the
Ether Custodian, is the prime broker for the Trust and maintains a
trading account for the Trust (``Trading Account''); and The Bank of
New York Mellon is the custodian for the Trust's cash holdings (the
``Cash Custodian'' and together with the Ether Custodian, the
``Custodians'') and the administrator of the Trust (the ``Trust
Administrator''). Under the Trust Agreement, the Trustee may delegate
all or a portion of its duties to any agent, and has delegated the bulk
of the day-to-day responsibilities to the Trust Administrator and
certain other administrative and record-keeping functions to its
affiliates and other agents. The Trust is not an investment company
registered under the Investment Company Act of 1940, as amended (the
``1940 Act'').
The investment objective of the Trust is to reflect generally the
performance of the price of ether. The Trust seeks to reflect such
performance before payment of the Trust's expenses and liabilities. The
Shares are intended to constitute a simple means of making an
investment similar to an investment in ether through the public
securities market rather than by acquiring, holding and trading ether
directly on a peer-to-peer or other basis or via a digital asset
platform. The Shares have been designed to remove the obstacles
represented by the complexities and operational burdens involved in a
direct investment in ether, while at the same time having an intrinsic
value that reflects, at any given time, the investment exposure to the
ether owned by the Trust at such time, less the Trust's expenses and
liabilities. Although the Shares are not the exact equivalent of a
direct investment in ether, they provide investors with an alternative
method of achieving investment exposure to ether through the public
securities market, which may be more familiar to them.
Custody of the Trust's Ether and Creation and Redemption
An investment in the Shares is backed by ether held by the Ether
Custodian on behalf of the Trust. All of the Trust's ether will be held
in the Custody Account, other than the Trust's ether which is
temporarily maintained in the Trading Account under limited
circumstances, i.e., in connection with creation and redemption Basket
\7\ activity or sales of ether deducted from the Trust's holdings in
payment of Trust expenses or the Sponsor's fee (or, in extraordinary
circumstances, upon liquidation of the Trust). The Custody Account
includes all of the Trust's ether held at the Ether Custodian, but does
not include the Trust's ether temporarily maintained at the Prime
Execution Agent in the Trading Account from time to time. The Ether
Custodian will keep all of the private keys associated with the Trust's
ether held in the Custody Account in ``cold storage''.\8\ The hardware,
software, systems, and procedures of the Ether Custodian may not be
available or cost-effective for many investors to access directly.
---------------------------------------------------------------------------
\7\ The Trust issues and redeems Shares only in blocks of 40,000
or integral multiples thereof. A block of 40,000 Shares is called a
``Basket.'' These transactions take place in exchange for ether.
\8\ The term ``cold storage'' refers to a safeguarding method by
which the private keys corresponding to the Trust's ether are
generated and stored in an offline manner, subject to layers of
procedures designed to enhance security. Private keys are generated
by the Ether Custodian in offline computers that are not connected
to the internet so that they are more resistant to being hacked.
---------------------------------------------------------------------------
The Exchange believes that offering options on the Trust will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to spot ether as well as a
hedging vehicle to meet their investment needs in connection with ether
products and positions. Similar to other commodity ETFs in which
options may be listed on ISE (e.g. SPDR[supreg] Gold Trust, the iShares
COMEX Gold Trust, the iShares Silver
[[Page 65692]]
Trust, or the ETFS Gold Trust),\9\ the proposed ETF is a trust that
essentially offers the same objectives and benefits to investors.
---------------------------------------------------------------------------
\9\ See ISE Options 4, Section 3(h)(iv).
---------------------------------------------------------------------------
Options on the Trust will trade in the same manner as options on
other ETFs on the Exchange. Exchange Rules that currently apply to the
listing and trading of all options on ETFs on the Exchange, including,
for example, Rules that govern listing criteria, expirations, exercise
prices, minimum increments, position and exercise limits, margin
requirements, customer accounts and trading halt procedures, will apply
to the listing and trading of options on the Trust on the Exchange.
Today, these rules apply to options on the various commodities ETFs
deemed appropriate for options trading on the Exchange pursuant to
Options 4, Section 3(h)(iv).
The Exchange's initial listing standards for ETFs on which options
may be listed and traded on the Exchange will apply to the Trust. The
initial listing standard as set forth in Options 4, Section 3(a)
provides that:
Underlying securities with respect to which put or call options
contracts are approved for listing and trading on the Exchange must
meet the following criteria: (1) the security must be registered and
be an ``NMS stock'' as defined in Rule 600 of Regulation NMS under
the Exchange Act; and (2) the security shall be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.
Pursuant to ISE Options 4, Section 3, ETFs on which options may be
listed and traded must satisfy the listing standards set forth in
Options 4, Section 3(h). Specifically, the Trust must meet either:
(1) the criteria and guidelines for underlying securities set
forth in Options 4, Section 3(h), or
(2) it must be available for creation or redemption each
business day from or through the issuing trust, investment company,
commodity pool or other entity in cash or in kind at a price related
to net asset value, and the issuer is obligated to issue Exchange-
Traded Fund Shares in a specified aggregate number even if some or
all of the investment assets and/or cash required to be deposited
have not been received by the issuer, subject to the condition that
the person obligated to deposit the investment assets has undertaken
to deliver them 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 of the Exchange-Traded
Fund Shares, all as described in the Exchange-Traded Fund Shares'
prospectus, or the Exchange-Traded Fund Shares must be based on
international or global indexes, or portfolios that include non-U.S.
securities, and meet other criteria.
Options on the Trust will also be subject to the Exchange's
continued listing standards for options on ETFs set forth in Options 4,
Section 4(g). Specifically, options approved for trading pursuant to
Options 4, Section 3(h) will not be deemed 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 such ETFs
if the ETFs are delisted from trading as provided in subparagraph
(b)(5) of Options 4, Section 4 \10\ or the ETFs are halted or suspended
from trading on their primary market.\11\ In addition, the Exchange
shall consider the suspension of opening transactions in any series of
options of the class covering ETFs in any of the following
circumstances:
---------------------------------------------------------------------------
\10\ Options 4, Section 4(b)(5) provides, if an underlying
security is approved for options listing and trading under the
provisions of Options 4, Section 3(c), the trading volume of the
Original Security (as therein defined) prior to but not after the
commencement of trading in the Restructure Security (as therein
defined), including `when-issued' trading, may be taken into account
in determining whether the trading volume requirement of (3) of this
paragraph (b) is satisfied. Options 4, Section 4(b)(3) provides,
``The trading volume (in all markets in which the underlying
security is traded) has been less than 1,800,000 shares in the
preceding twelve (12) months.''
\11\ See Options 4, Section 4(g).
(1) in the case of options covering Exchange-Traded Fund Shares
approved pursuant to Options 4, Section 3(h)(A)(i), in accordance
with the terms of subparagraphs (b)(1), (2), (3) and (4) of Options
4, Section 4; \12\
---------------------------------------------------------------------------
\12\ Options 4, Section 4(b)(5)(1) through (4) provides, if: (1)
there are fewer than 6,300,000 shares of the underlying security
held by persons other than those who are required to report their
security holdings under Section 16(a) of the Act, (2) there are
fewer than 1,600 holders of the underlying security, (3) the trading
volume (in all markets in which the underlying security is traded)
has been less than 1,800,000 shares in the preceding twelve (12)
months, or (4) the underlying security ceases to be an `NMS stock'
as defined in Rule 600 of Regulation NMS under the Exchange Act.
---------------------------------------------------------------------------
(2) in the case of options covering Fund Shares approved
pursuant to Options 4, Section 3(h)(A)(ii),\13\ following the
initial twelve-month period beginning upon the commencement of
trading in the Exchange-Traded Fund Shares on a national securities
exchange and are defined as an ``NMS stock'' under Rule 600 of
Regulation NMS, there were fewer than 50 record and/or beneficial
holders of such Exchange-Traded Fund Shares for 30 or more
consecutive trading days;
---------------------------------------------------------------------------
\13\ Options 4, Section 3(h)(ii) refers to Currency Trust
Shares.
---------------------------------------------------------------------------
(3) the value of the index or portfolio of securities or non-
U.S. currency, portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts, options on physical commodities and/or Financial
Instruments and Money Market Instruments, on which the Exchange-
Traded Fund Shares are based is no longer calculated or available;
or
(4) such other event occurs or condition exists that in the
opinion of the Exchange makes further dealing in such options on the
Exchange inadvisable.
Options on the Trust would be physically settled contracts with
American-style exercise.\14\ Consistent with current Options 4, Section
5, which governs the opening of options series on a specific underlying
security (including ETFs), the Exchange will open at least one
expiration month \15\ for options on the Trust and may also list series
of options on the Trust for trading on a weekly \16\ or quarterly \17\
basis. The Exchange may also list long-term equity option series
(``LEAPS'') \18\ that expire from twelve to thirty-nine from the time
they are listed.
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\14\ See Options 4, Section 2, Rights and Obligations of Holders
and Writers, which provides that the rights and obligations of
holders and writers shall be as set forth in the Rules of the
Clearing Corporation. See also OCC Rules, Chapter 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. OCC Rules can
be located at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occ_rules.pdf.
\15\ See Options 4, Section 5(b).
\16\ See Supplementary .03 to Options 4, Section 5.
\17\ See Supplementary .04 to Options 4, Section 5.
\18\ See Options 4, Section 8.
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Pursuant to Options 4, Section 5(d), which governs strike prices of
series of options on ETFs, the interval between strike prices of series
of options on ETFs approved for options trading pursuant to Section
3(h) of Options 4 will be $1 or greater where the strike price is $200
or less and $5.00 or greater where the strike price is greater than
$200.\19\ With respect to the Short Term Options Series or Weekly
Program, during the month prior to expiration of an option class that
is selected for the Short Term Option Series Program, the strike price
intervals for the related non-Short Term Option (``Related non-Short
Term Option'') shall be the same as the strike
[[Page 65693]]
price intervals for the Short Term Option.\20\ Specifically, the
Exchange may open for trading Short Term Option Series at strike price
intervals of (i) $0.50 or greater where the strike price is less than
$100, and $1 or greater where the strike price is between $100 and $150
for all option classes that participate in the Short Term Options
Series Program; (ii) $0.50 for option classes that trade in one dollar
increments and are in the Short Term Option Series Program; or (iii)
$2.50 or greater where the strike price is above $150.\21\
Additionally, the Exchange may list series of options pursuant to the
$1 Strike Price Interval Program,\22\ the $0.50 Strike Program,\23\ the
$2.50 Strike Price Program,\24\ and the $5 Strike Program.\25\ Options
3, Section 3 governs the minimum increment for bids and offers for both
equity and index options. Pursuant to Options 3, Section 3, where the
price of a series of options for the Trust 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 \26\ consistent with the
minimum increments for options on other ETFs listed on the Exchange.
Any and all new series of Trust options that the Exchange lists will be
consistent and comply with the expirations, strike prices, and minimum
increments set forth in Options 4, Section 5 and Options 3, Section 3,
as applicable.
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\19\ See Options 5, Section 5(d). The interval between strike
prices of series of options on Exchange-Traded Fund Shares approved
for options trading pursuant to Section 3(h) of this Options 4 may
also be fixed at a price per share which is reasonably close to the
price per share at which the underlying security is traded in the
primary market at or about the same time such series of options is
first open for trading on the Exchange, or at such intervals as may
have been established on another options exchange prior to the
initiation of trading on the Exchange. See also Options 4, Section
5(h). The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Quarterly Options Series
Program, and the Monthly Options Series Program, Supplementary
Material .03, .04 and .08 to Options 4, Section 5 specifically sets
forth intervals between strike prices on Short Term Option Series,
Quarterly Options Series, and Monthly Options Series, respectively.
\20\ See Supplementary Material .03(e) to Options 4, Section 5.
\21\ Id.
\22\ See Supplementary Material .01 to Options 4, Section 5.
\23\ See Supplementary Material .05 to Options 4, Section 5.
\24\ See Supplementary Material .02 to Options 4, Section 5.
\25\ See Supplementary Material .06 to Options 4, Section 5.
\26\ Options that are eligible to participate in the Penny
Interval Program have a minimum increment of $0.01 below $3.00 and
$0.50 above $3.00. See Supplementary Material .01 to Options 3,
Section 3.
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Position and exercise limits for options on ETFs, including options
on the Trust, are determined pursuant to Options 9, Sections 13 and 15,
respectively. Position and exercise limits for ETFs options vary
according to the number of outstanding shares and the trading volumes
of the underlying ETF over the past six months, where the largest in
capitalization and the most frequently traded ETFs 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 ETFs 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.
Further, Options 6C, Section 3, which governs margin requirements
applicable to the trading of all options on the Exchange including
options on ETFs, will also apply to the trading of the Trust options.
The Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Trust. Also, the
Exchange represents 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 options on ETFs, including the proposed Trust
options. ISE would implement any new surveillance procedures it deemed
necessary to effectively monitor the trading of options on the Trust.
Additionally, ISE may obtain trading information via the Intermarket
Surveillance Group (``ISG'') from other exchanges who are members or
affiliates of the ISG.
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority or
``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 the Trust up to the number of
expirations currently permissible under the Exchange Rules. Because the
proposal is limited to one class, the Exchange believes any additional
traffic that may be generated from the introduction of the Trust
options will be manageable.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\27\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\28\ in particular, in that it is 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) \29\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
\29\ 15 U.S.C. 78(f)(b)(5).
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In particular, the Exchange believes that the proposal to list and
trade options on the Trust 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 the Trust
will provide investors with a greater opportunity to realize the
benefits of utilizing options on an ETF based on spot ether, including
cost efficiencies and increased hedging strategies. The Exchange
believes that offering options on a competitively priced ETF based on
spot ether will benefit investors by providing them with an additional,
relatively lower cost risk management tool allowing them to manage,
more easily, their positions, and associated risks, in their portfolios
in connection with exposure to spot ether. Today, the Exchange lists
options on other commodity ETFs structured as a trust, which
essentially offer the same objectives and benefits to investors, and
for which the Exchange has not identified any issues with the continued
listing and trading of options on those ETFs.
The Exchange also believes the proposal to permit options on the
Trust will remove impediments to and perfect the mechanism of a free
and open market and a national market system, because options on the
Trust will comply with current Exchange Rules. Options on the Trust
must satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules, applicable to options on all
ETFs, including options on other commodity ETFs already deemed
appropriate for options trading on the Exchange pursuant to Options 4,
Section 3(h)(iv). Further, Exchange Rules that currently govern the
listing and trading of options on ETFs, including permissible
expirations, strike prices, minimum increments, position and exercise
limits, and margin requirements, will govern the listing and trading of
options on the Trust. The Exchange represents that it has the necessary
systems capacity to support options on the Trust. The Exchange believes
that its existing surveillance and reporting safeguards are designed to
deter and detect possible manipulative behavior which might arise from
listing
[[Page 65694]]
and trading options on ETFs, including the Trust options.
Finally, the Commission has previously approved the listing and
trading of options on other commodity ETFs structured as a trust, such
as SPDR[supreg] Gold Trust,\30\ the iShares COMEX Gold Trust \31\ the
iShares Silver Trust,\32\ the ETFS Gold Trust,\33\ and the ETFS Silver
Trust.\34\
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\30\ See Securities Exchange Act Release No. 57897 (May 30,
2008), 73 FR 32061 (June 5, 2008) (SR-Amex-2008-15; SR-CBOE-2005-11;
SR-ISE-2008-12; SR-NYSEArca-2008-52; and SR-Phlx-2008-17) (Order
Granting Approval of a Proposed Rule Change, as Modified, and Notice
of Filing and Order Granting Accelerated Approval of Proposed Rule
Changes, as Modified, Relating to Listing and Trading Options on the
SPDR Gold Trust).
\31\ See Securities Exchange Act Release No. 59055 (December 4,
2008), 73 FR 75148 (December 10, 2008) (SR-Amex-2008-68; SR-BSE-
2008-51; SR-CBOE-2008-72; SR-ISE-2008-58; SR-NYSEArca-2008-66; and
SR-Phlx-2008-58) (Notice of Filing and Order Granting Accelerated
Approval of Proposed Rule Changes Relating to the Listing and
Trading Options on Shares of the iShares COMEX Gold Trust and the
iShares Silver Trust).
\32\ Id.
\33\ See Securities Exchange Act Release No. 61483 (February 3,
2010), 75 FR 6753 (February 10, 2010) (SR-CBOE-2010-007; SR-ISE-
2009-106; SR-NYSEAmex-2009-86; and SR-NYSEArca-2009-110) (Order
Granting Approval of Proposed Rule Changes and Notice of Filing and
Order Granting Accelerated Approval of a Proposed Rule Change
Relating to Listing and Trading Options on the ETFS Gold Trust and
the ETFS Silver Trust).
\34\ Id.
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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 options on the
Trust will be subject to initial listing standards and continued
listing standards the same as other options on ETFs listed on the
Exchange. Further, options on the Trust will be subject to Exchange
Rules that currently govern the listing and trading of options on ETFs,
including permissible expirations, strike prices, minimum increments,
position and exercise limits, and margin requirements. Options on the
Trust will be equally available to all market participants who wish to
trade such options. Also, and as stated above, the Exchange already
lists options on other commodity ETFs structured as a trust.
The Exchange does not believe that the proposal to list and trade
options on the Trust 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 permitting options on the Trust to trade on
the Exchange may make the Exchange a more attractive marketplace to
market participants, 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 the Trust. 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 options on the Trust
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 spot
ether prices and ether related products and positions.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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 to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the 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-ISE-2024-35 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-ISE-2024-35. 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-ISE-2024-35 and should be
submitted on or before September 3, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-17842 Filed 8-9-24; 8:45 am]
BILLING CODE 8011-01-P
