Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Rule 4.3 to List and Trade Options on Ethereum Exchange-Traded Funds, 72146-72151 [2024-19772]
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72146
Federal Register / Vol. 89, No. 171 / Wednesday, September 4, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
the date that the Commission receives
the Advance Notice or (ii) the date that
any additional information requested by
the Commission is received,148 unless
extended as described below.
Pursuant to Section 806(e)(1)(H) of the
Clearing Supervision Act, the
Commission may extend the review
period of an advance notice for an
additional 60 days, if the changes
proposed in the advance notice raise
novel or complex issues, subject to the
Commission providing the clearing
agency with prompt written notice of
the extension.149
Here, as the Commission has not
requested any additional information,
the date that is 60 days after FICC filed
the Advance Notice with the
Commission is October 13, 2024.
However, the Commission believes that
the changes proposed in the Advance
Notice raise novel and complex issues.
The Commission finds the issues novel
because FICC proposes a gradual
migration of a specified set of Core C&S
Systems to a public cloud infrastructure
hosted by a single, third-party service
provider. The Commission also finds
the issues raised by the Advance Notice
complex because the selection of the
subset of applications proposed for
migration involves a detailed
governance review process that would
require careful scrutiny and
consideration of its associated risks.
Therefore, the Commission finds it
appropriate to extend the review period
of the Advance Notice for an additional
60 days under Section 806(e)(1)(H) of
the Clearing Supervision Act.150
Accordingly, the Commission,
pursuant to Section 806(e)(1)(H) of the
Clearing Supervision Act,151 extends the
review period for an additional 60 days
so that the Commission shall have until
December 12, 2024 to issue an objection
or non-objection to advance notice SR–
FICC–2024–803.
All submissions should refer to File
Number SR–FICC–2024–803 and should
be submitted on or before September 25,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.152
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–19762 Filed 9–3–24; 8:45 am]
BILLING CODE 8011–01–P
148 12
149 12
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100862; File No. SR–
CBOE–2024–036]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Amend Rule
4.3 to List and Trade Options on
Ethereum Exchange-Traded Funds
August 28, 2024.
Pursuant to 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 August
19, 2024, Cboe Exchange, Inc.
(‘‘Exchange’’) 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/
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.
U.S.C. 5465(e)(1)(G).
U.S.C. 5465(e)(1)(H).
150 Id.
1 15
151 Id.
152 17
CFR 200.30–3(a)(91).
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U.S.C. 78s(b)(1).
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
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 the following exchangetraded products: the Fidelity Ethereum
Fund (the ‘‘Fidelity Fund’’), the
21Shares Core Ethereum ETF (the
‘‘21Shares Fund’’), the Invesco Galaxy
Ethereum ETF (the ‘‘Invesco Fund’’), the
Franklin Ethereum ETF (the ‘‘Franklin
Fund’’), the VanEck Ethereum Trust (the
‘‘VanEck Fund’’), the Grayscale
Ethereum Trust (the ‘‘Grayscale Fund’’),
the Grayscale Mini Ethereum Trust (the
‘‘Grayscale Mini Fund’’), the Bitwise
Ethereum ETF (the ‘‘Bitwise Fund’’),
and the iShares Ethereum Trust ETF
(the ‘‘iShares Fund and, collectively, the
‘‘Ethereum Funds’’), 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
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
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Federal Register / Vol. 89, No. 171 / Wednesday, September 4, 2024 / Notices
72147
As of August 7, 2024, the Ethereum
Funds had the following number of
shares outstanding:
including interests in certain specific
trusts that hold financial instruments,
money market instruments, or precious
metals (which are deemed
commodities).
The Ethereum Funds are Ethereumbacked commodity ETFs structured as
trusts. Similar to any Unit currently
deemed appropriate for options trading
under Rule 4.3, Interpretation and
Policy .06, the investment objective of
each Ethereum Fund trust is for its
shares to reflect the performance of
Ethereum (less the expenses of the
trust’s operations), offering investors an
opportunity to gain exposure to
Ethereum without the complexities of
Ethereum delivery. As is the case for
Units currently deemed appropriate for
options trading, an Ethereum Fund’s
shares represent units of fractional
undivided beneficial interest in the
trust, the assets of which consist
principally of Ethereum and are
designed to track Ethereum or the
performance of the price of Ethereum
and offer access to the Ethereum
market.5 The Ethereum Funds provide
investors with cost-efficient alternatives
that allow a level of participation in the
Ethereum market through the securities
market. The primary substantive
difference between Ethereum Funds and
Units currently deemed appropriate for
options trading are that Units may hold
securities, certain financial instruments,
and specified precious metals (which
are deemed commodities), while
Ethereum Funds hold Ethereum (which
is also deemed a commodity).
The Exchange believes the Ethereum
Funds satisfy the Exchange’s initial
listing standards for Units on which the
Exchange may list options. Specifically,
the Ethereum Funds satisfy the initial
listing standards set forth in Rule 4.3,
Interpretation and Policy .06(b), as is the
case for other Units on which the
Exchange lists options (including trusts
that hold commodities). 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),6 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 Ethereum
Funds satisfy Rule 4.3, Interpretation
and Policy .06(b)(2), as they are all
subject to this creation and redemption
process.
While not required by the Rules for
purposes of options listings, the
majority of the Ethereum Funds satisfy
the criteria and guidelines set forth in
Rule 4.3, Interpretation and Policy .01.
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 Each
of the Ethereum Funds is an NMS Stock
as defined in Rule 600 of Regulation
NMS under the Act.8 The Exchange
believes each Ethereum Fund is
characterized by a substantial number of
outstanding shares that are widely held
and actively traded.
Despite the fact that these Ethereum
Funds are in only their third week of
trading (they began trading on July 23,
2024), five of these funds already have
more than 7,000,000 shares outstanding,
which is the minimum number of shares
of a corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Rule 4.3,
Interpretation and Policy .01(a)(1).
However, the Exchange believes shares
outstanding (i.e., free float 9), while
commonly used to determine investable
capacities of corporate stocks, the figure
has little utility with respect to ETFs
due to the market structure of ETFs.
Proofing of ETF baskets, in addition to
the efficiency of creation/redemption
mechanisms, decouple concepts of
‘‘floating’’ ETF shares against the
impacts of ETF liquidity to the liquidity
of ETF constituents. While ETF marketmakers may often limit the amount of
floating ETF shares, primary market
mechanisms enable virtually limitless
capacity to create and redeem ETF
shares on a daily basis.10 As evidenced
during their brief time in market, the
gross value of daily shares created or
redeemed for each Ethereum Fund
approximates its assets under
management (‘‘AUM’’) as of July 24,
2024, which was as follows:
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’’).
5 The trust may include minimal cash.
6 Rule 4.3, Interpretation and Policy .01 provides
for guidelines to be by the Exchange when
evaluating potential underlying securities for
Exchange option transactions.
7 The criteria and guidelines for a security to be
considered widely held and actively traded are set
forth in Rule 4.3, Interpretation and Policy .01,
subject to exceptions.
8 An ‘‘NMS stock’’ means any NMS security other
than an option, and an ‘‘NMS security’’ means any
security or class of securities for which transaction
reports are collected, processed, and made available
pursuant to an effective transaction reporting plan
(or an effective national market system plan for
reporting transaction in listed options). See 17 CFR
242.600(b)(64) (definition of ‘‘NMS security’’) and
(65) (definition of ‘‘NMS stock’’).
9 All outstanding ETF shares are considered free
float, as there are no restricted ETF shares or shares
held by insiders, as is the case with respect to
corporate stocks.
10 This is the primary reasoning for why the
Exchange may list options on ETFs as long as they
are subject to the creation and redemption process
and generally do not need to satisfy the criteria set
forth in Interpretation and Policy .01.
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Ethereum Fund
Fidelity Fund ...........................
21Shares Fund .......................
Invesco Fund ..........................
Franklin Fund ..........................
VanEck Fund ..........................
Grayscale Fund ......................
Grayscale Mini Fund ..............
Bitwise Fund ...........................
iShares Fund ..........................
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Shares
outstanding
10,850,000
760,000
468,000
1,500,000
1,725,000
228,468,500
380,898,500
12,370,000
37,200,000
72148
Federal Register / Vol. 89, No. 171 / Wednesday, September 4, 2024 / Notices
Ethereum fund
AUM
Fidelity Fund ..................................................................................................................................................................................
21Shares Fund ..............................................................................................................................................................................
Invesco Fund .................................................................................................................................................................................
Franklin Fund .................................................................................................................................................................................
VanEck Fund .................................................................................................................................................................................
Grayscale Fund .............................................................................................................................................................................
Grayscale Mini Fund ......................................................................................................................................................................
Bitwise Fund ..................................................................................................................................................................................
iShares Fund .................................................................................................................................................................................
As a result, the Exchange believes this
demonstrates that each Ethereum Fund
is characterized by a substantial number
of outstanding shares. Given how
recently Ethereum Funds began trading,
the Exchange does not have access to
the number of beneficial holders of
Ethereum Funds at this time. However,
given the significant trading volumes
the Ethereum Funds, the Exchange
believes it is reasonable to expect that
shares of all of the Ethereum Funds are
characterized by a substantial number of
outstanding shares that are widely held.
The Exchange also believes each
Ethereum Fund is characterized by a
substantial number of outstanding
ddrumheller on DSK120RN23PROD with NOTICES1
Fidelity Fund ....................................................................................................................
21Shares Fund ................................................................................................................
Invesco Fund ...................................................................................................................
Franklin Fund ...................................................................................................................
VanEck Fund ...................................................................................................................
Grayscale Fund ...............................................................................................................
Grayscale Mini Fund ........................................................................................................
Bitwise Fund ....................................................................................................................
iShares Fund ...................................................................................................................
As demonstrated above, despite the
fact that Ethereum Funds have been
trading for fewer than three weeks, the
trading volume for each except one
Ethereum Fund is higher (and several
significantly higher) than 2,400,000
shares (and that one is only 1,023 shares
below that number), which is the
minimum 12-month volume the
Exchange generally requires for a
security in order to list options on that
security as set forth in Rule 4.3,
Interpretation and Policy .01.
Additionally, from July 23 (the first day
the Ethereum Funds began trading)
through August 7, 2024, the ADV for
each Ethereum Fund is in the top 25%
of all ETFs that are currently trading.
The Exchange believes this data
demonstrates each Ethereum Fund is
characterized by a substantial number of
outstanding shares that are actively
traded.
Options on Ethereum Funds will 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,
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32,751,647
2,995,673
2,398,977
3,726,018
5,557,411
221,839,519
387,753,619
27,454,355
124,839,230
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 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)
(as is the case for the Ethereum Funds),
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, 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
PO 00000
shares that are actively traded. As of
August 7, 2024, the total trading volume
(by shares and notional) for each fund
since they began trading on July 23,
2024 and the average daily volume
(‘‘ADV’’) over the five-day period of
August 2 through August 7, 2024 for
each Ethereum Fund was as follows:
Trading volume
(shares)
Ethereum fund
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9,481,360
148,080,600
37,197,280
19,301,340
9,013,556
8,040,436,000
1,043,203,000
230,788,700
287,328,200
Trading volume
(notional $)
1,023,590,893.88
46,584,597.69
75,800,517.49
89,987,417.90
247,424,935.45
5,934,238,584.03
1,117,121,565.01
638,820,845.28
2,896,601,784.35
ADV
(shares)
1,279,085.00
183,032.80
116,423.80
114,194.60
288,519.00
7,429,260.00
24,800,550.00
806,202.19
6,720,303.00
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 each Ethereum Fund will
be physically settled contracts with
American-style exercise.11 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 Ethereum Fund 12 at the
11 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).
12 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
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commencement of trading on the
Exchange and may also list series of
options on a Ethereum Fund for trading
on a weekly,13 monthly,14 or quarterly 15
basis. The Exchange may also list longterm equity option series (‘‘LEAPS’’)
that expire from 12 to 180 months from
the time they are listed.16
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 Ethereum Funds will be $1 or
greater when the strike price is $200 or
less and $5 or greater where the strike
price is over $200.17 Additionally, the
Exchange may list series of options
pursuant to the $1 Strike Price Interval
Program,18 the $0.50 Strike Program,19
the $2.50 Strike Price Program,20 and
the $5 Strike Program.21 Pursuant to
Rule 5.4, where the price of a series of
a Ethereum Fund 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
$0.10.22 Any and all new series of
Ethereum Fund options that the
Exchange lists will be consistent and
comply with the expirations, strike
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.
13 See Rule 4.5(d).
14 See Rule 4.5(g).
15 See Rule 4.5(e).
16 See Rule 4.5(f).
17 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.
18 See Rule 4.5, Interpretation and Policy .01(a).
19 See Rule 4.5, Interpretation and Policy .01(b).
20 See Rule 4.5, Interpretation and Policy .04.
21 See Rule 4.5, Interpretation and Policy .01(f).
22 If options on a Ethereum Fund 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).
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prices, and minimum increments set
forth in Rules 4.5 and 5.4, as applicable.
Ethereum Fund 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 Ethereum
Funds 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
Ethereum Funds, 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.23 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 Ethereum Fund
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 Ethereum Funds,
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. Also,
the Exchange may obtain information
23 As Ethereum Funds do not currently trade,
options on Ethereum Funds would be subject to the
25,000 option contract limit.
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72149
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 Ethereum,
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
Ethereum Funds 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 Ethereum Fund options
will be manageable.
The Exchange believes that offering
options on Ethereum Funds will benefit
investors by providing them with an
additional, relatively lower cost
investing tool to gain exposure to the
price of Ethereum and hedging vehicle
to meet their investment needs in
connection with Ethereum -related
products and positions. The Exchange
expects investors will transact in
options on Ethereum Funds in the
unregulated over-the-counter (‘‘OTC’’)
options market (if the Commission
approves Ethereum Funds for exchangetrading),24 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 Ethereum Fund 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
Ethereum Funds 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
24 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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ddrumheller on DSK120RN23PROD with NOTICES1
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
Section 6(b) of the Act.25 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 26 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) 27 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 Ethereum Funds 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 Ethereum Funds
will provide investors with an
opportunity to realize the benefits of
utilizing options on a Ethereum Fund,
including cost efficiencies and
increased hedging strategies. The
Exchange believes that offering
Ethereum Fund 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
Ethereum and with Ethereum-related
products and positions. Additionally,
the Exchange’s offering of Ethereum
Fund 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
25 15
26 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
28 See Rule 4.3, Interpretation and Policy
.06(a)(4).
27 Id.
VerDate Sep<11>2014
21:26 Sep 03, 2024
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,28 which, as described above, are
trusts structured in substantially the
same manner as Ethereum Funds and
essentially offer the same objectives and
benefits to investors, just with respect to
a different commodity (i.e., Ethereum
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 Ethereum
Funds 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. Additionally, as
demonstrated above, each Ethereum
Fund is characterized by a substantial
number of shares that are widely held
and actively traded. Ethereum Fund
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 Ethereum
Funds in the same manner.
The Exchange believes the proposed
position and exercise limits for the
Ethereum Fund options are consistent
with the Exchange Act, will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest, because these position and
exercise limits are designed to address
potential manipulative schemes and
adverse market impacts surrounding the
use of options, such as disrupting the
market in the security underlying the
options. The proposed position and
exercise limits are the same limits that
apply to other ETF options, including
other commodity ETF options. The
Exchange believes proposed position
and exercise limits balance the liquidity
Jkt 262001
PO 00000
Frm 00273
Fmt 4703
Sfmt 4703
provisioning in the market against the
prevention of manipulation, as they
currently do for other equity options
(including commodity ETF options).
The Exchange believes the available
supply in the markets of Ethereum is
not relevant when establishing position
limits for options on the Ethereum
Funds, as what is held by an ETF has
historically not been a relevant factor
considered by the Commission when it
has considered rule filings to list
options on ETFS, including commodity
ETFs. The Commission has previously
stated:
Since the inception of standardized
options trading, the options exchanges have
had rules imposing limits on the aggregate
number of options contracts that a member
or customer could hold or exercise. These
rules are intended to prevent the
establishment of options positions that can
be used or might create incentives to
manipulate or disrupt the underlying market
so as to benefit the options position. In
particular, position and exercise limits are
designed to minimize the potential for minimanipulations and for corners or squeezes of
the underlying market. In addition, such
limits serve to reduce the possibility for
disruption of the options market itself,
especially in illiquid options classes.29
As the Commission itself notes, the
position limits are ‘‘intended to prevent
the establishment of options positions
that can be used . . . to manipulate or
disrupt the underlying market’’
(emphasis added). When the
Commission previously approved Rules
to list options on other commodity
ETFs, the Commission did not require
consideration of whether the available
supply of those commodities should be
considered when the Exchange
established those position limits.30 The
Exchange notes that position limits in
the Exchange’s Rules at that time were
the same as they are today as set forth
in Rule 8.30 (and as proposed to be
applicable to options on the Ethereum
Funds).
The Exchange represents that it has
the necessary systems capacity to
support the new Ethereum Fund
options. 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
Ethereum Fund options.
29 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
30 See, e.g., Securities Exchange Act Release No.
57894 (May 30, 2008), 73 FR 32061 (June 5, 2008)
(SR–CBOE–2005–11) (approval order in which the
Commission stated that the ‘‘listing and trading of
Gold Trust Options will be subject to the exchanges’
rules pertaining to position and exercise limits and
margin’’).
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Federal Register / Vol. 89, No. 171 / Wednesday, September 4, 2024 / 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 Ethereum Funds 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, Ethereum Fund 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 Ethereum
Funds. Also, and as stated above, the
Exchange already lists options on other
commodity-based Units.31
The Exchange does not believe that
the proposal to list and trade options on
Ethereum Funds 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
Ethereum Fund 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 Ethereum
Funds. The Exchange notes that listing
and trading Ethereum Fund 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
31 See Rule 4.3, Interpretation and Policy
.06(a)(4).
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21:26 Sep 03, 2024
Jkt 262001
Exchange believes that offering
Ethereum Fund 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
Ethereum prices and Ethereum-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
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 rule-comments@
sec.gov. Please include file number SR–
CBOE–2024–036 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–2024–036. 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
PO 00000
Frm 00274
Fmt 4703
Sfmt 4703
72151
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–2024–036 and should be
submitted on or before September 25,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–19772 Filed 9–3–24; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
[Docket No.: FAA–2024–1750; Summary
Notice No. 2024–37]
Petition for Exemption; Summary of
Petition Received; Lynden Air Cargo,
LLC
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Notice.
AGENCY:
This notice contains a
summary of a petition seeking relief
from specified requirements of Federal
Aviation Regulations. The purpose of
this notice is to improve the public’s
awareness of, and participation in, the
FAA’s exemption process. Neither
publication of this notice nor the
inclusion nor omission of information
in the summary is intended to affect the
legal status of the petition or its final
disposition.
SUMMARY:
32 17
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04SEN1
]]>Agencies
[Federal Register Volume 89, Number 171 (Wednesday, September 4, 2024)]
[Notices]
[Pages 72146-72151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19772]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100862; File No. SR-CBOE-2024-036]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Rule 4.3 to List and Trade
Options on Ethereum Exchange-Traded Funds
August 28, 2024.
Pursuant to 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 August 19, 2024, Cboe Exchange, Inc. (``Exchange'') 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
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 the
following exchange-traded products: the Fidelity Ethereum Fund (the
``Fidelity Fund''), the 21Shares Core Ethereum ETF (the ``21Shares
Fund''), the Invesco Galaxy Ethereum ETF (the ``Invesco Fund''), the
Franklin Ethereum ETF (the ``Franklin Fund''), the VanEck Ethereum
Trust (the ``VanEck Fund''), the Grayscale Ethereum Trust (the
``Grayscale Fund''), the Grayscale Mini Ethereum Trust (the ``Grayscale
Mini Fund''), the Bitwise Ethereum ETF (the ``Bitwise Fund''), and the
iShares Ethereum Trust ETF (the ``iShares Fund and, collectively, the
``Ethereum Funds''), 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\
[[Page 72147]]
including interests in 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'').
---------------------------------------------------------------------------
The Ethereum Funds are Ethereum-backed commodity ETFs structured as
trusts. Similar to any Unit currently deemed appropriate for options
trading under Rule 4.3, Interpretation and Policy .06, the investment
objective of each Ethereum Fund trust is for its shares to reflect the
performance of Ethereum (less the expenses of the trust's operations),
offering investors an opportunity to gain exposure to Ethereum without
the complexities of Ethereum delivery. As is the case for Units
currently deemed appropriate for options trading, an Ethereum Fund's
shares represent units of fractional undivided beneficial interest in
the trust, the assets of which consist principally of Ethereum and are
designed to track Ethereum or the performance of the price of Ethereum
and offer access to the Ethereum market.\5\ The Ethereum Funds provide
investors with cost-efficient alternatives that allow a level of
participation in the Ethereum market through the securities market. The
primary substantive difference between Ethereum Funds and Units
currently deemed appropriate for options trading are that Units may
hold securities, certain financial instruments, and specified precious
metals (which are deemed commodities), while Ethereum Funds hold
Ethereum (which is also deemed a commodity).
---------------------------------------------------------------------------
\5\ The trust may include minimal cash.
---------------------------------------------------------------------------
The Exchange believes the Ethereum Funds satisfy the Exchange's
initial listing standards for Units on which the Exchange may list
options. Specifically, the Ethereum Funds satisfy the initial listing
standards set forth in Rule 4.3, Interpretation and Policy .06(b), as
is the case for other Units on which the Exchange lists options
(including trusts that hold commodities). 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),\6\
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 Ethereum Funds
satisfy Rule 4.3, Interpretation and Policy .06(b)(2), as they are all
subject to this creation and redemption process.
---------------------------------------------------------------------------
\6\ Rule 4.3, Interpretation and Policy .01 provides for
guidelines to be by the Exchange when evaluating potential
underlying securities for Exchange option transactions.
---------------------------------------------------------------------------
While not required by the Rules for purposes of options listings,
the majority of the Ethereum Funds satisfy the criteria and guidelines
set forth in Rule 4.3, Interpretation and Policy .01. 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\ Each of the
Ethereum Funds is an NMS Stock as defined in Rule 600 of Regulation NMS
under the Act.\8\ The Exchange believes each Ethereum Fund is
characterized by a substantial number of outstanding shares that are
widely held and actively traded.
---------------------------------------------------------------------------
\7\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Rule 4.3,
Interpretation and Policy .01, subject to exceptions.
\8\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
---------------------------------------------------------------------------
As of August 7, 2024, the Ethereum Funds had the following number
of shares outstanding:
------------------------------------------------------------------------
Shares
Ethereum Fund outstanding
------------------------------------------------------------------------
Fidelity Fund............................................. 10,850,000
21Shares Fund............................................. 760,000
Invesco Fund.............................................. 468,000
Franklin Fund............................................. 1,500,000
VanEck Fund............................................... 1,725,000
Grayscale Fund............................................ 228,468,500
Grayscale Mini Fund....................................... 380,898,500
Bitwise Fund.............................................. 12,370,000
iShares Fund.............................................. 37,200,000
------------------------------------------------------------------------
Despite the fact that these Ethereum Funds are in only their third
week of trading (they began trading on July 23, 2024), five of these
funds already have more than 7,000,000 shares outstanding, which is the
minimum number of shares of a corporate stock that the Exchange
generally requires to list options on that stock pursuant to Rule 4.3,
Interpretation and Policy .01(a)(1). However, the Exchange believes
shares outstanding (i.e., free float \9\), while commonly used to
determine investable capacities of corporate stocks, the figure has
little utility with respect to ETFs due to the market structure of
ETFs. Proofing of ETF baskets, in addition to the efficiency of
creation/redemption mechanisms, decouple concepts of ``floating'' ETF
shares against the impacts of ETF liquidity to the liquidity of ETF
constituents. While ETF market-makers may often limit the amount of
floating ETF shares, primary market mechanisms enable virtually
limitless capacity to create and redeem ETF shares on a daily
basis.\10\ As evidenced during their brief time in market, the gross
value of daily shares created or redeemed for each Ethereum Fund
approximates its assets under management (``AUM'') as of July 24, 2024,
which was as follows:
---------------------------------------------------------------------------
\9\ All outstanding ETF shares are considered free float, as
there are no restricted ETF shares or shares held by insiders, as is
the case with respect to corporate stocks.
\10\ This is the primary reasoning for why the Exchange may list
options on ETFs as long as they are subject to the creation and
redemption process and generally do not need to satisfy the criteria
set forth in Interpretation and Policy .01.
[[Page 72148]]
------------------------------------------------------------------------
Ethereum fund AUM
------------------------------------------------------------------------
Fidelity Fund........................................ 9,481,360
21Shares Fund........................................ 148,080,600
Invesco Fund......................................... 37,197,280
Franklin Fund........................................ 19,301,340
VanEck Fund.......................................... 9,013,556
Grayscale Fund....................................... 8,040,436,000
Grayscale Mini Fund.................................. 1,043,203,000
Bitwise Fund......................................... 230,788,700
iShares Fund......................................... 287,328,200
------------------------------------------------------------------------
As a result, the Exchange believes this demonstrates that each
Ethereum Fund is characterized by a substantial number of outstanding
shares. Given how recently Ethereum Funds began trading, the Exchange
does not have access to the number of beneficial holders of Ethereum
Funds at this time. However, given the significant trading volumes the
Ethereum Funds, the Exchange believes it is reasonable to expect that
shares of all of the Ethereum Funds are characterized by a substantial
number of outstanding shares that are widely held.
The Exchange also believes each Ethereum Fund is characterized by a
substantial number of outstanding shares that are actively traded. As
of August 7, 2024, the total trading volume (by shares and notional)
for each fund since they began trading on July 23, 2024 and the average
daily volume (``ADV'') over the five-day period of August 2 through
August 7, 2024 for each Ethereum Fund was as follows:
----------------------------------------------------------------------------------------------------------------
Trading volume Trading volume
Ethereum fund (shares) (notional $) ADV (shares)
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Fidelity Fund............................................. 32,751,647 1,023,590,893.88 1,279,085.00
21Shares Fund............................................. 2,995,673 46,584,597.69 183,032.80
Invesco Fund.............................................. 2,398,977 75,800,517.49 116,423.80
Franklin Fund............................................. 3,726,018 89,987,417.90 114,194.60
VanEck Fund............................................... 5,557,411 247,424,935.45 288,519.00
Grayscale Fund............................................ 221,839,519 5,934,238,584.03 7,429,260.00
Grayscale Mini Fund....................................... 387,753,619 1,117,121,565.01 24,800,550.00
Bitwise Fund.............................................. 27,454,355 638,820,845.28 806,202.19
iShares Fund.............................................. 124,839,230 2,896,601,784.35 6,720,303.00
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As demonstrated above, despite the fact that Ethereum Funds have
been trading for fewer than three weeks, the trading volume for each
except one Ethereum Fund is higher (and several significantly higher)
than 2,400,000 shares (and that one is only 1,023 shares below that
number), which is the minimum 12-month volume the Exchange generally
requires for a security in order to list options on that security as
set forth in Rule 4.3, Interpretation and Policy .01. Additionally,
from July 23 (the first day the Ethereum Funds began trading) through
August 7, 2024, the ADV for each Ethereum Fund is in the top 25% of all
ETFs that are currently trading. The Exchange believes this data
demonstrates each Ethereum Fund is characterized by a substantial
number of outstanding shares that are actively traded.
Options on Ethereum Funds will 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 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) (as is the case for the Ethereum Funds), 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, 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 each Ethereum Fund will be physically settled contracts
with American-style exercise.\11\ 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 Ethereum Fund \12\ at the
[[Page 72149]]
commencement of trading on the Exchange and may also list series of
options on a Ethereum Fund for trading on a weekly,\13\ monthly,\14\ or
quarterly \15\ 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.\16\
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\11\ 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).
\12\ 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.
\13\ See Rule 4.5(d).
\14\ See Rule 4.5(g).
\15\ See Rule 4.5(e).
\16\ 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 Ethereum Funds will be $1 or greater when
the strike price is $200 or less and $5 or greater where the strike
price is over $200.\17\ Additionally, the Exchange may list series of
options pursuant to the $1 Strike Price Interval Program,\18\ the $0.50
Strike Program,\19\ the $2.50 Strike Price Program,\20\ and the $5
Strike Program.\21\ Pursuant to Rule 5.4, where the price of a series
of a Ethereum Fund 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.\22\ Any and all new series of Ethereum Fund
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.
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\17\ 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.
\18\ See Rule 4.5, Interpretation and Policy .01(a).
\19\ See Rule 4.5, Interpretation and Policy .01(b).
\20\ See Rule 4.5, Interpretation and Policy .04.
\21\ See Rule 4.5, Interpretation and Policy .01(f).
\22\ If options on a Ethereum Fund 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).
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Ethereum Fund 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 Ethereum Funds 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 Ethereum Funds, 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.\23\
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 Ethereum
Fund options.
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\23\ As Ethereum Funds do not currently trade, options on
Ethereum Funds would be subject to the 25,000 option contract limit.
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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 Ethereum Funds, 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. 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 Ethereum, 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 Ethereum Funds 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 Ethereum Fund options will be manageable.
The Exchange believes that offering options on Ethereum Funds will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Ethereum and
hedging vehicle to meet their investment needs in connection with
Ethereum -related products and positions. The Exchange expects
investors will transact in options on Ethereum Funds in the unregulated
over-the-counter (``OTC'') options market (if the Commission approves
Ethereum Funds for exchange-trading),\24\ 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 Ethereum Fund 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 Ethereum Funds 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
[[Page 72150]]
Unit options, including Units that hold commodities (i.e., precious
metals) that it currently lists and trades on the Exchange.
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\24\ 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 Section 6(b) of the
Act.\25\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \26\ 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) \27\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
\27\ Id.
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In particular, the Exchange believes that the proposal to list and
trade options on Ethereum Funds 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 Ethereum
Funds will provide investors with an opportunity to realize the
benefits of utilizing options on a Ethereum Fund, including cost
efficiencies and increased hedging strategies. The Exchange believes
that offering Ethereum Fund 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
Ethereum and with Ethereum-related products and positions.
Additionally, the Exchange's offering of Ethereum Fund 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,\28\
which, as described above, are trusts structured in substantially the
same manner as Ethereum Funds and essentially offer the same objectives
and benefits to investors, just with respect to a different commodity
(i.e., Ethereum 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.
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\28\ See Rule 4.3, Interpretation and Policy .06(a)(4).
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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
Ethereum Funds 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. Additionally,
as demonstrated above, each Ethereum Fund is characterized by a
substantial number of shares that are widely held and actively traded.
Ethereum Fund 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 Ethereum Funds in the same manner.
The Exchange believes the proposed position and exercise limits for
the Ethereum Fund options are consistent with the Exchange Act, will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest, because these position and exercise limits are
designed to address potential manipulative schemes and adverse market
impacts surrounding the use of options, such as disrupting the market
in the security underlying the options. The proposed position and
exercise limits are the same limits that apply to other ETF options,
including other commodity ETF options. The Exchange believes proposed
position and exercise limits balance the liquidity provisioning in the
market against the prevention of manipulation, as they currently do for
other equity options (including commodity ETF options). The Exchange
believes the available supply in the markets of Ethereum is not
relevant when establishing position limits for options on the Ethereum
Funds, as what is held by an ETF has historically not been a relevant
factor considered by the Commission when it has considered rule filings
to list options on ETFS, including commodity ETFs. The Commission has
previously stated:
Since the inception of standardized options trading, the options
exchanges have had rules imposing limits on the aggregate number of
options contracts that a member or customer could hold or exercise.
These rules are intended to prevent the establishment of options
positions that can be used or might create incentives to manipulate
or disrupt the underlying market so as to benefit the options
position. In particular, position and exercise limits are designed
to minimize the potential for mini-manipulations and for corners or
squeezes of the underlying market. In addition, such limits serve to
reduce the possibility for disruption of the options market itself,
especially in illiquid options classes.\29\
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\29\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
As the Commission itself notes, the position limits are ``intended to
prevent the establishment of options positions that can be used . . .
to manipulate or disrupt the underlying market'' (emphasis added). When
the Commission previously approved Rules to list options on other
commodity ETFs, the Commission did not require consideration of whether
the available supply of those commodities should be considered when the
Exchange established those position limits.\30\ The Exchange notes that
position limits in the Exchange's Rules at that time were the same as
they are today as set forth in Rule 8.30 (and as proposed to be
applicable to options on the Ethereum Funds).
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\30\ See, e.g., Securities Exchange Act Release No. 57894 (May
30, 2008), 73 FR 32061 (June 5, 2008) (SR-CBOE-2005-11) (approval
order in which the Commission stated that the ``listing and trading
of Gold Trust Options will be subject to the exchanges' rules
pertaining to position and exercise limits and margin'').
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The Exchange represents that it has the necessary systems capacity
to support the new Ethereum Fund options. 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 Ethereum Fund options.
[[Page 72151]]
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 Ethereum Funds 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, Ethereum Fund 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 Ethereum Funds. Also, and as
stated above, the Exchange already lists options on other commodity-
based Units.\31\
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\31\ See Rule 4.3, Interpretation and Policy .06(a)(4).
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The Exchange does not believe that the proposal to list and trade
options on Ethereum Funds 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 Ethereum Fund
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 Ethereum Funds. The Exchange notes that listing and trading Ethereum
Fund 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 Ethereum Fund 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 Ethereum
prices and Ethereum-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 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-2024-036 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-2024-036. 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-2024-036 and should be
submitted on or before September 25, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19772 Filed 9-3-24; 8:45 am]
BILLING CODE 8011-01-P
