Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Options on Ethereum Exchange-Traded Funds, 91811-91815 [2024-27013]
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Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
By Authority of the Board.
Stephanie Hillyard,
Secretary to the Board.
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.7
This order institutes proceedings under
Section 19(b)(2)(B) of the Act 8 to
determine whether to approve or
disapprove the proposed rule change.
[FR Doc. 2024–27066 Filed 11–19–24; 8:45 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101631; File No. SR–
CBOE–2024–036]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To List and Trade
Options on Ethereum ExchangeTraded Funds
November 14, 2024.
I. Introduction
On August 19, 2024, Cboe Exchange,
Inc. (‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and
Rule 19b–4 thereunder,2 a proposed rule
change to allow the listing and trading
of options on Units 3 that represent
interests in the Fidelity Ethereum Fund
(the ‘‘Fidelity Fund’’), the 21Shares Core
Ethereum ETF (the ‘‘21Shares Fund’’),
the Invesco Galaxy Ethereum ETF (the
‘‘Invesco Fund’’), the Franklin Ethereum
ETF (the ‘‘Franklin Fund’’), the VanEck
Ethereum Trust (the ‘‘VanEck Fund’’),
the Grayscale Ethereum Trust (the
‘‘Grayscale Fund’’), the Grayscale Mini
Ethereum Trust (the ‘‘Grayscale Mini
Fund’’), the Bitwise Ethereum ETF (the
‘‘Bitwise Fund’’), and the iShares
Ethereum Trust ETF (the ‘‘iShares
Fund’’ and, collectively, the ‘‘Ethereum
Funds’’).4 The proposed rule change
was published for comment in the
Federal Register on September 4, 2024.5
The Commission has received no
comments regarding the proposal.
On October 11, 2024, pursuant to
Section 19(b)(2) of the Exchange Act,6
the Commission designated a longer
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Cboe Rule 1.1 defines a ‘‘Unit’’ (which may also
be referred to as an exchange-traded fund (‘‘ETF’’))
as a share or other security traded on a national
securities exchange and defined as an NMS stock
as set forth in Rule 4.3.
4 The Commission approved proposals by several
exchanges to list and trade shares of trusts that hold
Ether, including the Ethereum Funds. See
Securities Exchange Act Release Nos. 100224 (May
23, 2024), 89 FR 46937 (May 30, 2024); and 100541
(July 17, 2024), 89 FR 59786 (July 23, 2024).
5 See Securities Exchange Act Release No. 100862
(Aug. 28, 2024), 89 FR 72146 (‘‘Notice’’).
6 15 U.S.C. 78s(b)(2).
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II. Description of the Proposed Rule
Change
As described more fully in the
Notice,9 the Exchange proposes to
amend Exchange Rule 4.3,
Interpretation and Policy .06(a)(4) to
allow the Exchange to list and trade
options on Units of the Ethereum
Funds. The Exchange states that current
Exchange Rule 4.3, Interpretation and
Policy .06(a) provides that, subject to
certain other criteria set forth in that
Rule, securities deemed appropriate for
options trading include Units that
represent certain types of interests,
including interests in certain specific
trusts that hold financial instruments,
money market instruments, or precious
metals (which are deemed
commodities).10
The Exchange states that the
Ethereum Funds are Ethereum-backed
commodity ETFs structured as trusts,
and that, similar to any Unit currently
deemed appropriate for options trading
under Exchange Rule 4.3, Interpretation
and Policy .06, the investment objective
of each Ethereum Fund trust is for its
shares to reflect the performance of
Ethereum (less the expenses of the
trust’s operations), offering investors an
opportunity to gain exposure to
Ethereum without the complexities of
Ethereum delivery.11 The Exchange
states that, as is the case for Units
currently deemed appropriate for
options trading, an Ethereum Fund’s
shares represent units of fractional
undivided beneficial interest in the
trust, the assets of which consist
principally of Ethereum and are
designed to track Ethereum or the
performance of the price of Ethereum
and offer access to the Ethereum
market.12 The Exchange states that the
Ethereum Funds provide investors with
cost-efficient alternatives that allow a
level of participation in the Ethereum
7 See Securities Exchange Act Release No. 101321
(Oct. 11, 2024), 89 FR 83723 (Oct. 17, 2024)
(designating December 3, 2024, as the date by
which the Commission shall either approve,
disapprove, or institute proceedings to determine
whether to disapprove the proposed rule change).
8 15 U.S.C. 78s(b)(2)(B).
9 See supra note 5.
10 See Notice, 89 FR at 72146–7.
11 See id. at 72147.
12 The Exchange states that the trusts may include
minimal cash. See id. at note 5.
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91811
market through the securities market,
and that the primary substantive
difference between Ethereum Funds and
Units currently deemed appropriate for
options trading are that Units may hold
securities, certain financial instruments,
and specified precious metals (which
are deemed commodities), while
Ethereum Funds hold Ethereum (which
is also deemed a commodity).13
The Exchange states that it believes
that the Ethereum Funds satisfy the
Exchange’s initial listing standards in
Exchange Rule 4.3, Interpretation and
Policy .06(b) that Units must either (1)
meet the criteria and standards set forth
in Rule 4.3, Interpretation and Policy
.01(a), or (2) be available for creation or
redemption each business day from or
through the issuer in cash or in kind at
a price related to net asset value, and
the issuer must be obligated to issue
Units in a specified aggregate number
even if some or all of the investment
assets required to be deposited have not
been received by the issuer, subject to
the condition that the person obligated
to deposit the investments has
undertaken to deliver the investment
assets as soon as possible and such
undertaking is secured by the delivery
and maintenance of collateral consisting
of cash or cash equivalents satisfactory
to the issuer, as provided in the
respective prospectus.14 The Exchange
states that the Ethereum Funds satisfy
Exchange Rule 4.3, Interpretation and
Policy .06(b)(2), as they are all subject
to this creation and redemption
process.15
The Exchange further states that,
while not required by the Exchange’s
Rules for purposes of options listings,
the majority of the Ethereum Funds
satisfy the criteria and guidelines set
forth in Exchange Rule 4.3,
Interpretation and Policy .01.16 The
Exchange states that, pursuant to
Exchange Rule 4.3(a), a security (which
includes a Unit) on which options may
be listed and traded on the Exchange
must be duly registered (with the
Commission) and be an NMS stock (as
defined in Rule 600 of Regulation NMS
under the Act), and be characterized by
a substantial number of outstanding
shares that are widely held and actively
traded.17 The Exchange states that each
of the Ethereum Funds is an NMS Stock,
as defined in Rule 600 of Regulation
13 See
Notice, 89 FR at 72147.
id.
15 See id.
16 See id.
17 The Exchange states that the criteria and
guidelines for a security to be considered widely
held and actively traded are set forth in Exchange
Rule 4.3, Interpretation and Policy .01, subject to
exceptions. See id. at note 7.
14 See
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NMS under the Act, and that each
Ethereum Fund is characterized by a
substantial number of outstanding
shares that are widely held and actively
traded.18
The Exchange states that, as of August
7, 2024, the Ethereum Funds had the
following number of shares
outstanding: 19
Shares outstanding
Ethereum fund
Fidelity Fund ...................
21Shares Fund ...............
Invesco Fund ..................
Franklin Fund ..................
VanEck Fund ..................
Grayscale Fund ..............
Grayscale Mini Fund ......
Bitwise Fund ...................
iShares Fund ..................
10,850,000
760,000
468,000
1,500,000
1,725,000
228,468,500
380,898,500
12,370,000
37,200,000
The Exchange states that, despite the
fact that these Ethereum Funds were in
only their third week of trading (they
began trading on July 23, 2024), five of
these funds already have more than
7,000,000 shares outstanding, which is
the minimum number of shares of a
corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Exchange Rule 4.3,
Interpretation and Policy .01(a)(1).20
However, the Exchange states that
shares outstanding (i.e., free float),21
while commonly used to determine
investable capacities of corporate stocks,
has little utility with respect to ETFs
due to the market structure of ETFs.22
The Exchange states that 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.23 The Exchange
states that although 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.24 The Exchange
states that, as evidenced during their
brief time in market, the gross value of
daily shares created or redeemed for
each Ethereum Fund approximates its
assets under management (‘‘AUM’’) as
of July 24, 2024, which were as
follows: 25
Ethereum Fund
AUM
Fidelity Fund ...................
21Shares Fund ...............
Invesco Fund ..................
Franklin Fund ..................
VanEck Fund ..................
Grayscale Fund ..............
9,481,360
148,080,600
37,197,280
19,301,340
9,013,556
8,040,436,000
Trading volume
(shares)
Ethereum Fund
Fidelity Fund ....................................................................................................
21Shares Fund ................................................................................................
Invesco Fund ...................................................................................................
Franklin Fund ...................................................................................................
VanEck Fund ...................................................................................................
Grayscale Fund ...............................................................................................
Grayscale Mini Fund ........................................................................................
Bitwise Fund ....................................................................................................
iShares Fund ...................................................................................................
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The Exchange states that the trading
volume for each except one Ethereum
Fund is higher (and several significantly
higher) than 2,400,000 shares (and that
one is only 1,023 shares below that
number), which is the minimum 12month volume the Exchange generally
requires for a security in order to list
options on that security as set forth in
Exchange Rule 4.3, Interpretation and
Policy .01.31 Additionally, the Exchange
states that from July 23 (the first day the
18 See
Notice, 89 FR at 72147.
id.
20 See id.
21 The Exchange states that all outstanding ETF
shares are considered free float because there are no
restricted ETF shares or shares held by insiders, as
is the case with respect to corporate stocks. See id.
at note 9.
22 See id.
19 See
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Ethereum Fund
Grayscale Mini Fund ......
Bitwise Fund ...................
iShares Fund ..................
Notice, 89 FR at 72147.
Exchange states that this is the primary
reasoning for why the Exchange may list options on
ETFs as long as they are subject to the creation and
redemption process and generally do not need to
satisfy the criteria set forth in Interpretation and
Policy .01. See id. note 10.
25 See Notice, 89 FR at 72148.
26 See id.
Trading volume
(notional $)
1,023,590,893.88
46,584,597.69
75,800,517.49
89,987,417.90
247,424,935.45
5,934,238,584.03
1,117,121,565.01
638,820,845.28
2,896,601,784.35
27 See
24 The
28 See
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ADV (shares)
1,279,085.00
183,032.80
116,423.80
114,194.60
288,519.00
7,429,260.00
24,800,550.00
806,202.19
6,720,303.00
in Exchange Rule 4.4, Interpretation and
Policy .06 for Units deemed appropriate
for options trading pursuant to
Exchange Rule 4.3, Interpretation and
Policy .06.34 The Exchange states that
Exchange Rule 4.4, Interpretation and
Policy .06 provides that Units that were
initially approved for options trading
pursuant to Exchange Rule 4.3,
Interpretation and Policy .06 shall be
deemed not to meet the requirements for
continued approval, and the Exchange
23 See
PO 00000
1,043,203,000
230,788,700
287,328,200
The Exchange states that this
demonstrates that each Ethereum Fund
is characterized by a substantial number
of outstanding shares.26 The Exchange
further states that, given how recently
Ethereum Funds began trading, the
Exchange does not have access to the
number of beneficial holders of
Ethereum Funds at this time. 27
However, the Exchange states that,
given the significant trading volumes of
the Ethereum Funds, it is reasonable to
expect that shares of all of the Ethereum
Funds are characterized by a substantial
number of outstanding shares that are
widely held.28 The Exchange also
believes each Ethereum Fund is
characterized by a substantial number of
outstanding shares that are actively
traded.29 The Exchange states that, as of
August 7, 2024, the total trading volume
(by shares and notional) for each fund
since they began trading on July 23,
2024, and the average daily volume
(‘‘ADV’’) over the five-day period of
August 2 through August 7, 2024, for
each Ethereum Fund was as follows: 30
32,751,647
2,995,673
2,398,977
3,726,018
5,557,411
221,839,519
387,753,619
27,454,355
124,839,230
Ethereum Funds began trading) through
August 7, 2024, the ADV for each
Ethereum Fund is in the top 25% of all
ETFs that are currently trading.32 The
Exchange states that this data
demonstrates each Ethereum Fund is
characterized by a substantial number of
outstanding shares that are actively
traded.33
The Exchange states that options on
Ethereum Funds will be subject to the
Exchange’s continued listing standards
AUM
id.
id.
29 See id.
30 See id.
31 See id.
32 See id.
33 See id.
34 See id.
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shall not open for trading any additional
series of option contracts of the class
covering such Unit, if the Units cease to
be an NMS stock or the Units are halted
from trading in their primary market.35
Additionally, the Exchange states that
options on Units may be subject to the
suspension of opening transactions in
any of the following circumstances: (1)
in the case of options covering Units
approved for trading under Exchange
Rule 4.3, Interpretation and Policy
.06(b)(1), in accordance with the terms
of paragraphs (a), (b), and (c) of
Exchange Rule 4.4, Interpretation and
Policy .01; (2) in the case of options
covering Units approved for trading
under Exchange Rule 4.3, Interpretation
and Policy .06(b)(2) (as is the case for
the Ethereum Funds), following the
initial twelve-month period beginning
upon the commencement of trading in
the Units on a national securities
exchange, there are fewer than 50 record
and/or beneficial holders of such Units
for 30 or more consecutive trading days;
(3) the value of the index or portfolio of
securities, non-U.S. currency, or
portfolio of commodities including
commodity futures contracts, options on
commodity futures contracts, swaps,
forward contracts and/or options on
physical commodities and/or financial
instruments and money market
instruments on which the Units are
based is no longer calculated or
available; or (4) such other event shall
occur or condition exist that in the
opinion of the Exchange makes further
dealing in such options on the Exchange
inadvisable.36
The Exchange states that options on
each Ethereum Fund will be physically
settled contracts with American-style
exercise.37 As described more fully in
the Notice, the Exchange states that
Ethereum Fund options will trade in the
same manner as any other Unit options
on the Exchange.38 The Exchange states
that Exchange Rules that currently
apply to the listing and trading of all
Unit options on the Exchange,
including, for example, Exchange Rules
that govern listing criteria, expiration
and exercise prices, minimum
increments, position and exercise limits,
margin requirements, customer accounts
and trading halt procedures will apply
to the listing and trading of Ethereum
Funds on the Exchange in the same
manner as they apply to other options
on all other Units that are listed and
traded on the Exchange, including the
precious-metal backed commodity Units
35 See
id.
id.
37 See id.
38 See id. at 72149.
36 See
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already deemed appropriate for options
trading on the Exchange pursuant to
current Exchange Rule 4.3,
Interpretation and Policy .06(a)(4).39
The Exchange states that position and
exercise limits for options on Units,
including options on Ethereum Funds,
will be determined pursuant to
Exchange Rules 8.30 and 8.42,
respectively.40 The Exchange states that
position and exercise limits for Unit
options vary according to the number of
outstanding shares and the trading
volumes of the underlying Unit over the
past six months, where the largest in
capitalization and the most frequently
traded Units have an option position
and exercise limit of 250,000 contracts
(with adjustments for splits, recapitalizations, etc.) on the same side of
the market; and smaller capitalization
Units have position and exercise limits
of 200,000, 75,000, 50,000 or 25,000
contracts (with adjustments for splits,
re-capitalizations, etc.) on the same side
of the market.41
The Exchange represents that the
same surveillance procedures applicable
to all other options on Units currently
listed and traded on the Exchange will
apply to options on Ethereum Funds,
and that it has the necessary systems
capacity to support the new option
series.42 The Exchange states that its
existing surveillance and reporting
safeguards are designed to deter and
detect possible manipulative behavior
which might potentially arise from
listing and trading Unit options.43 The
Exchange further states that it may
obtain information from CME Group
Inc.’s designated contract markets that
are members of the Intermarket
Surveillance Group related to any
financial instrument that is based, in
whole or in part, upon an interest in or
performance of Ethereum, as
applicable.44 The Exchange states that it
has analyzed its capacity and believes
that the Exchange and the Options Price
Reporting Authority have the necessary
systems capacity to handle the
additional traffic associated with the
listing of new series that may result
from the introduction of options on
Ethereum Funds up to the number of
expirations currently permissible under
the Exchange’s Rules.45 The Exchange
states that because the proposal is
limited to Units on a single commodity,
any additional traffic that may be
id.
id.
41 See id.
42 See id.
43 See id.
44 See id.
45 See id.
generated from the introduction of
Ethereum Fund options will be
manageable.46
The Exchange states that offering
options on Ethereum Funds will benefit
investors by providing them with an
additional, relatively lower cost
investing tool to gain exposure to the
price of Ethereum and a hedging vehicle
to meet their investment needs in
connection with Ethereum-related
products and positions.47 The Exchange
states that it expects investors will
transact in options on Ethereum Funds
in the unregulated over-the-counter
(‘‘OTC’’) options market, but may prefer
to trade such options in a listed
environment to receive the benefits of
trading listed 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.48 The Exchange states
that listing Ethereum Fund options may
cause investors to bring this liquidity to
the Exchange, which would increase
market transparency and enhance the
process of price discovery conducted on
the Exchange through increased order
flow.49 The Exchange states that Units
that hold financial instruments, money
market instruments, or precious metal
commodities on which the Exchange
may already list and trade options are
trusts structured in substantially the
same manner as the Ethereum Funds
and essentially offer the same objectives
and benefits to investors, just with
respect to different assets.50 The
Exchange states that it has not identified
any issues with the continued listing
and trading of any Unit options,
including Units that hold commodities
(i.e., precious metals) that it currently
lists and trades on the Exchange.51
The Exchange states that the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b)(5) of the Act.52 The
Exchange states that the proposal to list
and trade options on Ethereum Funds
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system
and, in general, protect investors
because offering options on Ethereum
Funds will provide investors with an
39 See
46 See
40 See
47 See
PO 00000
Frm 00142
91813
id.
id.
48 See id.
49 See id.
50 See id.
51 See id. at 72150.
52 15 U.S.C. 78f(b)(5). See Notice, 89 FR at 72150.
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opportunity to realize the benefits of
utilizing options on a Ethereum Fund,
including cost efficiencies and
increased hedging strategies.53 The
Exchange further states that offering
Ethereum Fund options will benefit
investors by providing them with a
relatively lower-cost risk management
tool, which will allow them to manage
their positions and associated risk in
their portfolios more easily in
connection with exposure to the price of
Ethereum and with Ethereum-related
products and positions.54 Additionally,
the Exchange states that its offering of
Ethereum Fund options will provide
investors with the ability to transact in
such options in a listed market
environment as opposed to in the
unregulated OTC options market, which
would increase market transparency and
enhance the process of price discovery
conducted on the Exchange through
increased order flow to the benefit of all
investors.55 The Exchange states that it
already lists options on other
commodity-based Units, which are
trusts structured in substantially the
same manner as Ethereum Funds and
essentially offer the same objectives and
benefits to investors, just with respect to
a different commodity (i.e., Ethereum
rather than precious metals), and for
which the Exchange has not identified
any issues with their continued listing
and trading.56 The Exchange states that
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.57 The Exchange states that
options on Ethereum Funds satisfy the
initial listing standards and continued
listing standards currently in the
Exchange Rules applicable to options on
all Units, including Units that hold
other commodities already deemed
appropriate for options trading on the
Exchange.58 In addition, the Exchange
states that each Ethereum Fund is
characterized by a substantial number of
shares that are widely held and actively
traded.59 In addition, the Exchange
states that Ethereum Fund options will
trade in the same manner as any other
Unit options—the same Exchange Rules
that currently govern the listing and
trading of all Unit options, including
permissible expirations, strike prices
and minimum increments, and
applicable position and exercise limits
and margin requirements, will govern
the listing and trading of options on
Ethereum Funds in the same manner.60
The Exchange states that the proposed
position and exercise limits for the
Ethereum Fund options are consistent
with the Exchange Act, will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, protect investors and the public
interest, because they 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.61 The Exchange
states that the proposed position and
exercise limits are the same limits that
apply to other ETF options, including
other commodity ETF options.62 The
Exchange states that the 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).63 The Exchange further states
that the available supply in the markets
of Ethereum is not relevant when
establishing position limits for options
on the Ethereum Funds, as what is held
by an ETF has historically not been a
relevant factor considered by the
Commission when it has considered
rule filings to list options on ETFs,
including commodity ETFs.64 The
Exchange states that 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.65 The
Exchange states that position limits in
the Exchange’s Rules at that time were
the same as they are today as set forth
in Exchange Rule 8.30 (and as proposed
to be applicable to options on the
Ethereum Funds).66
III. Proceedings To Determine Whether
To Approve or Disapprove SR–CBOE–
2024–036 and Grounds for Disapproval
Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 67 to determine
60 See
id.
id.
62 See id.
63 See id.
64 See id.
65 See id.
66 See id.
67 15 U.S.C. 78s(b)(2)(B).
53 See
id.
54 See id.
55 See id.
56 See id.
57 See id.
58 See id.
59 See id.
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61 See
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whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,68 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act,69 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
protect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations issued
thereunder . . . is on the self-regulatory
organization that proposed the rule
change.’’ 70 The description of a
proposed rule change, its purpose and
operation, its effect, and a legal analysis
of its consistency with applicable
requirements must all be sufficiently
detailed and specific to support an
affirmative Commission finding,71 and
any failure of a self-regulatory
organization to provide this information
may result in the Commission not
having a sufficient basis to make an
affirmative finding that a proposed rule
change is consistent with the Act and
the applicable rules and regulations.72
The Commission is instituting
proceedings to allow for additional
consideration and comment on the
issues raised herein, including as to
whether the proposal is consistent with
the Act. In particular, the Commission
asks commenters to address whether the
proposal includes sufficient data and
analysis to support a conclusion that the
proposal is consistent with the
68 Id.
69 15
U.S.C. 78f(b)(5).
CFR 201.700(b)(3).
71 See id.
72 See id.
70 17
Sfmt 4703
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Federal Register / Vol. 89, No. 224 / Wednesday, November 20, 2024 / Notices
requirements of Section 6(b)(5) of the
Act.
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the Act,
and the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval that would be
facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.73
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by December
11, 2024. Any person who wishes to file
a rebuttal to any other person’s
submission must file that rebuttal by
December 26, 2024.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CBOE–2024–036 on the subject line.
khammond on DSK9W7S144PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CBOE–2024–036. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
73 Section
19(b)(2) of the Act, as amended by the
Securities Acts Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
VerDate Sep<11>2014
18:39 Nov 19, 2024
Jkt 265001
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CBOE–2024–036 and should be
submitted on or before December 11,
2024. Rebuttal comments should be
submitted by December 26, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.74
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–27013 Filed 11–19–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101630; File No. SR–
NYSEARCA–2024–97]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend NYSE Arca
Rule 7.13–E To Remove References to
the Chair of the Board
November 14, 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
November 8, 2024, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
74 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00144
Fmt 4703
Sfmt 4703
91815
proposed rule change as described in
Items I and II 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
NYSE Arca Rule 7.13–E to remove
references to the Chair of the Board. 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
NYSE Arca Rule 7.13–E (Trading
Suspensions) to remove references to
the Chair of the Board of Directors of the
Exchange (‘‘Board’’).
Under current Rule 7.13–E,4 except as
otherwise stated in Rule 5.5, the Chair
of the Board or the President of the
Exchange, or the officer designee of the
Chair or the President, has the power to
suspend trading on any and all
securities traded on the Exchange
whenever in his or her opinion such
suspension would be in the public
interest. No such action shall continue
longer than two days or as soon
4 The current text of Rule 7.13–E was adopted in
2017 when the Exchange’s subsidiary NYSE Arca
Equities Inc. was merged into the Exchange. See
Securities and Exchange Act Release No. 81419
(August 17, 2017), 82 FR 40044 (August 23, 2017)
(SR–NYSEArca-2017–40) (Notice of Filing of
Amendment No. 2 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 2, in Connection With the
Proposed Merger of Its Wholly Owned Subsidiary
NYSE Arca Equities, Inc. With and Into the
Exchange).
E:\FR\FM\20NON1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 224 (Wednesday, November 20, 2024)]
[Notices]
[Pages 91811-91815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27013]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101631; File No. SR-CBOE-2024-036]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To List and Trade Options on Ethereum Exchange-
Traded Funds
November 14, 2024.
I. Introduction
On August 19, 2024, Cboe Exchange, Inc. (``Exchange'') filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or
``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to allow the listing and trading of options on Units \3\ that
represent interests in the Fidelity Ethereum Fund (the ``Fidelity
Fund''), the 21Shares Core Ethereum ETF (the ``21Shares Fund''), the
Invesco Galaxy Ethereum ETF (the ``Invesco Fund''), the Franklin
Ethereum ETF (the ``Franklin Fund''), the VanEck Ethereum Trust (the
``VanEck Fund''), the Grayscale Ethereum Trust (the ``Grayscale
Fund''), the Grayscale Mini Ethereum Trust (the ``Grayscale Mini
Fund''), the Bitwise Ethereum ETF (the ``Bitwise Fund''), and the
iShares Ethereum Trust ETF (the ``iShares Fund'' and, collectively, the
``Ethereum Funds'').\4\ The proposed rule change was published for
comment in the Federal Register on September 4, 2024.\5\ The Commission
has received no comments regarding the proposal.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Cboe Rule 1.1 defines a ``Unit'' (which may also be referred
to as an exchange-traded fund (``ETF'')) as a share or other
security traded on a national securities exchange and defined as an
NMS stock as set forth in Rule 4.3.
\4\ The Commission approved proposals by several exchanges to
list and trade shares of trusts that hold Ether, including the
Ethereum Funds. See Securities Exchange Act Release Nos. 100224 (May
23, 2024), 89 FR 46937 (May 30, 2024); and 100541 (July 17, 2024),
89 FR 59786 (July 23, 2024).
\5\ See Securities Exchange Act Release No. 100862 (Aug. 28,
2024), 89 FR 72146 (``Notice'').
---------------------------------------------------------------------------
On October 11, 2024, pursuant to Section 19(b)(2) of the Exchange
Act,\6\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\7\ This order institutes proceedings under
Section 19(b)(2)(B) of the Act \8\ to determine whether to approve or
disapprove the proposed rule change.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(2).
\7\ See Securities Exchange Act Release No. 101321 (Oct. 11,
2024), 89 FR 83723 (Oct. 17, 2024) (designating December 3, 2024, as
the date by which the Commission shall either approve, disapprove,
or institute proceedings to determine whether to disapprove the
proposed rule change).
\8\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
As described more fully in the Notice,\9\ the Exchange proposes to
amend Exchange Rule 4.3, Interpretation and Policy .06(a)(4) to allow
the Exchange to list and trade options on Units of the Ethereum Funds.
The Exchange states that current Exchange Rule 4.3, Interpretation and
Policy .06(a) provides that, subject to certain other criteria set
forth in that Rule, securities deemed appropriate for options trading
include Units that represent certain types of interests, including
interests in certain specific trusts that hold financial instruments,
money market instruments, or precious metals (which are deemed
commodities).\10\
---------------------------------------------------------------------------
\9\ See supra note 5.
\10\ See Notice, 89 FR at 72146-7.
---------------------------------------------------------------------------
The Exchange states that the Ethereum Funds are Ethereum-backed
commodity ETFs structured as trusts, and that, similar to any Unit
currently deemed appropriate for options trading under Exchange Rule
4.3, Interpretation and Policy .06, the investment objective of each
Ethereum Fund trust is for its shares to reflect the performance of
Ethereum (less the expenses of the trust's operations), offering
investors an opportunity to gain exposure to Ethereum without the
complexities of Ethereum delivery.\11\ The Exchange states that, as is
the case for Units currently deemed appropriate for options trading, an
Ethereum Fund's shares represent units of fractional undivided
beneficial interest in the trust, the assets of which consist
principally of Ethereum and are designed to track Ethereum or the
performance of the price of Ethereum and offer access to the Ethereum
market.\12\ The Exchange states that the Ethereum Funds provide
investors with cost-efficient alternatives that allow a level of
participation in the Ethereum market through the securities market, and
that the primary substantive difference between Ethereum Funds and
Units currently deemed appropriate for options trading are that Units
may hold securities, certain financial instruments, and specified
precious metals (which are deemed commodities), while Ethereum Funds
hold Ethereum (which is also deemed a commodity).\13\
---------------------------------------------------------------------------
\11\ See id. at 72147.
\12\ The Exchange states that the trusts may include minimal
cash. See id. at note 5.
\13\ See Notice, 89 FR at 72147.
---------------------------------------------------------------------------
The Exchange states that it believes that the Ethereum Funds
satisfy the Exchange's initial listing standards in Exchange Rule 4.3,
Interpretation and Policy .06(b) that Units must either (1) meet the
criteria and standards set forth in Rule 4.3, Interpretation and Policy
.01(a), or (2) be available for creation or redemption each business
day from or through the issuer in cash or in kind at a price related to
net asset value, and the issuer must be obligated to issue Units in a
specified aggregate number even if some or all of the investment assets
required to be deposited have not been received by the issuer, subject
to the condition that the person obligated to deposit the investments
has undertaken to deliver the investment assets as soon as possible and
such undertaking is secured by the delivery and maintenance of
collateral consisting of cash or cash equivalents satisfactory to the
issuer, as provided in the respective prospectus.\14\ The Exchange
states that the Ethereum Funds satisfy Exchange Rule 4.3,
Interpretation and Policy .06(b)(2), as they are all subject to this
creation and redemption process.\15\
---------------------------------------------------------------------------
\14\ See id.
\15\ See id.
---------------------------------------------------------------------------
The Exchange further states that, while not required by the
Exchange's Rules for purposes of options listings, the majority of the
Ethereum Funds satisfy the criteria and guidelines set forth in
Exchange Rule 4.3, Interpretation and Policy .01.\16\ The Exchange
states that, pursuant to Exchange Rule 4.3(a), a security (which
includes a Unit) on which options may be listed and traded on the
Exchange must be duly registered (with the Commission) and be an NMS
stock (as defined in Rule 600 of Regulation NMS under the Act), and be
characterized by a substantial number of outstanding shares that are
widely held and actively traded.\17\ The Exchange states that each of
the Ethereum Funds is an NMS Stock, as defined in Rule 600 of
Regulation
[[Page 91812]]
NMS under the Act, and that each Ethereum Fund is characterized by a
substantial number of outstanding shares that are widely held and
actively traded.\18\
---------------------------------------------------------------------------
\16\ See id.
\17\ The Exchange states that the criteria and guidelines for a
security to be considered widely held and actively traded are set
forth in Exchange Rule 4.3, Interpretation and Policy .01, subject
to exceptions. See id. at note 7.
\18\ See Notice, 89 FR at 72147.
---------------------------------------------------------------------------
The Exchange states that, as of August 7, 2024, the Ethereum Funds
had the following number of shares outstanding: \19\
---------------------------------------------------------------------------
\19\ See id.
------------------------------------------------------------------------
Shares
Ethereum fund outstanding
------------------------------------------------------------------------
Fidelity Fund........................................ 10,850,000
21Shares Fund........................................ 760,000
Invesco Fund......................................... 468,000
Franklin Fund........................................ 1,500,000
VanEck Fund.......................................... 1,725,000
Grayscale Fund....................................... 228,468,500
Grayscale Mini Fund.................................. 380,898,500
Bitwise Fund......................................... 12,370,000
iShares Fund......................................... 37,200,000
------------------------------------------------------------------------
The Exchange states that, despite the fact that these Ethereum
Funds were in only their third week of trading (they began trading on
July 23, 2024), five of these funds already have more than 7,000,000
shares outstanding, which is the minimum number of shares of a
corporate stock that the Exchange generally requires to list options on
that stock pursuant to Exchange Rule 4.3, Interpretation and Policy
.01(a)(1).\20\ However, the Exchange states that shares outstanding
(i.e., free float),\21\ while commonly used to determine investable
capacities of corporate stocks, has little utility with respect to ETFs
due to the market structure of ETFs.\22\ The Exchange states that
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.\23\ The Exchange states that although 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.\24\ The Exchange states that, as evidenced
during their brief time in market, the gross value of daily shares
created or redeemed for each Ethereum Fund approximates its assets
under management (``AUM'') as of July 24, 2024, which were as follows:
\25\
---------------------------------------------------------------------------
\20\ See id.
\21\ The Exchange states that all outstanding ETF shares are
considered free float because there are no restricted ETF shares or
shares held by insiders, as is the case with respect to corporate
stocks. See id. at note 9.
\22\ See id.
\23\ See Notice, 89 FR at 72147.
\24\ The Exchange states that this is the primary reasoning for
why the Exchange may list options on ETFs as long as they are
subject to the creation and redemption process and generally do not
need to satisfy the criteria set forth in Interpretation and Policy
.01. See id. note 10.
\25\ See Notice, 89 FR at 72148.
------------------------------------------------------------------------
Ethereum Fund AUM
------------------------------------------------------------------------
Fidelity Fund........................................ 9,481,360
21Shares Fund........................................ 148,080,600
Invesco Fund......................................... 37,197,280
Franklin Fund........................................ 19,301,340
VanEck Fund.......................................... 9,013,556
Grayscale Fund....................................... 8,040,436,000
Grayscale Mini Fund.................................. 1,043,203,000
Bitwise Fund......................................... 230,788,700
iShares Fund......................................... 287,328,200
------------------------------------------------------------------------
The Exchange states that this demonstrates that each Ethereum Fund
is characterized by a substantial number of outstanding shares.\26\ The
Exchange further states that, given how recently Ethereum Funds began
trading, the Exchange does not have access to the number of beneficial
holders of Ethereum Funds at this time. \27\ However, the Exchange
states that, given the significant trading volumes of the Ethereum
Funds, it is reasonable to expect that shares of all of the Ethereum
Funds are characterized by a substantial number of outstanding shares
that are widely held.\28\ The Exchange also believes each Ethereum Fund
is characterized by a substantial number of outstanding shares that are
actively traded.\29\ The Exchange states that, as of August 7, 2024,
the total trading volume (by shares and notional) for each fund since
they began trading on July 23, 2024, and the average daily volume
(``ADV'') over the five-day period of August 2 through August 7, 2024,
for each Ethereum Fund was as follows: \30\
---------------------------------------------------------------------------
\26\ See id.
\27\ See id.
\28\ See id.
\29\ See id.
\30\ See id.
----------------------------------------------------------------------------------------------------------------
Trading volume Trading volume
Ethereum Fund (shares) (notional $) ADV (shares)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund.................................... 32,751,647 1,023,590,893.88 1,279,085.00
21Shares Fund.................................... 2,995,673 46,584,597.69 183,032.80
Invesco Fund..................................... 2,398,977 75,800,517.49 116,423.80
Franklin Fund.................................... 3,726,018 89,987,417.90 114,194.60
VanEck Fund...................................... 5,557,411 247,424,935.45 288,519.00
Grayscale Fund................................... 221,839,519 5,934,238,584.03 7,429,260.00
Grayscale Mini Fund.............................. 387,753,619 1,117,121,565.01 24,800,550.00
Bitwise Fund..................................... 27,454,355 638,820,845.28 806,202.19
iShares Fund..................................... 124,839,230 2,896,601,784.35 6,720,303.00
----------------------------------------------------------------------------------------------------------------
The Exchange states that the trading volume for each except one
Ethereum Fund is higher (and several significantly higher) than
2,400,000 shares (and that one is only 1,023 shares below that number),
which is the minimum 12-month volume the Exchange generally requires
for a security in order to list options on that security as set forth
in Exchange Rule 4.3, Interpretation and Policy .01.\31\ Additionally,
the Exchange states that from July 23 (the first day the Ethereum Funds
began trading) through August 7, 2024, the ADV for each Ethereum Fund
is in the top 25% of all ETFs that are currently trading.\32\ The
Exchange states that this data demonstrates each Ethereum Fund is
characterized by a substantial number of outstanding shares that are
actively traded.\33\
---------------------------------------------------------------------------
\31\ See id.
\32\ See id.
\33\ See id.
---------------------------------------------------------------------------
The Exchange states that options on Ethereum Funds will be subject
to the Exchange's continued listing standards in Exchange Rule 4.4,
Interpretation and Policy .06 for Units deemed appropriate for options
trading pursuant to Exchange Rule 4.3, Interpretation and Policy
.06.\34\ The Exchange states that Exchange Rule 4.4, Interpretation and
Policy .06 provides that Units that were initially approved for options
trading pursuant to Exchange Rule 4.3, Interpretation and Policy .06
shall be deemed not to meet the requirements for continued approval,
and the Exchange
[[Page 91813]]
shall not open for trading any additional series of option contracts of
the class covering such Unit, if the Units cease to be an NMS stock or
the Units are halted from trading in their primary market.\35\
Additionally, the Exchange states that options on Units may be subject
to the suspension of opening transactions in any of the following
circumstances: (1) in the case of options covering Units approved for
trading under Exchange Rule 4.3, Interpretation and Policy .06(b)(1),
in accordance with the terms of paragraphs (a), (b), and (c) of
Exchange Rule 4.4, Interpretation and Policy .01; (2) in the case of
options covering Units approved for trading under Exchange Rule 4.3,
Interpretation and Policy .06(b)(2) (as is the case for the Ethereum
Funds), following the initial twelve-month period beginning upon the
commencement of trading in the Units on a national securities exchange,
there are fewer than 50 record and/or beneficial holders of such Units
for 30 or more consecutive trading days; (3) the value of the index or
portfolio of securities, non-U.S. currency, or portfolio of commodities
including commodity futures contracts, options on commodity futures
contracts, swaps, forward contracts and/or options on physical
commodities and/or financial instruments and money market instruments
on which the Units are based is no longer calculated or available; or
(4) such other event shall occur or condition exist that in the opinion
of the Exchange makes further dealing in such options on the Exchange
inadvisable.\36\
---------------------------------------------------------------------------
\34\ See id.
\35\ See id.
\36\ See id.
---------------------------------------------------------------------------
The Exchange states that options on each Ethereum Fund will be
physically settled contracts with American-style exercise.\37\ As
described more fully in the Notice, the Exchange states that Ethereum
Fund options will trade in the same manner as any other Unit options on
the Exchange.\38\ The Exchange states that Exchange Rules that
currently apply to the listing and trading of all Unit options on the
Exchange, including, for example, Exchange Rules that govern listing
criteria, expiration and exercise prices, minimum increments, position
and exercise limits, margin requirements, customer accounts and trading
halt procedures will apply to the listing and trading of Ethereum Funds
on the Exchange in the same manner as they apply to other options on
all other Units that are listed and traded on the Exchange, including
the precious-metal backed commodity Units already deemed appropriate
for options trading on the Exchange pursuant to current Exchange Rule
4.3, Interpretation and Policy .06(a)(4).\39\
---------------------------------------------------------------------------
\37\ See id.
\38\ See id. at 72149.
\39\ See id.
---------------------------------------------------------------------------
The Exchange states that position and exercise limits for options
on Units, including options on Ethereum Funds, will be determined
pursuant to Exchange Rules 8.30 and 8.42, respectively.\40\ The
Exchange states that position and exercise limits for Unit options vary
according to the number of outstanding shares and the trading volumes
of the underlying Unit over the past six months, where the largest in
capitalization and the most frequently traded Units have an option
position and exercise limit of 250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market; and
smaller capitalization Units have position and exercise limits of
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market.\41\
---------------------------------------------------------------------------
\40\ See id.
\41\ See id.
---------------------------------------------------------------------------
The Exchange represents that the same surveillance procedures
applicable to all other options on Units currently listed and traded on
the Exchange will apply to options on Ethereum Funds, and that it has
the necessary systems capacity to support the new option series.\42\
The Exchange states that its existing surveillance and reporting
safeguards are designed to deter and detect possible manipulative
behavior which might potentially arise from listing and trading Unit
options.\43\ The Exchange further states that it may obtain information
from CME Group Inc.'s designated contract markets that are members of
the Intermarket Surveillance Group related to any financial instrument
that is based, in whole or in part, upon an interest in or performance
of Ethereum, as applicable.\44\ The Exchange states that it has
analyzed its capacity and believes that the Exchange and the Options
Price Reporting Authority have the necessary systems capacity to handle
the additional traffic associated with the listing of new series that
may result from the introduction of options on Ethereum Funds up to the
number of expirations currently permissible under the Exchange's
Rules.\45\ The Exchange states that because the proposal is limited to
Units on a single commodity, any additional traffic that may be
generated from the introduction of Ethereum Fund options will be
manageable.\46\
---------------------------------------------------------------------------
\42\ See id.
\43\ See id.
\44\ See id.
\45\ See id.
\46\ See id.
---------------------------------------------------------------------------
The Exchange states that offering options on Ethereum Funds will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Ethereum and
a hedging vehicle to meet their investment needs in connection with
Ethereum-related products and positions.\47\ The Exchange states that
it expects investors will transact in options on Ethereum Funds in the
unregulated over-the-counter (``OTC'') options market, but may prefer
to trade such options in a listed environment to receive the benefits
of trading listed 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.\48\ The Exchange states
that listing Ethereum Fund options may cause investors to bring this
liquidity to the Exchange, which would increase market transparency and
enhance the process of price discovery conducted on the Exchange
through increased order flow.\49\ The Exchange states that Units that
hold financial instruments, money market instruments, or precious metal
commodities on which the Exchange may already list and trade options
are trusts structured in substantially the same manner as the Ethereum
Funds and essentially offer the same objectives and benefits to
investors, just with respect to different assets.\50\ The Exchange
states that it has not identified any issues with the continued listing
and trading of any Unit options, including Units that hold commodities
(i.e., precious metals) that it currently lists and trades on the
Exchange.\51\
---------------------------------------------------------------------------
\47\ See id.
\48\ See id.
\49\ See id.
\50\ See id.
\51\ See id. at 72150.
---------------------------------------------------------------------------
The Exchange states that the proposed rule change is consistent
with the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b)(5) of the
Act.\52\ The Exchange states that the proposal to list and trade
options on Ethereum Funds will remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, protect investors because offering options on Ethereum
Funds will provide investors with an
[[Page 91814]]
opportunity to realize the benefits of utilizing options on a Ethereum
Fund, including cost efficiencies and increased hedging strategies.\53\
The Exchange further states that offering Ethereum Fund options will
benefit investors by providing them with a relatively lower-cost risk
management tool, which will allow them to manage their positions and
associated risk in their portfolios more easily in connection with
exposure to the price of Ethereum and with Ethereum-related products
and positions.\54\ Additionally, the Exchange states that its offering
of Ethereum Fund options will provide investors with the ability to
transact in such options in a listed market environment as opposed to
in the unregulated OTC options market, which would increase market
transparency and enhance the process of price discovery conducted on
the Exchange through increased order flow to the benefit of all
investors.\55\ The Exchange states that it already lists options on
other commodity-based Units, which are trusts structured in
substantially the same manner as Ethereum Funds and essentially offer
the same objectives and benefits to investors, just with respect to a
different commodity (i.e., Ethereum rather than precious metals), and
for which the Exchange has not identified any issues with their
continued listing and trading.\56\ The Exchange states that 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.\57\ The Exchange states that options on Ethereum
Funds satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules applicable to options on all
Units, including Units that hold other commodities already deemed
appropriate for options trading on the Exchange.\58\ In addition, the
Exchange states that each Ethereum Fund is characterized by a
substantial number of shares that are widely held and actively
traded.\59\ In addition, the Exchange states that Ethereum Fund options
will trade in the same manner as any other Unit options--the same
Exchange Rules that currently govern the listing and trading of all
Unit options, including permissible expirations, strike prices and
minimum increments, and applicable position and exercise limits and
margin requirements, will govern the listing and trading of options on
Ethereum Funds in the same manner.\60\
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\52\ 15 U.S.C. 78f(b)(5). See Notice, 89 FR at 72150.
\53\ See id.
\54\ See id.
\55\ See id.
\56\ See id.
\57\ See id.
\58\ See id.
\59\ See id.
\60\ See id.
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The Exchange states that the proposed position and exercise limits
for the Ethereum Fund options are consistent with the Exchange Act,
will remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest, because they 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.\61\ The Exchange states that the proposed position and
exercise limits are the same limits that apply to other ETF options,
including other commodity ETF options.\62\ The Exchange states that the
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).\63\ The Exchange further states that the available supply in
the markets of Ethereum is not relevant when establishing position
limits for options on the Ethereum Funds, as what is held by an ETF has
historically not been a relevant factor considered by the Commission
when it has considered rule filings to list options on ETFs, including
commodity ETFs.\64\ The Exchange states that 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.\65\ The Exchange states that
position limits in the Exchange's Rules at that time were the same as
they are today as set forth in Exchange Rule 8.30 (and as proposed to
be applicable to options on the Ethereum Funds).\66\
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\61\ See id.
\62\ See id.
\63\ See id.
\64\ See id.
\65\ See id.
\66\ See id.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-CBOE-
2024-036 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \67\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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\67\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\68\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act,\69\ which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and protect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\68\ Id.
\69\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
self-regulatory organization that proposed the rule change.'' \70\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\71\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\72\ The Commission is instituting
proceedings to allow for additional consideration and comment on the
issues raised herein, including as to whether the proposal is
consistent with the Act. In particular, the Commission asks commenters
to address whether the proposal includes sufficient data and analysis
to support a conclusion that the proposal is consistent with the
[[Page 91815]]
requirements of Section 6(b)(5) of the Act.
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\70\ 17 CFR 201.700(b)(3).
\71\ See id.
\72\ See id.
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, and
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\73\
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\73\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by December 11, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 26, 2024.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2024-036 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CBOE-2024-036. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CBOE-2024-036 and should be
submitted on or before December 11, 2024. Rebuttal comments should be
submitted by December 26, 2024.
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\74\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\74\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-27013 Filed 11-19-24; 8:45 am]
BILLING CODE 8011-01-P
