Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change To Amend Rule 915 to Permit the Listing and Trading of Options on Bitcoin ETFs, 71945-71950 [2024-19773]
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Federal Register / Vol. 89, No. 171 / Wednesday, September 4, 2024 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100863; File No. SR–
NYSEAMER–2024–49]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing of
Proposed Rule Change To Amend Rule
915 to Permit the Listing and Trading
of Options on Bitcoin ETFs
August 28, 2024.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on August
15, 2024, NYSE American LLC
(‘‘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 self-regulatory
organization. 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
Rule 915 regarding the criteria for
underlying securities. The proposed
rule change is available on the
Exchange’s website at www.nyse.com, 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
self-regulatory organization 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 those 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 parts of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 915 (Criteria for Underlying
Securities). Specifically, the Exchange
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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proposes to amend Rule 915,
Commentary .10 to allow the Exchange
to list and trade options on the
following Exchange-Traded Fund
Shares (‘‘ETFs’’) 4: the Fidelity Wise
Origin Bitcoin Fund (the ‘‘Fidelity
Fund’’), the ARK21Shares Bitcoin ETF
(the ‘‘ARK 21Shares Fund’’), the Invesco
Galaxy Bitcoin ETF (the ‘‘Invesco
Fund’’), the Franklin Bitcoin ETF (the
‘‘Franklin Fund’’), the VanEck Bitcoin
Trust (the ‘‘VanEck Fund’’), and the
WisdomTree Bitcoin Fund (the
‘‘WisdomTree Fund’’), the Grayscale
Bitcoin Trust BTC (the ‘‘Grayscale
Fund’’), the Grayscale Bitcoin Mini
Trust (the ‘‘Grayscale Mini Fund’’), the
Bitwise Bitcoin ETF (the ‘‘Bitwise
Fund’’), the iShares Bitcoin Trust ETF
(the ‘‘iShares Fund’’), and the Valkyrie
Bitcoin Fund (the ‘‘Valkyrie Fund’’ and,
collectively, the ‘‘Bitcoin Funds’’).
The Exchange notes that this is a
competitive filing as at least one other
options exchange has filed similar a rule
proposal that is currently pending with
the Commission to allow the listing and
trading of options on Bitcoin Funds.5
Commentary .06 to Rule 915
(hereinafter ‘‘Commentary .06’’)
provides that, subject to certain other
criteria set forth in Rule 915, securities
deemed appropriate for options trading
include ETFs that represent certain
types of interests,6 including interests in
4 Rule 900.2NYP defines the term ‘‘ExchangeTraded Fund Share’’ as Exchange-listed securities
representing interests in open-end unit investment
trusts or open-end management investment
companies that hold securities (including fixed
income securities) based on an index or a portfolio
of securities.
5 See SR–CBOE–2024–035, filed on August 8,
2024, by Cboe Exchange, Inc. (‘‘Cboe’’). Unlike
Cboe, the Exchange proposes to include as a Bitcoin
Fund the Grayscale Bitcoin Mini Trust, which was
listed on NYSE Arca, Inc. on July 31,2024.
6 See Commentary .06, which permits options
trading on ETFs that are traded on a national
securities exchange and are defined as an ‘‘NMS
stock’’ in Rule 600(b)(55) of Regulation NMS, that
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 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 not 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); 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
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71945
certain specific trusts that hold financial
instruments, money market instruments,
or precious metals (which are deemed
commodities).
The Bitcoin Funds are Bitcoin-backed
commodity ETFs structured as trusts.
Like any ETF currently deemed
appropriate for options trading under
Commentary .06, the investment
objective of each Bitcoin Fund trust is
for its shares to reflect the performance
of Bitcoin (less the expenses of the
trust’s operations), offering investors an
opportunity to gain exposure to Bitcoin
without the complexities of Bitcoin
delivery. As is the case for ETFs
currently deemed appropriate for
options trading, a Bitcoin Fund’s shares
represent units of fractional undivided
beneficial interest in the trust, the assets
of which consist principally of Bitcoin
and are designed to track Bitcoin or the
performance of the price of Bitcoin and
offer access to the Bitcoin market.7 The
Bitcoin Funds provide investors with
cost-efficient alternatives that allow a
level of participation in the Bitcoin
market through the securities market.
The primary substantive difference
between Bitcoin Funds and ETFs
currently deemed appropriate for
options trading are that ETFs may hold
securities, certain financial instruments,
and specified precious metals (which
are deemed commodities), while Bitcoin
Funds hold bitcoin (which is also
deemed a commodity).
The Exchange believes the Bitcoin
Funds satisfy the Exchange’s initial
listing standards for ETFs on which the
Exchange may list options. Specifically,
the Bitcoin Funds satisfy the initial
listing standards set forth in
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’’); 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’’); or represents 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’’); provided that all of the conditions
listed in Rules 915 and 916 are met.
7 The trust may include minimal cash.
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Federal Register / Vol. 89, No. 171 / Wednesday, September 4, 2024 / Notices
Commentary .06, as is the case for other
ETFs on which the Exchange lists
options (including trusts that hold
commodities). Commentary .06 requires
that ETFs must either (1) meet the
criteria and standards set forth in
Commentary .01 to Rule 915,8 or (2) the
ETFs are available for creation and
redemption each business day as set
forth in Commentary .06(a)(ii).9 The
Bitcoin Funds satisfy Commentary
.06(a)(ii), 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 Bitcoin Funds satisfy the
criteria and guidelines set forth in Rule
915(a). Pursuant to Rule 915(a), a
security (which includes ETFs) 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 Act) and be
characterized by a substantial number of
outstanding shares that are widely held
and actively traded.10 Each of the
Bitcoin Funds is an NMS Stock as
defined in Rule 600 of Regulation NMS
under the Act.11 The Exchange believes
each Bitcoin Fund is characterized by a
substantial number of outstanding
shares that are widely held and actively
traded.
As of August 7, 2024, the Bitcoin
Funds had the following number of
shares outstanding:
Bitcoin fund
Shares outstanding
Fidelity Fund ............................................................................................................................................................................
ARK 21Shares Fund ................................................................................................................................................................
Invesco Fund ...........................................................................................................................................................................
Franklin Fund ...........................................................................................................................................................................
VanEck Fund ...........................................................................................................................................................................
WisdomTree Fund ...................................................................................................................................................................
Grayscale Fund .......................................................................................................................................................................
Grayscale Mini Fund ................................................................................................................................................................
Bitwise Fund ............................................................................................................................................................................
iShares Fund ...........................................................................................................................................................................
Valkyrie Fund ...........................................................................................................................................................................
All but one Bitcoin Fund had 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 Commentary .01(1) to
Rule 915. However, the Exchange
believes shares outstanding (i.e., free
float 12), 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.13 As evidenced
during their time in market since
beginning trading in January of 2024,
the gross value of daily shares created
or redeemed for each Bitcoin Fund
exceeds the assets under management
(‘‘AUM’’) of each fund as of August 7,
2024, which was as follows:
Bitcoin fund
AUM
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Fidelity Fund ............................................................................................................................................................................
ARK 21Shares Fund ................................................................................................................................................................
Invesco Fund ...........................................................................................................................................................................
Franklin Fund ...........................................................................................................................................................................
VanEck Fund ...........................................................................................................................................................................
WisdomTree Fund ...................................................................................................................................................................
Grayscale Fund .......................................................................................................................................................................
Grayscale Mini Fund ................................................................................................................................................................
Bitwise Fund ............................................................................................................................................................................
iShares Fund ...........................................................................................................................................................................
Valkyrie Fund ...........................................................................................................................................................................
8 Commentary .01 to Rule 915 provides for
guidelines to be by the Exchange when evaluating
potential underlying securities for Exchange option
transactions.
9 Commentary .06(a)(ii) requires that ETFs must
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 ETFs 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
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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.
10 The criteria and guidelines for a security to be
considered widely held and actively traded are set
forth in Commentary .01 to Rule 915, subject to
exceptions.
11 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
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201,100,100
45,495,000
7,965,000
11,100,000
9,600,000
1,420,000
296,930,100
353,580,100
69,910,000
606,120,000
31,335,000
Sfmt 4703
10,240,420,000
2,887,759,000
405,628,500
339,882,800
617,779,500
81,690,950
20,117,590,000
1,908,524,806
2,266,633,000
18,274,490,000
527,831,700
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’’).
12 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.
13 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 Commentary .01 to Rule 915.
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As a result, the Exchange believes this
demonstrates that each Bitcoin Fund is
characterized by a substantial number of
outstanding shares.
Further, the below table contains
information regarding the number of
beneficial holders of certain Bitcoin
Funds as of the specified dates:
Beneficial
holders
Bitcoin fund
Fidelity Fund ............................................................................................................................................................
ARK 21Shares Fund ................................................................................................................................................
Invesco Fund ...........................................................................................................................................................
Franklin Fund ...........................................................................................................................................................
VanEck Fund ...........................................................................................................................................................
WisdomTree Fund ...................................................................................................................................................
As this table shows, each of these six
Bitcoin Funds has more than 2,000
beneficial holders, which is the
minimum number of holders the
Exchange generally requires for
corporate stock in order to list options
on that stock pursuant to Commentary
.01(2) to Rule 915. Given that the other
four Bitcoin Funds have significant
trading volumes similar to the trading
volumes of the Bitcoin Funds listed in
the table above (as discussed below), the
Exchange believes it is reasonable to
expect that shares of all of the Bitcoin
Funds are characterized by a substantial
number of outstanding shares that are
widely held.
The Exchange also believes each
Bitcoin Fund is characterized by a
Trading volume
(shares)
Bitcoin fund
Fidelity Fund ............................................................................................
ARK 21Shares Fund ................................................................................
Invesco Fund ...........................................................................................
Franklin Fund ...........................................................................................
VanEck Fund ...........................................................................................
WisdomTree Fund ...................................................................................
Grayscale Fund .......................................................................................
Bitwise Fund ............................................................................................
iShares Fund ...........................................................................................
Valkyrie Fund ...........................................................................................
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As demonstrated above, despite the
Bitcoin Funds have been trading for
approximately seven months, the
trading volume for each is substantially
higher than 2,400,000 shares (between
16 and 620 times that amount), 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 Commentary .01
to Rule 915. Additionally, as of August
7, 2024, the six-month ADV for each
Bitcoin Fund is in the top 20% of all
ETFs that are currently trading. The
Exchange believes this data
demonstrates each Bitcoin Fund is
characterized by a substantial number of
outstanding shares that are actively
traded.
Like all ETFs deemed appropriate for
options trading, options on Bitcoin
Funds will be subject to the Exchange’s
continued listing standards as set forth
in Commentary .07 to Rule 916.
Pursuant to Commentary .07 to Rule
916, the Exchange will not open for
trading any additional series of option
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1,490,261,825
413,159,977
78,609,595
58,954,975
59,991,039
39,977,866
2,074,101,826
455,817,104
5,209,443,211
100,580,329
contracts covering an ETF if such ETF
ceases to be an ‘‘NMS stock’’ as
provided for Commentary .01(5) to Rule
915 or the ETF is halted from trading on
its primary market.14 Additionally,
options on ETFs may be subject to the
suspension of opening transactions as
follows: (1) the ETFs no longer meets
the terms of Commentary .01 to Rule
916; (2) following the initial twelvemonth period beginning upon the
commencement of trading of the ETFs,
there are fewer than 50 record and/or
beneficial holders of the ETFs for 30 or
more consecutive trading days; (3) the
value of the underlying commodity 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 on the
Exchange inadvisable.
14 See Commentary .07 to Rule 916. For
avoidance of doubt and consistent with this
proposal, the Exchange proposes to amend Rule 916
to include in the Bitcoin Funds in the list of ETFs
subject to the continued listing standards. See
proposed Commentary .11 to Rule 916.
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71947
279,656
69,425
13,420
12,224
19,061
3,509
Date
6/27/2024
6/26/2024
6/25/2024
6/27/2024
6/28/2024
7/2/2024
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 January 11,
2024, and the average daily volume
(‘‘ADV’’) over the 30-day period of July
9 through August 7, 2024 for each
Bitcoin Fund was as follows:
Trading volume
(notional $)
78,936,647,100.20
24,787,148,013.81
4,578,462,838.89
2,063,321,834.88
4,195,401,686.66
2,546,889,570.58
95,371,791,353.17
14,926,192,896.43
185,451,676,432.50
1,762,278,782.37
ADV
(shares)
6,014,335.50
1,893,335.00
299,372.94
338,901.56
265,605.84
209,501.33
4,794,193.00
2,250,989.25
28,406,964.00
349,587.41
Options on each Bitcoin Fund will be
physically settled contracts with
American-style exercise.15 Consistent
with Rule 903, which governs the
opening of options series on a specific
underlying security (including ETFs),
the Exchange will open at least one
expiration month for options on each
Bitcoin Fund 16 at the commencement of
15 See Rule 902 (Rights and Obligations of
Holders and Writers), which provides that the rights
and obligations of holders and writers of option
contracts of any class of options dealt in on the
Exchange 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/
occrules.pdf.
16 See Rule 903(c), Commentary .03. The monthly
expirations are subject to certain listing criteria for
underlying securities described within Rule 915.
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
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ddrumheller on DSK120RN23PROD with NOTICES1
trading on the Exchange and may also
list series of options on Bitcoin Funds
for trading on a weekly,17 monthly,18 or
quarterly 19 basis. The Exchange may
also list long-term equity option series
(‘‘LEAPS’’) 20 that expire from twelve to
thirty-nine months from the time they
are listed.
Pursuant to Rule 903, Commentary
.05(a), which governs strike prices of
series of options on ETFs, the interval
between strike prices of series of options
on Bitcoin Funds will be $1 or greater
when the strike price is $200 or less and
$5 or greater where the strike price is
over $200.21 Additionally, the Exchange
may list series of options pursuant to
the $1 Strike Price sup [sic].
Bitcoin Fund options will trade in the
same manner as any other ETF options
on the Exchange. The Exchange Rules
that currently apply to the listing and
trading of all ETF options on the
Exchange, including, for example, Rules
that govern listing criteria, expiration
and exercise prices, minimum
increments, position and exercise limits,
margin requirements, customer accounts
and trading halt procedures will apply
to the listing and trading of Bitcoin
Funds on the Exchange in the same
manner as they apply to other options
on all other ETF that are listed and
traded on the Exchange, including the
precious-metal backed commodity ETF
already deemed appropriate for options
trading on the Exchange pursuant to
current Commentary .10 to Rule 915.
Position and exercise limits for
options on ETFs, including options on
Bitcoin Funds, pursuant to Rules 904
and 905, respectively. Position and
exercise limits for ETF options vary
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 903(d), 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.
17 See Rule 903(h).
18 See Rule 903, Commentary .11.
19 See Rule 903, Commentary .09.
20 See Rule 903, Commentary .03.
21 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 903(h) and
Commentaries .09 and .03 to Rule 903, specifically
set forth intervals between strike prices on
Quarterly Options Series, Short Term Option Series,
and Monthly Options Series, respectively.
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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, recapitalizations, 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.22 The Exchange further
notes that Rule 462, 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 Bitcoin Fund
options.
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*
The Exchange notes that options on
Bitcoin Funds would not be available
for trading until The Options Clearing
Corporation (‘‘OCC’’) represents to the
Exchange that it is fully able to clear
and settle such options. The Exchange
has also analyzed its capacity and
represents that it and The Options Price
Reporting Authority (‘‘OPRA’’) have the
necessary systems capacity to handle
the additional traffic associated with the
listing of options on Bitcoin Funds. The
Exchange believes any additional traffic
that would be generated from the
trading of options on Bitcoin Funds
would be manageable. The Exchange
represents that Exchange members will
not have a capacity issue as a result of
this proposed rule change.
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
Bitcoin Funds, and that it has the
necessary systems capacity to support
the new option series. The Exchange’s
existing surveillance and reporting
safeguards are designed to deter and
detect possible manipulative behavior
which might arise from listing and
trading options on ETFs, such as
(existing) precious metal-commodity
backed ETF options as well as the
proposed options on Bitcoin Funds. The
Exchange believes that its surveillance
procedures are adequate to properly
monitor the trading of options on
Bitcoin Funds in all trading sessions
and to deter and detect violations of
Exchange rules. In addition, the
Exchange will implement any new
surveillance procedures it deems
22 As Bitcoin Funds do not currently trade,
options on Bitcoin Funds would be subject to the
25,000 option contract limit.
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necessary to effectively monitor the
trading of options on Bitcoin Funds.
Also, the Exchange may obtain trading
information via the Intermarket
Surveillance Group (‘‘ISG’’) from other
exchanges who are members of the ISG,
or from other exchanges with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement (‘‘CSSA’’). The Exchange will
enter into new CSSAs with other
exchanges as necessary to effectively
monitor the trading of options on
Bitcoin Funds. The Exchange represents
that these procedures will be adequate
to properly monitor Exchange trading of
options on Bitcoin Funds and to deter
and detect violations of Exchange rules.
Finally, quotation and last sale
information for ETFs is available via the
Consolidated Tape Association (‘‘CTA’’)
high speed line. Quotation and last sale
information for such securities is also
available from the exchange on which
such securities are listed. Quotation and
last sale information for options on
Bitcoin Funds will be available via
OPRA and major market data vendors.
The Exchange believes that offering
options on Bitcoin Funds will benefit
investors by providing them with an
additional, relatively lower cost
investing tool to gain exposure to the
price of Bitcoin and hedging vehicle to
meet their investment needs in
connection with Bitcoin-related
products and positions. The Exchange
expects investors will transact in
options on Bitcoin Funds in the
unregulated over-the-counter (‘‘OTC’’)
options market (if the Commission
approves Bitcoin Funds for exchangetrading),23 but may prefer to trade such
options in a listed environment to
receive the benefits of trading listing
options, including (1) enhanced
efficiency in initiating and closing out
position; (2) increased market
transparency; and (3) heightened contraparty creditworthiness due to the role of
OCC as issuer and guarantor of all listed
options. The Exchange believes that
listing Bitcoin 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 ETFs 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
23 The Exchange understands from customers that
investors have historically transacted in options on
ETFs 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
Bitcoin 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 ETF
options, including ETFs that hold
commodities (i.e., precious metals) that
it currently lists and trades on the
Exchange.
2. Statutory Basis
The Exchange believes that its
proposed rule change is consistent with
Section 6(b) of the Act 24 in general and
furthers the objectives of Section 6(b)(5)
of the Act 25 in particular, in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system.
In particular, the Exchange believes
that the proposal to list and trade
options on Bitcoin 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 Bitcoin Funds will
provide investors with an opportunity
to realize the benefits of utilizing
options on a Bitcoin Fund, including
cost efficiencies and increased hedging
strategies. The Exchange believes that
offering Bitcoin 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 Bitcoin and with Bitcoinrelated products and positions.
Additionally, the Exchange’s offering of
Bitcoin 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 ETFs,26 which, as
described above, are trusts structured in
substantially the same manner as
Bitcoin Funds and essentially offer the
same objectives and benefits to
investors, just with respect to a different
commodity (i.e., Bitcoin rather than
precious metals) and for which the
Exchange has not identified any issues
24 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
26 See Rule 915, Commentary .10.
25 15
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with the continued listing and trading of
commodity-backed ETF options it
currently lists for trading.
The Exchange also believes the
proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, because
it is consistent with current Exchange
Rules previously filed with the
Commission. Options on Bitcoin Funds
satisfy the initial listing standards and
continued listing standards currently in
the Exchange Rules applicable to
options on all ETFs, including ETFs that
hold other commodities already deemed
appropriate for options trading on the
Exchange. Additionally, as
demonstrated above, each Bitcoin Fund
is characterized by a substantial number
of shares that are widely held and
actively traded. Bitcoin Fund options
will trade in the same manner as any
other ETF options — the same Exchange
Rules that currently govern the listing
and trading of all ETF options,
including permissible expirations, strike
prices and minimum increments, and
applicable position and exercise limits
and margin requirements, will govern
the listing and trading of options on
Bitcoin Funds in the same manner.
The Exchange believes the proposed
position and exercise limits for the
Bitcoin 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 Bitcoin is not
relevant when establishing position
limits for options on the Bitcoin 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
PO 00000
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71949
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.27
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.28 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 904 (and as proposed to be
applicable to options on the Bitcoin
Funds).
The Exchange represents that it has
the necessary systems capacity to
support the new Bitcoin 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 ETF
options, including Bitcoin Fund
options.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
Intramarket Competition: 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
27 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
28 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
as Bitcoin Funds would need to satisfy
the initial listing standards set forth in
the Exchange Rules in the same manner
as any other ETF before the Exchange
could list options on them.
Additionally, Bitcoin 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 ETFs on the Exchange will
apply in the same manner to the listing
and trading of all options on Bitcoin
Funds. Also, and as stated above, the
Exchange already lists options on other
commodity-based ETFs.29
Intermarket Competition: The
Exchange does not believe that the
proposal to list and trade options on
Bitcoin 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 Bitcoin 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. As noted
herein, this is a competitive filing as at
least one other options exchange has
filed similar a rule proposal that is
currently pending with the Commission
to allow the listing and trading of
options on Bitcoin Funds.30
Additionally, other options exchanges
are free to amend their listing rules, as
applicable, to permit them to list and
trade options on Bitcoin Funds. The
Exchange notes that listing and trading
Bitcoin 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 Bitcoin
Fund options for trading on the
Exchange will promote competition by
providing investors with an additional,
29 See
30 See
Rule 915, Commentary .10.
SR–CBOE–2024–035, filed on August 8,
2024.
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relatively low-cost means to hedge their
portfolios and meet their investment
needs in connection with Bitcoin prices
and Bitcoin-related products and
positions on a listed options exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to 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 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:
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–NYSEAMER–2024–49 and should
be submitted on or before September 25,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–19773 Filed 9–3–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–100856; File No. SR–
PEARL–2024–38]
• 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–
NYSEAMER–2024–49 on the subject
line.
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Describe the Access
Methods to the MIAX Pearl Options
Testing Systems Environment and
Discontinue One Access Method
Paper Comments
August 28, 2024.
• 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–NYSEAMER–2024–49. 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
PO 00000
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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
22, 2024, MIAX PEARL, LLC (‘‘MIAX
Pearl’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a 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.
31 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 89, Number 171 (Wednesday, September 4, 2024)]
[Notices]
[Pages 71945-71950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19773]
[[Page 71945]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100863; File No. SR-NYSEAMER-2024-49]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing of Proposed Rule Change To Amend Rule 915 to Permit the Listing
and Trading of Options on Bitcoin ETFs
August 28, 2024.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on August 15, 2024, NYSE American LLC (``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 self-regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 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 Rule 915 regarding the criteria for
underlying securities. The proposed rule change is available on the
Exchange's website at www.nyse.com, 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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 915 (Criteria for Underlying
Securities). Specifically, the Exchange proposes to amend Rule 915,
Commentary .10 to allow the Exchange to list and trade options on the
following Exchange-Traded Fund Shares (``ETFs'') \4\: the Fidelity Wise
Origin Bitcoin Fund (the ``Fidelity Fund''), the ARK21Shares Bitcoin
ETF (the ``ARK 21Shares Fund''), the Invesco Galaxy Bitcoin ETF (the
``Invesco Fund''), the Franklin Bitcoin ETF (the ``Franklin Fund''),
the VanEck Bitcoin Trust (the ``VanEck Fund''), and the WisdomTree
Bitcoin Fund (the ``WisdomTree Fund''), the Grayscale Bitcoin Trust BTC
(the ``Grayscale Fund''), the Grayscale Bitcoin Mini Trust (the
``Grayscale Mini Fund''), the Bitwise Bitcoin ETF (the ``Bitwise
Fund''), the iShares Bitcoin Trust ETF (the ``iShares Fund''), and the
Valkyrie Bitcoin Fund (the ``Valkyrie Fund'' and, collectively, the
``Bitcoin Funds'').
---------------------------------------------------------------------------
\4\ Rule 900.2NYP defines the term ``Exchange-Traded Fund
Share'' as Exchange-listed securities representing interests in
open-end unit investment trusts or open-end management investment
companies that hold securities (including fixed income securities)
based on an index or a portfolio of securities.
---------------------------------------------------------------------------
The Exchange notes that this is a competitive filing as at least
one other options exchange has filed similar a rule proposal that is
currently pending with the Commission to allow the listing and trading
of options on Bitcoin Funds.\5\
---------------------------------------------------------------------------
\5\ See SR-CBOE-2024-035, filed on August 8, 2024, by Cboe
Exchange, Inc. (``Cboe''). Unlike Cboe, the Exchange proposes to
include as a Bitcoin Fund the Grayscale Bitcoin Mini Trust, which
was listed on NYSE Arca, Inc. on July 31,2024.
---------------------------------------------------------------------------
Commentary .06 to Rule 915 (hereinafter ``Commentary .06'')
provides that, subject to certain other criteria set forth in Rule 915,
securities deemed appropriate for options trading include ETFs that
represent certain types of interests,\6\ including interests in certain
specific trusts that hold financial instruments, money market
instruments, or precious metals (which are deemed commodities).
---------------------------------------------------------------------------
\6\ See Commentary .06, which permits options trading on ETFs
that are traded on a national securities exchange and are defined as
an ``NMS stock'' in Rule 600(b)(55) of Regulation NMS, that
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 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 not 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); 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'');
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''); or represents 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''); provided
that all of the conditions listed in Rules 915 and 916 are met.
---------------------------------------------------------------------------
The Bitcoin Funds are Bitcoin-backed commodity ETFs structured as
trusts. Like any ETF currently deemed appropriate for options trading
under Commentary .06, the investment objective of each Bitcoin Fund
trust is for its shares to reflect the performance of Bitcoin (less the
expenses of the trust's operations), offering investors an opportunity
to gain exposure to Bitcoin without the complexities of Bitcoin
delivery. As is the case for ETFs currently deemed appropriate for
options trading, a Bitcoin Fund's shares represent units of fractional
undivided beneficial interest in the trust, the assets of which consist
principally of Bitcoin and are designed to track Bitcoin or the
performance of the price of Bitcoin and offer access to the Bitcoin
market.\7\ The Bitcoin Funds provide investors with cost-efficient
alternatives that allow a level of participation in the Bitcoin market
through the securities market. The primary substantive difference
between Bitcoin Funds and ETFs currently deemed appropriate for options
trading are that ETFs may hold securities, certain financial
instruments, and specified precious metals (which are deemed
commodities), while Bitcoin Funds hold bitcoin (which is also deemed a
commodity).
---------------------------------------------------------------------------
\7\ The trust may include minimal cash.
---------------------------------------------------------------------------
The Exchange believes the Bitcoin Funds satisfy the Exchange's
initial listing standards for ETFs on which the Exchange may list
options. Specifically, the Bitcoin Funds satisfy the initial listing
standards set forth in
[[Page 71946]]
Commentary .06, as is the case for other ETFs on which the Exchange
lists options (including trusts that hold commodities). Commentary .06
requires that ETFs must either (1) meet the criteria and standards set
forth in Commentary .01 to Rule 915,\8\ or (2) the ETFs are available
for creation and redemption each business day as set forth in
Commentary .06(a)(ii).\9\ The Bitcoin Funds satisfy Commentary
.06(a)(ii), as they are all subject to this creation and redemption
process.
---------------------------------------------------------------------------
\8\ Commentary .01 to Rule 915 provides for guidelines to be by
the Exchange when evaluating potential underlying securities for
Exchange option transactions.
\9\ Commentary .06(a)(ii) requires that ETFs must 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 ETFs 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.
---------------------------------------------------------------------------
While not required by the Rules for purposes of options listings,
the majority of the Bitcoin Funds satisfy the criteria and guidelines
set forth in Rule 915(a). Pursuant to Rule 915(a), a security (which
includes ETFs) 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 Act) and be
characterized by a substantial number of outstanding shares that are
widely held and actively traded.\10\ Each of the Bitcoin Funds is an
NMS Stock as defined in Rule 600 of Regulation NMS under the Act.\11\
The Exchange believes each Bitcoin Fund is characterized by a
substantial number of outstanding shares that are widely held and
actively traded.
---------------------------------------------------------------------------
\10\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Commentary .01 to
Rule 915, subject to exceptions.
\11\ 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 Bitcoin Funds had the following number of
shares outstanding:
------------------------------------------------------------------------
Bitcoin fund Shares outstanding
------------------------------------------------------------------------
Fidelity Fund..................................... 201,100,100
ARK 21Shares Fund................................. 45,495,000
Invesco Fund...................................... 7,965,000
Franklin Fund..................................... 11,100,000
VanEck Fund....................................... 9,600,000
WisdomTree Fund................................... 1,420,000
Grayscale Fund.................................... 296,930,100
Grayscale Mini Fund............................... 353,580,100
Bitwise Fund...................................... 69,910,000
iShares Fund...................................... 606,120,000
Valkyrie Fund..................................... 31,335,000
------------------------------------------------------------------------
All but one Bitcoin Fund had 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 Commentary .01(1) to Rule 915. However, the Exchange
believes shares outstanding (i.e., free float \12\), 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.\13\ As evidenced during their time in market since beginning
trading in January of 2024, the gross value of daily shares created or
redeemed for each Bitcoin Fund exceeds the assets under management
(``AUM'') of each fund as of August 7, 2024, which was as follows:
---------------------------------------------------------------------------
\12\ 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.
\13\ 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 Commentary .01 to Rule 915.
------------------------------------------------------------------------
Bitcoin fund AUM
------------------------------------------------------------------------
Fidelity Fund..................................... 10,240,420,000
ARK 21Shares Fund................................. 2,887,759,000
Invesco Fund...................................... 405,628,500
Franklin Fund..................................... 339,882,800
VanEck Fund....................................... 617,779,500
WisdomTree Fund................................... 81,690,950
Grayscale Fund.................................... 20,117,590,000
Grayscale Mini Fund............................... 1,908,524,806
Bitwise Fund...................................... 2,266,633,000
iShares Fund...................................... 18,274,490,000
Valkyrie Fund..................................... 527,831,700
------------------------------------------------------------------------
[[Page 71947]]
As a result, the Exchange believes this demonstrates that each
Bitcoin Fund is characterized by a substantial number of outstanding
shares.
Further, the below table contains information regarding the number
of beneficial holders of certain Bitcoin Funds as of the specified
dates:
------------------------------------------------------------------------
Beneficial
Bitcoin fund holders Date
------------------------------------------------------------------------
Fidelity Fund........................... 279,656 6/27/2024
ARK 21Shares Fund....................... 69,425 6/26/2024
Invesco Fund............................ 13,420 6/25/2024
Franklin Fund........................... 12,224 6/27/2024
VanEck Fund............................. 19,061 6/28/2024
WisdomTree Fund......................... 3,509 7/2/2024
------------------------------------------------------------------------
As this table shows, each of these six Bitcoin Funds has more than
2,000 beneficial holders, which is the minimum number of holders the
Exchange generally requires for corporate stock in order to list
options on that stock pursuant to Commentary .01(2) to Rule 915. Given
that the other four Bitcoin Funds have significant trading volumes
similar to the trading volumes of the Bitcoin Funds listed in the table
above (as discussed below), the Exchange believes it is reasonable to
expect that shares of all of the Bitcoin Funds are characterized by a
substantial number of outstanding shares that are widely held.
The Exchange also believes each Bitcoin 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 January 11, 2024, and the
average daily volume (``ADV'') over the 30-day period of July 9 through
August 7, 2024 for each Bitcoin Fund was as follows:
----------------------------------------------------------------------------------------------------------------
Trading volume Trading volume
Bitcoin fund (shares) (notional $) ADV (shares)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund................................. 1,490,261,825 78,936,647,100.20 6,014,335.50
ARK 21Shares Fund............................. 413,159,977 24,787,148,013.81 1,893,335.00
Invesco Fund.................................. 78,609,595 4,578,462,838.89 299,372.94
Franklin Fund................................. 58,954,975 2,063,321,834.88 338,901.56
VanEck Fund................................... 59,991,039 4,195,401,686.66 265,605.84
WisdomTree Fund............................... 39,977,866 2,546,889,570.58 209,501.33
Grayscale Fund................................ 2,074,101,826 95,371,791,353.17 4,794,193.00
Bitwise Fund.................................. 455,817,104 14,926,192,896.43 2,250,989.25
iShares Fund.................................. 5,209,443,211 185,451,676,432.50 28,406,964.00
Valkyrie Fund................................. 100,580,329 1,762,278,782.37 349,587.41
----------------------------------------------------------------------------------------------------------------
* * * * *
As demonstrated above, despite the Bitcoin Funds have been trading
for approximately seven months, the trading volume for each is
substantially higher than 2,400,000 shares (between 16 and 620 times
that amount), 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 Commentary .01 to Rule 915. Additionally, as
of August 7, 2024, the six-month ADV for each Bitcoin Fund is in the
top 20% of all ETFs that are currently trading. The Exchange believes
this data demonstrates each Bitcoin Fund is characterized by a
substantial number of outstanding shares that are actively traded.
Like all ETFs deemed appropriate for options trading, options on
Bitcoin Funds will be subject to the Exchange's continued listing
standards as set forth in Commentary .07 to Rule 916. Pursuant to
Commentary .07 to Rule 916, the Exchange will not open for trading any
additional series of option contracts covering an ETF if such ETF
ceases to be an ``NMS stock'' as provided for Commentary .01(5) to Rule
915 or the ETF is halted from trading on its primary market.\14\
Additionally, options on ETFs may be subject to the suspension of
opening transactions as follows: (1) the ETFs no longer meets the terms
of Commentary .01 to Rule 916; (2) following the initial twelve-month
period beginning upon the commencement of trading of the ETFs, there
are fewer than 50 record and/or beneficial holders of the ETFs for 30
or more consecutive trading days; (3) the value of the underlying
commodity 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 on the Exchange inadvisable.
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\14\ See Commentary .07 to Rule 916. For avoidance of doubt and
consistent with this proposal, the Exchange proposes to amend Rule
916 to include in the Bitcoin Funds in the list of ETFs subject to
the continued listing standards. See proposed Commentary .11 to Rule
916.
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Options on each Bitcoin Fund will be physically settled contracts
with American-style exercise.\15\ Consistent with Rule 903, which
governs the opening of options series on a specific underlying security
(including ETFs), the Exchange will open at least one expiration month
for options on each Bitcoin Fund \16\ at the commencement of
[[Page 71948]]
trading on the Exchange and may also list series of options on Bitcoin
Funds for trading on a weekly,\17\ monthly,\18\ or quarterly \19\
basis. The Exchange may also list long-term equity option series
(``LEAPS'') \20\ that expire from twelve to thirty-nine months from the
time they are listed.
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\15\ See Rule 902 (Rights and Obligations of Holders and
Writers), which provides that the rights and obligations of holders
and writers of option contracts of any class of options dealt in on
the Exchange 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/occrules.pdf.
\16\ See Rule 903(c), Commentary .03. The monthly expirations
are subject to certain listing criteria for underlying securities
described within Rule 915. 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 903(d), 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.
\17\ See Rule 903(h).
\18\ See Rule 903, Commentary .11.
\19\ See Rule 903, Commentary .09.
\20\ See Rule 903, Commentary .03.
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Pursuant to Rule 903, Commentary .05(a), which governs strike
prices of series of options on ETFs, the interval between strike prices
of series of options on Bitcoin 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.\21\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price sup [sic].
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\21\ 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 903(h) and
Commentaries .09 and .03 to Rule 903, specifically set forth
intervals between strike prices on Quarterly Options Series, Short
Term Option Series, and Monthly Options Series, respectively.
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Bitcoin Fund options will trade in the same manner as any other ETF
options on the Exchange. The Exchange Rules that currently apply to the
listing and trading of all ETF options on the Exchange, including, for
example, Rules that govern listing criteria, expiration and exercise
prices, minimum increments, position and exercise limits, margin
requirements, customer accounts and trading halt procedures will apply
to the listing and trading of Bitcoin Funds on the Exchange in the same
manner as they apply to other options on all other ETF that are listed
and traded on the Exchange, including the precious-metal backed
commodity ETF already deemed appropriate for options trading on the
Exchange pursuant to current Commentary .10 to Rule 915.
Position and exercise limits for options on ETFs, including options
on Bitcoin Funds, pursuant to Rules 904 and 905, respectively. Position
and exercise limits for ETF 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.\22\ The Exchange further notes that Rule
462, 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 Bitcoin Fund options.
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\22\ As Bitcoin Funds do not currently trade, options on Bitcoin
Funds would be subject to the 25,000 option contract limit.
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* * * * *
The Exchange notes that options on Bitcoin Funds would not be
available for trading until The Options Clearing Corporation (``OCC'')
represents to the Exchange that it is fully able to clear and settle
such options. The Exchange has also analyzed its capacity and
represents that it and The Options Price Reporting Authority (``OPRA'')
have the necessary systems capacity to handle the additional traffic
associated with the listing of options on Bitcoin Funds. The Exchange
believes any additional traffic that would be generated from the
trading of options on Bitcoin Funds would be manageable. The Exchange
represents that Exchange members will not have a capacity issue as a
result of this proposed rule change.
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 Bitcoin Funds, and that
it has the necessary systems capacity to support the new option series.
The Exchange's existing surveillance and reporting safeguards are
designed to deter and detect possible manipulative behavior which might
arise from listing and trading options on ETFs, such as (existing)
precious metal-commodity backed ETF options as well as the proposed
options on Bitcoin Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Bitcoin Funds in all trading sessions and to deter and detect
violations of Exchange rules. In addition, the Exchange will implement
any new surveillance procedures it deems necessary to effectively
monitor the trading of options on Bitcoin Funds. Also, the Exchange may
obtain trading information via the Intermarket Surveillance Group
(``ISG'') from other exchanges who are members of the ISG, or from
other exchanges with which the Exchange has entered into a
comprehensive surveillance sharing agreement (``CSSA''). The Exchange
will enter into new CSSAs with other exchanges as necessary to
effectively monitor the trading of options on Bitcoin Funds. The
Exchange represents that these procedures will be adequate to properly
monitor Exchange trading of options on Bitcoin Funds and to deter and
detect violations of Exchange rules.
Finally, quotation and last sale information for ETFs is available
via the Consolidated Tape Association (``CTA'') high speed line.
Quotation and last sale information for such securities is also
available from the exchange on which such securities are listed.
Quotation and last sale information for options on Bitcoin Funds will
be available via OPRA and major market data vendors.
The Exchange believes that offering options on Bitcoin Funds will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Bitcoin and
hedging vehicle to meet their investment needs in connection with
Bitcoin-related products and positions. The Exchange expects investors
will transact in options on Bitcoin Funds in the unregulated over-the-
counter (``OTC'') options market (if the Commission approves Bitcoin
Funds for exchange-trading),\23\ but may prefer to trade such options
in a listed environment to receive the benefits of trading listing
options, including (1) enhanced efficiency in initiating and closing
out position; (2) increased market transparency; and (3) heightened
contra-party creditworthiness due to the role of OCC as issuer and
guarantor of all listed options. The Exchange believes that listing
Bitcoin 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 ETFs 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
[[Page 71949]]
Bitcoin 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 ETF options, including ETFs that hold commodities (i.e.,
precious metals) that it currently lists and trades on the Exchange.
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\23\ The Exchange understands from customers that investors have
historically transacted in options on ETFs 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 that its proposed rule change is consistent
with Section 6(b) of the Act \24\ in general and furthers the
objectives of Section 6(b)(5) of the Act \25\ in particular, in that it
is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system.
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes that the proposal to list and
trade options on Bitcoin 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 Bitcoin
Funds will provide investors with an opportunity to realize the
benefits of utilizing options on a Bitcoin Fund, including cost
efficiencies and increased hedging strategies. The Exchange believes
that offering Bitcoin 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
Bitcoin and with Bitcoin-related products and positions. Additionally,
the Exchange's offering of Bitcoin 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 ETFs,\26\ which, as described above,
are trusts structured in substantially the same manner as Bitcoin Funds
and essentially offer the same objectives and benefits to investors,
just with respect to a different commodity (i.e., Bitcoin rather than
precious metals) and for which the Exchange has not identified any
issues with the continued listing and trading of commodity-backed ETF
options it currently lists for trading.
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\26\ See Rule 915, Commentary .10.
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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 Bitcoin
Funds satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules applicable to options on all
ETFs, including ETFs that hold other commodities already deemed
appropriate for options trading on the Exchange. Additionally, as
demonstrated above, each Bitcoin Fund is characterized by a substantial
number of shares that are widely held and actively traded. Bitcoin Fund
options will trade in the same manner as any other ETF options -- the
same Exchange Rules that currently govern the listing and trading of
all ETF options, including permissible expirations, strike prices and
minimum increments, and applicable position and exercise limits and
margin requirements, will govern the listing and trading of options on
Bitcoin Funds in the same manner.
The Exchange believes the proposed position and exercise limits for
the Bitcoin 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 Bitcoin is not relevant
when establishing position limits for options on the Bitcoin 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.\27\
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\27\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
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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.\28\ 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 904 (and as proposed to be
applicable to options on the Bitcoin Funds).
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\28\ 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 Bitcoin 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 ETF options, including Bitcoin Fund options.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intramarket Competition: 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
[[Page 71950]]
as Bitcoin Funds would need to satisfy the initial listing standards
set forth in the Exchange Rules in the same manner as any other ETF
before the Exchange could list options on them. Additionally, Bitcoin
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 ETFs on the Exchange will apply
in the same manner to the listing and trading of all options on Bitcoin
Funds. Also, and as stated above, the Exchange already lists options on
other commodity-based ETFs.\29\
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\29\ See Rule 915, Commentary .10.
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Intermarket Competition: The Exchange does not believe that the
proposal to list and trade options on Bitcoin 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 Bitcoin 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. As noted herein, this is a competitive
filing as at least one other options exchange has filed similar a rule
proposal that is currently pending with the Commission to allow the
listing and trading of options on Bitcoin Funds.\30\ Additionally,
other options exchanges are free to amend their listing rules, as
applicable, to permit them to list and trade options on Bitcoin Funds.
The Exchange notes that listing and trading Bitcoin 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.
---------------------------------------------------------------------------
\30\ See SR-CBOE-2024-035, filed on August 8, 2024.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change may relieve any
burden on, or otherwise promote, competition as it is designed to
increase competition for order flow on the Exchange in a manner that is
beneficial to investors by providing them with a lower-cost option to
hedge their investment portfolios. The Exchange notes that it operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues that offer similar products.
Ultimately, the Exchange believes that offering Bitcoin 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 Bitcoin
prices and Bitcoin-related products and positions on a listed options
exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to 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 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-NYSEAMER-2024-49 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-NYSEAMER-2024-49. 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-NYSEAMER-2024-49 and should
be submitted on or before September 25, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19773 Filed 9-3-24; 8:45 am]
BILLING CODE 8011-01-P
