Self-Regulatory Organizations; MIAX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 402, Criteria for Underlying Securities, Exchange Rule 307, Position Limits, and Exchange Rule 309, Exercise Limits To Allow the Exchange To List and Trade Options on the Fidelity Wise Origin Bitcoin Fund (the “Fidelity Fund”) and the ARK 21Shares Bitcoin ETF (the “ARK 21 Fund”), 94828-94838 [2024-27989]
Download as PDF
94828
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.60
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–27997 Filed 11–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101717; File No. SR–MIAX–
2024–43]
Self-Regulatory Organizations; MIAX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 402, Criteria for Underlying
Securities, Exchange Rule 307,
Position Limits, and Exchange Rule
309, Exercise Limits To Allow the
Exchange To List and Trade Options
on the Fidelity Wise Origin Bitcoin
Fund (the ‘‘Fidelity Fund’’) and the ARK
21Shares Bitcoin ETF (the ‘‘ARK 21
Fund’’)
November 22, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
21, 2024, Miami International Securities
Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
khammond on DSK9W7S144PROD with NOTICES
The Exchange proposes to amend
Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule
307, Position Limits, and Exchange Rule
309, Exercise Limits.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/miax-options/rule-filings, at
MIAX’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
60 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Jkt 265001
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule
307, Position Limits, and Exchange Rule
309, Exercise Limits,3 to allow the
Exchange to list and trade options on
Fidelity Wise Origin Bitcoin Fund (the
‘‘Fidelity Fund’’) and the ARK 21Shares
Bitcoin ETF (the ‘‘ARK 21 Fund’’ and,
with the Fidelity Fund, the ‘‘Bitcoin
Funds’’), designating the Bitcoin Funds
as appropriate for options trading on the
Exchange.4 This is a competitive filing
based on a similar proposal submitted
by Cboe Exchange, Inc. (‘‘Cboe’’) and
approved by the Securities and
Exchange Commission
(‘‘Commission’’).5
Current Exchange Rule 402(i)(4)
provides that securities deemed
appropriate for options trading include
shares or other securities (‘‘Exchange
3 The Exchange notes that its affiliate exchanges,
MIAX Pearl and MIAX Sapphire, submitted
substantively identical proposals. The Exchange
notes that all the rules of Chapter III of the MIAX
Options Exchange, including Rules 307 and 309, are
incorporated by reference to MIAX Pearl and MIAX
Sapphire. The Exchange also notes that all of the
rules of Chapter III of the MIAX Options Exchange,
including Rules 307 and 309, and the rules of
Chapter IV of the MIAX Options Exchange,
including Rule 402, are incorporated by reference
to MIAX Emerald.
4 On January 10, 2024, the Commission approved
proposals by NYSE Arca, Inc., The Nasdaq Stock
Market LLC, and Cboe BZX Exchange, Inc. to list
and trade the shares of 11 bitcoin-based
commodity-based trust shares and trust units,
including the iShares Bitcoin Trust. See Securities
Exchange Act Release No. 99306 (Jan. 10, 2024), 89
FR 3008 (Jan. 17, 2024) (order approving File Nos.
SR–NYSEARCA–2021–90; SR–NYSEARCA–2023–
44; SR–NYSEARCA–2023–58; SR–NASDAQ–2023–
016; SR–NASDAQ–2023–019; SR–CboeBZX–2023–
028; SR–CboeBZX–2023–038; SR–CboeBZX–2023–
040; SR–CboeBZX–2023–042; SR–CboeBZX–2023–
044; SR–CboeBZX–2023–072) (‘‘Bitcoin ETP
Order’’).
5 See Securities Exchange Act Release No. 101387
(October 18, 2024), 89 FR 84948 (October 24, 2024)
(SR–CBOE–2024–35)(Self-Regulatory Organizations;
Cboe Exchange, Inc.; Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 2 and 3, to Permit
the Listing and Trading of Options on Bitcoin
Exchange Traded Funds).
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Traded Fund Shares’’ or ‘‘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).
The Bitcoin Funds are Bitcoin-backed
commodity ETFs structured as trusts.
Similar to any ETFs currently deemed
appropriate for options trading under
Exchange Rule 402(i), the investment
objective of each Bitcoin Fund is for its
shares to reflect the performance of
Bitcoin (less the expenses of the trust’s
operations), offering investors an
6 See Exchange Rule 402(i), which permits
options trading on ETFS that: (1) represent interests
in registered investment companies (or series
thereof) organized as open-end management
investment companies, unit investment trusts or
similar entities that hold portfolios of securities
and/or financial instruments (‘‘Funds’’), including,
but not limited to, stock index futures contracts,
options on futures, options on securities and
indices, equity caps, collars and floors, swap
agreements, forward contracts, repurchase
agreements and reverse repurchase agreements (the
‘‘Financial Instruments’’), and money market
instruments, including, but not limited to, U.S.
government securities and repurchase agreements
(the ‘‘Money Market Instruments’’) comprising or
otherwise based on or representing investments in
broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market
Instruments (or that hold securities in one or more
other registered investment companies that
themselves hold such portfolios of securities and/
or Financial Instruments and Money Market
Instruments); (2) represent interests in a trust or
similar entity that holds a specified non-U.S.
currency or currencies deposited with the trust
which when aggregated in some specified minimum
number may be surrendered to the trust or similar
entity by the beneficial owner to receive the
specified non-U.S. currency or currencies and pays
the beneficial owner interest and other distributions
on the deposited non-U.S. currency or currencies,
if any, declared and paid by the trust (‘‘Currency
Trust Shares’’); (3) represent commodity pool
interests principally engaged, directly or indirectly,
in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward
contracts and/or options on physical commodities
and/or non-U.S. currency (‘‘Commodity Pool
ETFs’’); (4) are issued by the are issued by the
SPDR® Gold Trust, the iShares COMEX Gold Trust,
the iShares Silver Trust, the ETFS Silver Trust, the
Aberdeen Standard Physical Gold Trust, the ETFS
Palladium Trust, the ETFS Platinum Trust, the
Sprott Physical Gold Trust, or the iShares Bitcoin
Trust; or (5) represent an interest in a registered
investment company (‘‘Investment Company’’)
organized as an open-end management company or
similar entity, that invests in a portfolio of
securities selected by the Investment Company’s
investment adviser consistent with the Investment
Company’s investment objectives and policies,
which is issued in a specified aggregate minimum
number in return for a deposit of a specified
portfolio of securities and/or a cash amount with a
value equal to the next determined net asset value
(‘‘NAV’’), and when aggregated in the same
specified minimum number, may be redeemed at a
holder’s request, which holder will be paid a
specified portfolio of securities and/or cash with a
value equal to the next determined NAV (‘‘Managed
Fund Share’’); provided that all of the conditions
listed in (5)(i) and 5(ii) are met.
E:\FR\FM\29NON1.SGM
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Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
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 each Bitcoin
Fund satisfies the Exchange’s initial
listing standards for ETFs on which the
Exchange may list options. Specifically,
each Bitcoin Fund satisfies the initial
listing standards set forth in Exchange
Rule 402(i)(5)(i), as is the case for other
ETFs on which the Exchange lists
options (including trusts that hold
commodities). Exchange Rule
402(i)(5)(i) requires that the ETFs must
either (1) meet the criteria and standards
set forth in Exchange Rule 402(a) or
402(b),8 or (2) be available for creation
or redemption each business day from
or through the issuer in cash or in kind
at a price related to net asset value, and
the issuer must be obligated to issue
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. Each Bitcoin
Fund satisfies Exchange Rule
402(i)(5(i)(B), as each is subject to this
creation and redemption process.
While not required by the Rules for
purposes of options listings, the
Exchange believes each Bitcoin Fund
satisfies the criteria and guidelines set
forth in Exchange Rule 402. Pursuant to
Exchange Rule 402, 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.9 Each Bitcoin Fund is an NMS
Stock as defined in Rule 600 of
Regulation NMS under the Act.10 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:
Fidelity Fund ...................
ARK 21 Fund ..................
Beneficial
holders
khammond on DSK9W7S144PROD with NOTICES
Fidelity Fund ............................................................................................................................................................
ARK 21 Fund ...........................................................................................................................................................
7 The
trust may include minimal cash.
a and b of Exchange Rule 402
provide for guidelines to be used by the Exchange
when evaluating potential underlying securities for
Exchange option transactions.
8 Subparagraphs
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21:22 Nov 27, 2024
Jkt 265001
201,100,100
45,495,000
Each Bitcoin Fund had significantly
more than 7,000,000 shares outstanding
(approximately 29 and 6.5 times that
amount, respectively), 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
402(b)(1). 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 the Bitcoin Funds
as of the specified dates:
Bitcoin Fund
As this table shows, each Bitcoin
Fund has significantly more than 2,000
beneficial holders (approximately 140
and 35 times more, respectively), which
is the minimum number of holders the
Exchange generally requires for
corporate stock in order to list options
on that stock pursuant to Exchange Rule
402(b)(2). Therefore, the Exchange
believes the shares of each Bitcoin Fund
are widely held.
As demonstrated above, despite the
fact that the Bitcoin Funds had been
trading for approximately seven
months 11 only as of August 7, 2024, the
six-month trading volume for each as of
that date was substantially higher than
2,400,000 shares (approximately 464
Shares
outstanding
Bitcoin Fund
279,656
69,425
Date
6/27/2024
6/26/2024
and 124 times that amount,
respectively), which is the minimum 12month volume the Exchange generally
requires for a corporate stock in order to
list options on that security as set forth
in Exchange Rule 402(b)(4).
Additionally, as of August 7, 2024, the
trading volume for each Bitcoin Fund
was in the top 5% of all ETFs that are
currently trading. The Exchange
believes this data demonstrates each
Bitcoin Fund is characterized as having
shares that are actively traded.
Options on the Bitcoin Funds will
also be subject to the Exchange’s
continued listing standards set forth in
Exchange Rule 403(g), for ETFs deemed
appropriate for options trading pursuant
to Exchange Rule 402(i). Specifically,
Exchange Rule 403(g) provides that
ETFs that were initially approved for
options trading pursuant to Exchange
Rule 402(i) shall be deemed not to meet
the requirements for continued
approval, and the Exchange shall not
open for trading any additional series of
option contracts of the class covering
that such ETFs, if the ETFs are delisted
from trading pursuant to Exchange Rule
403(b)(4), are halted or suspended from
trading in their primary market.
Additionally, options on ETFs may be
subject to the suspension of opening
transactions in any of the following
circumstances: (1) in the case of options
covering ETFs approved for trading
9 The criteria and guidelines for a security to be
considered widely held and actively traded are set
forth in Exchange Rule 403(b).
10 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’’).
11 The Bitcoin Funds began trading on January 11,
2024.
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Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
under Exchange Rule 402(i)(5)(i)(A), in
accordance with the terms of paragraphs
(b)(1), (2), and (3) of Exchange Rule 403;
(2) in the case of options covering ETFs
approved for trading under Exchange
Rule 402(i)(5)(i)(B), following the initial
twelve-month period beginning upon
the commencement of trading in the
ETFs on a national securities exchange
and are defined as an NMS stock, there
are fewer than 50 record and/or
beneficial holders of such ETFs 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 ETFs are
based is no longer calculated or
available; or (4) such other event shall
occur or condition exist that in the
opinion of the Exchange makes further
dealing in such options on the Exchange
inadvisable.
Options on each Bitcoin Fund would
be physically settled contracts with
American-style exercise.12 Consistent
with current Exchange Rule 404, 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 13 at the
khammond on DSK9W7S144PROD with NOTICES
12 See
Exchange Rule 401, which provides that
the rights and obligations of holders and writers are
set forth in the Rules of the Options Clearing
Corporation (‘‘OCC’’); see also OCC Rules, Chapters
VIII (which governs exercise and assignment) and
Chapter IX (which governs the discharge of delivery
and payment obligations arising out of the exercise
of physically settled stock option contracts).
13 See Exchange Rule 404(b). The monthly
expirations are subject to certain listing criteria for
underlying securities described within Exchange
Rule 404 and its Interpretations and Policies.
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 Exchange Rule 404(c), additional series
of options of the same class may be opened for
trading on the Exchange when the Exchange deems
it necessary to maintain an orderly market, to meet
customer demand or when the market price of the
underlying stock moves more than five strike prices
from the initial exercise price or prices. Pursuant
to Exchange Rule 404(e), 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
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21:22 Nov 27, 2024
Jkt 265001
commencement of trading on the
Exchange and may also list series of
options on a Bitcoin Fund for trading on
a weekly,14 monthly,15 or quarterly 16
basis. The Exchange may also list longterm equity option series (‘‘LEAPS’’)
that expire from 12 to 39 months from
the time they are listed.17
Pursuant to Exchange Rule 404,
Interpretation and Policy .06, which
governs strike prices of series of options
on ETFs, the interval between strike
prices of series of options on ETFs
approved for options trading pursuant
to Exchange Rule 402(i) shall be fixed at
a price per share which is reasonably
close to the price per share at which the
underlying security is traded in the
primary market at or about the same
time such series of options is first open
for trading on the Exchange, or at such
intervals as may have been established
on another options exchange prior to the
initiation of trading on the Exchange.
With respect to the Short Term Options
Series or Weekly Program, during the
month prior to expiration of an option
class that is selected for the Short Term
Option Series Program, the strike price
intervals for the related non-Short Term
Option (‘‘Related non-Short Term
Option’’) shall be the same as the strike
price intervals for the Short Term
Option.18 Specifically, the Exchange
may open for trading Short Term Option
Series at strike price intervals of (i)
$0.50 or greater where the strike price
is less than $100, and $1 or greater
where the strike price is between $100
and $150 for all option classes that
participate in the Short Term Options
Series Program; (ii) $0.50 for option
classes that trade in one dollar
increments and are in the Short Term
Option Series Program; or (iii) $2.50 or
greater where the strike price is above
$150.19 Additionally, the Exchange may
list series of options pursuant to the $1
Strike Price Interval Program,20 the
$0.50 Strike Program,21 and the $2.50
Strike Price Program.22 Pursuant to
the close of trading on the business day prior to
expiration.
14 See Exchange Rule 404, Interpretations and
Policies .02.
15 See Exchange Rule 404, Interpretations and
Policies .13.
16 See Exchange Rule 404, Interpretations and
Policies .03.
17 See Exchange Rule 404(d).
18 See Exchange Rule 404, Interpretations and
Policies .02(e).
19 Id.
20 See Exchange Rule 404, Interpretation and
Policy .01.
21 See Exchange Rule 404, Interpretation and
Policy .04.
22 See Exchange Rule 404(f).
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Sfmt 4703
Exchange Rule 510, where the price of
a series of options for a Bitcoin Fund is
less than $3.00, the minimum increment
will be $0.05, and where the price is
$3.00 or higher, the minimum
increment will be $0.10 23 consistent
with the minimum increments for
options on other ETFs listed on the
Exchange. Any and all new series of a
Bitcoin Fund options that the Exchange
lists will be consistent and comply with
the expirations, strike prices, and
minimum increments set forth in Rules
404 and 510, as applicable.
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 ETFs 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 Bitcoin Funds options on the
Exchange in the same manner as they
apply to other options on all other ETFs
that are listed and traded on the
Exchange, including the precious-metal
backed commodity ETFs already
deemed appropriate for options trading
on the Exchange pursuant to current
Exchange Rule 402(i)(4).
The Exchange also proposes to amend
Rules 307 and 309. Specifically, the
Exchange proposes to amend
Supplementary Material .01 to Exchange
Rule 307 to provide a position limit of
25,000 same side option contracts for
each Bitcoin Fund option. Additionally,
pursuant to the proposed change to
Supplementary Material .01 to Exchange
Rule 309, the exercise limits for options
on each Bitcoin Fund will be equivalent
to this proposed position limit.
The Exchange determined these
proposed position and exercise limits
considering, among other things, the
approximate six-month average daily
volume (‘‘ADV’’) and outstanding shares
of each underlying Bitcoin Fund (which
as discussed above demonstrate that
each Bitcoin Fund is widely held and
actively traded and thus justify these
conservatively proposed position
limits), as set forth below, along with
market capitalization (as of August 7,
2024):
23 See
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Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
Six-month ADV
(shares)
Underlying Bitcoin Fund
Fidelity Fund ..............................................................................................................
ARK 21 Fund .............................................................................................................
The Exchange then compared the
number of outstanding shares of the
Bitcoin Funds to those of other ETFs.
The following table provides the
Outstanding
shares
8,902,893
2,378,886
approximate average position (and
exercise limit) of ETF options with
similar outstanding shares (as of August
27, 2024), compared to the proposed
201,100,100
45,495,000
Average limit
of other ETF
options
(contracts)
24 188,110
Fidelity Fund ............................................................................................................................................................
ARK 21 Fund ...........................................................................................................................................................
corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Rule 402(b)(1); (2)
each Bitcoin Fund (as of the dates listed
above) had significantly 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 Rule 402(b)(2);
and (3) each Bitcoin Fund had a sixmonth trading volume substantially
higher than 2,400,000 shares, which is
the minimum 12-month volume the
Fidelity Fund ....................................................................................................................
ARK 21 Fund ...................................................................................................................
khammond on DSK9W7S144PROD with NOTICES
As this table demonstrates, if a market
participant held the maximum
permissible options positions in one of
the Bitcoin Fund options and exercised
all of them at the same time, that market
participant would control a small
percentage of the outstanding shares of
the underlying Bitcoin Fund.
Rule 309 provides two methods of
qualifying for a position limit tier above
25,000 option contracts. The first
method is based on six-month trading
volume in the underlying security, and
the second method is based on slightly
lower six-month trading volume and
number of shares outstanding in the
underlying security. An underlying
stock or ETF that qualifies for method
two based on trading volume and
number of shares outstanding would be
required to have the minimum number
of outstanding shares as shown in
middle column of the table below.
25 108,696
Outstanding
shares
2,500,000
2,500,000
201,100,100
45,495,000
Minimum
Outstanding
Shares
2,500,000 ...........................................................................................................................................................
5,000,000 ...........................................................................................................................................................
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
comparison was lower than the Fidelity Fund threemonth ADV of 5,665,027 shares.
25 Nearly 80% of the ETFs used for comparison
have a limit of at least 75,000 (and up to 250,000).
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Sfmt 4703
Proposed limit
(contracts)
25,000
25,000
Percentage of
outstanding
shares
(%)
1.2
5.5
The table, which provides the
equivalent shares of the position limits
applicable to equity options, including
ETFs, further represents the percentages
of the minimum number of outstanding
shares that an underlying stock or ETF
must have to qualify for that position
limit (under the second method
described above), all of which are higher
than the percentages for the Bitcoin
Funds.
Position/Exercise Limit
(in equivalent shares)
24 Over 80% of the ETFs used for comparison
have a limit of at least 200,000, and more than half
have a limit of 250,000. Additionally, the threemonth ADV of the majority of the ETFs used for
14,217,013,188
2,487,666,600
Exchange generally requires for a
security in order to list options on that
security as set forth in Rule 402(b)(3).
With respect to outstanding shares, if
a market participant held the maximum
number of positions possible pursuant
to the proposed position and exercise
limits, the equivalent shares represented
by the proposed position/exercise limit
would represent the following
approximate percentage of current
outstanding shares:
Proposed
position/exercise
limit
(in equivalent
shares)
Underlying Bitcoin Fund
Market
capitalization
($)
position and exercise limit for the
Bitcoin Fund options:
Underlying Bitcoin Fund
The Exchange considered current
position and exercise limits of options
on ETFs with outstanding shares
comparable to those of each Bitcoin
Fund, with the proposed limit
significantly lower (between two and
ten times lower) than the average limits
of the options on the other ETFs. As
discussed above, the Bitcoin Funds are
actively held and widely traded: (1)
each Bitcoin Fund (as of August 7, 2024)
had significantly more than 7,000,000
shares outstanding, which is the
minimum number of shares of a
94831
26 6,300,000
40,000,000
Percentage of
Outstanding
Shares
(%)
40.0
12.5
Additionally, the three-month ADV of the majority
of ETFs used for comparison was lower (many more
than four times lower) than the ARK 21 Fund threemonth ADV of 1,737,327 shares.
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Minimum
Outstanding
Shares
Position/Exercise Limit
(in equivalent shares)
7,500,000 ...........................................................................................................................................................
20,000,000 .........................................................................................................................................................
25,000,000 .........................................................................................................................................................
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The equivalent shares represented by
the proposed position and exercise
limits for each Bitcoin Fund as a
percentage of outstanding shares of the
underlying Bitcoin Fund is significantly
lower than the percentage for the lowest
possible position limit for equity
options of 25,000 (under 6% compared
to 40%) and is lower than that
percentage for each current position
limit bucket.27
Further, the proposed position and
exercise limits for each Bitcoin Fund
option are significantly below the limits
that would otherwise apply pursuant to
current Rule 307. These position and
exercise limits are the lowest position
and exercise limits available in the
options industry, are extremely
conservative and more than appropriate
given the market capitalization, average
daily volume, and high number of
outstanding shares of the Bitcoin Funds.
All of the above information
demonstrates that the proposed position
and exercise limits for the Bitcoin Fund
options are more than reasonable and
appropriate. The trading volume, ADV,
and outstanding shares of each Bitcoin
Fund demonstrate that these funds are
actively traded and widely held, and
proposed position and exercise limits
are well below those of other ETFs with
similar market characteristics. The
proposed position and exercise limits
are the lowest position and exercise
limits available for equity options in the
industry, are extremely conservative,
and are more than appropriate given
each Bitcoin Fund’s market
26 This is the minimum number of outstanding
shares an underlying security must have for the
Exchange to continue to list options on that
security, so this would be the smallest number of
outstanding shares permissible for any corporate
option that would have a position limit of 25,000
contract. See Rule 404, Interpretation and Policy
.01. This rule applies to corporate stock options but
not ETF options, which currently have no
requirement regarding outstanding shares of the
underlying ETF for the Exchange to continue listing
options on that ETF. Therefore, there may be ETF
options trading for which the 25,000 contract
position limits represents an even larger percentage
of outstanding shares of the underlying ETF than
set forth above.
27 As these percentages are based on the
minimum number of outstanding shares an
underlying security must have to qualify for the
applicable position limit, these are the highest
possible percentages that would apply to any option
subject to that position and exercise limit.
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capitalization, ADV, and high number of
outstanding shares.
The Exchange further notes that
Exchange Rule 1502, which governs
margin requirements applicable to
trading on the Exchange, including
options on ETFs, will also apply to the
trading of the Bitcoin Fund options.
Notwithstanding the position limits in
Exchange Rule 307(d) and exercise
limits in Exchange Rule 309, the
Exchange proposes the position and
exercise limits for the options on the
Bitcoin Fund to be 25,000 contracts on
the same side pursuant to proposed
Supplementary Material .01 to Exchange
Rule 307 and proposed Supplementary
Material .01 to Exchange Rule 309.
The Exchange represents that the
same surveillance procedures applicable
to all other options on other ETFs
currently listed and traded on the
Exchange will apply to options on the
Bitcoin Funds. Also the Exchange
represents that it has the necessary
systems capacity to support the new
option series. The Exchange believes
that its existing surveillance and
reporting safeguards are designed to
deter and detect possible manipulative
behavior which might potentially arise
from listing and trading options on
ETFs, including the proposed Bitcoin
Funds options.
Today, the Exchange has an adequate
surveillance program in place for
options. The Exchange intends to apply
those same program procedures to
Bitcoin Fund options that it applies to
the Exchange’s other options
products.28 The Exchange’s staff will
have access to the surveillance programs
conducted by its affiliate exchanges,
MIAX Pearl and MIAX Sapphire with
respect to trading in the shares of the
underlying Bitcoin Funds when
conducting surveillances for market
abuse or manipulation in the options on
the Bitcoin Funds. Additionally, the
Exchange is a member of the
Intermarket Surveillance Group (‘‘ISG’’)
under the Intermarket Surveillance
Group Agreement. ISG members work
together to coordinate surveillance and
investigative information sharing in the
28 The surveillance program includes real-time
patterns for price and volume movements and posttrade surveillance patterns (e.g., spoofing, marking
the close, pinging, phishing).
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120,000,000
240,000,000
300,000,000
Percentage of
Outstanding
Shares
(%)
6.3
8.3
8.3
stock, options, and futures markets. In
addition to obtaining surveillance data
from MIAX Pearl and MIAX Sapphire,
the Exchange will be able to obtain
information regarding trading in the
shares of the underlying Bitcoin Funds
from Cboe and other markets through
ISG. In addition, the Exchange has a
Regulatory Services Agreement with the
Financial Industry Regulatory Authority
(‘‘FINRA’’). Pursuant to a multi-party
17d–2 joint plan, all options exchanges
allocate regulatory responsibilities to
FINRA to conduct certain optionsrelated market surveillance that are
common to rules of all options
exchanges.29
The underlying shares of spot bitcoin
exchange-traded products (‘‘ETPs’’),
including the Bitcoin Funds, are also
subject to safeguards related to
addressing market abuse and
manipulation. As the Commission
stated in Bitcoin ETP Order:
Each Exchange has a comprehensive
surveillance-sharing agreement with the CME
via their common membership in the
Intermarket Surveillance Group. This
facilitates the sharing of information that is
available to the CME through its surveillance
of its markets, including its surveillance of
the CME bitcoin futures market.30
The Exchange states that, given the
consistently high correlation between the
CME bitcoin futures market and the spot
bitcoin market, as confirmed by the
Commission through robust correlation
analysis, the Commission was able to
conclude that such surveillance sharing
agreements could reasonably be ‘‘expected to
assist in surveilling for fraudulent and
29 Section 19(g)(1) of the Act, among other things,
requires every SRO registered as a national
securities exchange or national securities
association to comply with the Act, the rules and
regulations thereunder, and the SRO’s own rules,
and, absent reasonable justification or excuse,
enforce compliance by its members and persons
associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d–2. Section 17(d)(1)
of the Act allows the Commission to relieve an SRO
of certain responsibilities with respect to members
of the SRO who are also members of another SRO
(‘‘common members’’). Specifically, Section
17(d)(1) allows the Commission to relieve an SRO
of its responsibilities to: (i) receive regulatory
reports from such members; (ii) examine such
members for compliance with the Act and the rules
and regulations thereunder, and the rules of the
SRO; or (iii) carry out other specified regulatory
responsibilities with respect to such members.
30 See Bitcoin ETP Order, 89 FR at 3010–11.
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manipulative acts and practices in the
specific context of the [Bitcoin ETPs].’’ 31
In light of surveillance measures
related to both options and futures as
well as the underlying Bitcoin Funds,32
the Exchange believes that existing
surveillance procedures are designed to
deter and detect possible manipulative
behavior which might potentially arise
from listing and trading the proposed
options on the Bitcoin Funds. Further,
the Exchange represents that it will
implement any new surveillance
procedures it deems necessary to
effectively monitor the trading of
options on Bitcoin Funds.
The Exchange has also analyzed its
capacity and represents that it believes
the Exchange and Options Price
Reporting Authority or ‘‘OPRA’’ have
the necessary systems capacity to
handle the additional traffic associated
with the listing of new series that may
result from the introduction of options
on Bitcoin Funds up to the number of
expirations currently permissible under
the Rules. Because the proposal is
limited to one class, the Exchange
believes any additional traffic that may
be generated from the introduction of
Bitcoin Funds options will be
manageable.
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 ETPs in the
unregulated over-the-counter (‘‘OTC’’)
options market (if the Commission
approves Bitcoin ETPs for exchangetrading),33 but may prefer to trade such
31 See
Bitcoin ETP Order, 89 FR at 3010–11.
Securities Exchange Act Release Nos.
99290 (January 8, 2024), 89 FR 2338, 2343, 2347—
2348 (January 12, 2024) (SR–CboeBZX–2023–044)
Notice of Filing of Amendment No. 3 to a Proposed
Rule Change to List and Trade Shares of the Fidelity
Wise Origin Bitcoin Fund Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares); and
99288 (January 8, 2024), 89 FR 2387, 2392, 2399—
2400 (January 12, 2024) (SR–CboeBZX–2023–028)
(Notice of Filing of Amendment No. 5 to a Proposed
Rule Change To List and Trade Shares of the ARK
21Shares Bitcoin ETF Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares). See also Securities
Exchange Act Release No. 99306 (Jan. 10, 2024), 89
FR 3008 (Jan. 17, 2024) (order approving File Nos.
SR–NYSEARCA–2021–90; SR–NYSEARCA–2023–
44; SR–NYSEARCA–2023–58; SR–NASDAQ–2023–
016; SR–NASDAQ–2023–019; SR–CboeBZX–2023–
028; SR–CboeBZX–2023–038; SR–CboeBZX–2023–
040; SR–CboeBZX–2023–042; SR–CboeBZX–2023–
044; SR–CboeBZX–2023–072) (‘‘Bitcoin ETP
Order’’).
33 The Exchange understands from customers that
investors have historically transacted in options on
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32 See
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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
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
ETFs 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 the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.34 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 35 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section (6)(b)(5) 36 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposal to list and trade
ETFs in the OTC options market if such options
were not available for trading in a listed
environment.
34 15 U.S.C. 78f(b).
35 15 U.S.C. 78f(b)(5).
36 Id.
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94833
options on the 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 the Bitcoin Funds
will provide investors with a greater
opportunity to realize the benefits of
utilizing options on an ETF based on a
Bitcoin Fund, including cost efficiencies
and increased hedging strategies. The
Exchange believes that offering Bitcoin
Funds options will benefit investors by
providing them with an additional,
relatively lower-cost risk management
tool, allowing them to manage, more
easily, their positions and associated
risks in their portfolios in connection
with exposure to 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 option 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,37 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.
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
must 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 including permissible
37 See
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expirations, strike prices, minimum
increments, position and exercise limits
(as proposed herein), and margin
requirements, will govern the listing
and trading of options on the Bitcoin
Funds.
The Exchange believes the proposed
position and exercise limits are
designed to prevent fraudulent and
manipulative acts and practices and
promote just and equitable principles of
trade, as 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. The proposed position and
exercise limits for options on each of the
Bitcoin Funds is 25,000 contracts. These
position and exercise limits are the
lowest position and exercise limits
available in the options industry, are
extremely conservative and more than
appropriate given each of the Bitcoin
Funds market capitalization, average
daily volume, and high number of
outstanding shares for each. The
information above demonstrates that the
average position and exercise limits of
options on ETFs with comparable
outstanding shares and trading volume
to those of the Bitcoin Funds are
significantly higher than the proposed
position and exercise limits for Bitcoin
Fund options. Therefore, the proposed
position and exercise limits for the
Bitcoin Fund options are conservative
relative to options on ETFs with
comparable market characteristics.
Further, given that the issuer of each
Bitcoin Fund may create and redeem
shares that represent an interest in
Bitcoin, the Exchange believes it is
relevant to compare the size of a
position limit to the market
capitalization of the Bitcoin market. As
August 27,
2024 share
price
($)
Underlying Bitcoin Fund
Fidelity Fund ..........................................................................................................................
ARK 21 Fund .........................................................................................................................
Therefore, if a market participant with
the maximum 25,000 same side
contracts in either Fidelity Fund options
or ARK 21 Fund options exercised all
positions at one time, such an event
would have no practical impact on the
Bitcoin market.
of August 27, 2024, the global supply of
Bitcoin was 19,745,940, and the price of
one Bitcoin was approximately
$59,466.82,38 which equates to a market
capitalization of approximately $1.165
trillion. Consider the proposed position
and exercise limit of 25,000 option
contracts for each Bitcoin Fund option.
A position and exercise limit of 25,000
same side contracts effectively restricts
a market participant from holding
positions that could result in the receipt
of no more than 2,500,000 of Fidelity
Fund shares or ARK 21 Fund shares, as
applicable (if that market participant
exercised all its options. The following
table shows the share price of each
Bitcoin Fund on August 27, 2024, the
value of 2,500,000 shares of the Bitcoin
Fund at that price, and the approximate
percentage of that value of the size of
the Bitcoin market:
The Exchange also believes the
proposed limits are appropriate given
position limits for Bitcoin futures. For
example, the Chicago Mercantile
Exchange (‘‘CME’’) imposes a position
limit of 2,000 futures (for the initial spot
month) on its Bitcoin futures contract.39
On August 28, 2024, CME Aug 24
Value of
2,500,000 shares
of bitcoin fund
($)
54.33
62.08
0.01
0.01
Bitcoin Futures settled at $58,950. A
position of 2,000 CME Bitcoin futures,
therefore, would have a notional value
of $589,500,000. The following table
shows the share price of each Bitcoin
Fund on August 28, 2024 and the
approximate number of option contracts
that equates to that notional value:
August 28,
2024 share
price
($)
Underlying Bitcoin Fund
Fidelity Fund ............................................................................................................................................................
ARK 21 Fund ...........................................................................................................................................................
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135,825,000
155,200,000
Percentage of
bitcoin market
(%)
51.47
58.83
Number of
option
contracts
114,532
100,203
The approximate number of option
contracts for each Bitcoin Fund that
equate to the notional value of CME
Bitcoin futures is significantly higher
than the proposed limit of 25,000
options contract for each Bitcoin Fund
option. The fact that many options
ultimately expire out of-the-money and
thus are not exercised for shares of the
underlying, while the delta of a Bitcoin
Future is 1, further demonstrates how
conservative the proposed limits of
25,000 options contracts are for the
Bitcoin Fund options.
The Exchange notes, unlike options
contracts, CME position limits are
calculated on a net futures-equivalent
basis by contract and include contracts
that aggregate into one or more base
contracts according to an aggregation
ratio(s).40 Therefore, if a portfolio
includes positions in options on futures,
CME would aggregate those positions
into the underlying futures contracts in
accordance with a table published by
CME on a delta equivalent value for the
relevant spot month, subsequent spot
month, single month and all month
position limits.41 If a position exceeds
position limits because of an option
assignment, CME permits market
participants to liquidate the excess
position within one business day
without being considered in violation of
its rules. Additionally, if at the close of
trading, a position that includes options
exceeds position limits for futures
contracts, when evaluated using the
delta factors as of that day’s close of
trading but does not exceed the limits
when evaluated using the previous
day’s delta factors, then the position
38 See Blockchain.com | Charts—Total Circulating
Bitcoin.
39 See CME Rulebook Chapter 350 (description of
CME Bitcoin Futures) and Chapter 5, Position
Limit, Position Accountability and Reportable Level
Table in the Interpretations & Special Notices. Each
CME Bitcoin futures contract is valued at five
Bitcoins as defined by the CME CF Bitcoin
Reference Rate (‘‘BRR’’). See CME Rule 35001.
40 See CME Rulebook Chapter 5, Position Limit,
Position Accountability and Reportable Level Table
in the Interpretations & Special Notices.
41 Id.
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shall not constitute a position limit
violation. Considering CME’s position
limits on futures for Bitcoin, the
Exchange believes that that the
proposed same side position limits are
more than appropriate for the Bitcoin
Fund options.
The Exchange believes the proposed
position and exercise limits will have
no material impact to the supply of
Bitcoin. For example, consider again the
proposed position limit of 25,000 option
contracts for each Bitcoin Fund option.
As noted above, a position limit of
25,000 same side contracts effectively
restricts a market participant from
holding positions that could result in
the receipt of no more than 2,500,000
shares of the applicable Bitcoin Fund (if
that market participant exercised all its
options). As of August 7, 2024, the
Bitcoin Funds had the number of shares
outstanding set forth in the table below.
The table below also sets forth the
approximate number of market
participants that could hold the
maximum of 25,000 same side positions
in each Bitcoin Fund that would equate
to the number of shares outstanding of
that Bitcoin Fund:
Shares
outstanding
Underlying Bitcoin Fund
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Fidelity Fund ......................................................................................................................................................
ARK 21 Fund .....................................................................................................................................................
This means if 80 market participants
had 25,000 same side positions in
Fidelity Fund options, each of them
would have to simultaneously exercise
all of those options to create a scenario
that may put the underlying security
under stress. Similarly, this means if 18
market participants had 25,000 same
side positions in ARK 21 Fund options,
each of them would have to
simultaneously exercise all of those
options to create a scenario that may put
the underlying security under stress.
The Exchange believes it is highly
unlikely for either such event to occur;
however, even if either such event did
occur, the Exchange would not expect
either Bitcoin Fund to be under stress
because such an event would merely
induce the creation of more shares
through the trust’s creation and
redemption process.
As of August 7, 2024, the global
supply of Bitcoin was approximately
19,736,528.42 Based on the $47.88 price
of a Fidelity Fund share on August 7,
2024, a market participant could have
redeemed one Bitcoin for approximately
1,149 Fidelity Fund shares. Another
22,677,270,672 Fidelity Fund shares
could be created before the supply of
Bitcoin was exhausted. As a result,
9,070 market participants would have to
simultaneously exercise 25,000 same
side positions in Fidelity Fund options
to receive shares of the Fidelity Fund
holding the entire global supply of
Bitcoin. Similarly, based on the $54.68
price of an ARK 21 Fund share on
August 7, 2024, a market participant
could have redeemed one Bitcoin for
approximately 1,006 ARK 21 Fund
Shares. Another 19,855 ARK 21 Fund
shares could be created before the
supply of Bitcoin were exhausted. As a
42 See Blockchain.com | Charts—Total Circulating
Bitcoin (which also shows the price of one Bitcoin
equal to $55,033.47).
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result, 7,941 market participants would
have to simultaneously exercise 25,000
same side positions in ARK 21 Fund
options to receive shares of the ARK 21
Fund holding the entire global supply of
Bitcoin. Unlike the Bitcoin Funds, the
number of shares that corporations may
issue is limited. However, like
corporations, which authorize
additional shares, repurchase shares, or
split their shares, the Bitcoin Funds may
create, redeem, or split shares in
response to demand. While the supply
of Bitcoin is limited to 21,000,000, it is
believed that it will take more than 100
years to fully mine the remaining
Bitcoin.43 The supply of Bitcoin is larger
than the available supply of most
securities.44 Given the significant
unlikelihood of any of these events ever
occurring, the Exchange does not
believe options on the Bitcoin Funds
should be subject to position and
exercise limits even lower than those
proposed (which are already equal to
the lowest available limit for equity
options in the industry) to protect the
supply of Bitcoin.45
The Exchange believes the available
supply of Bitcoin is not relevant to the
determination of position and exercise
limits for options overlying the Bitcoin
Funds.46 Position and exercise limits are
43 See Pre-Effective Amendment No. 5 to Form S–
1 Registration Statement No. 333–254652, Fidelity
Fund, filed January 9, 2024, at 53–54; and
Amendment No. 8 to Form S–1 Registration
Statement No. 333–257474, ARK 21 Fund, filed
January 9, 2024, at 15.
44 The market capitalization of Bitcoin would
rank in the top 10 among securities. See https://
companiesmarketcap.com/usa/largest-companiesin-the-usa-by-market-cap/.
45 This would be even more unlikely with respect
to the Bitcoin Funds for which the Exchange
proposes lower position limits.
46 The Exchange is unaware of any proposed rule
change related to position and exercise limits for
any equity option (including commodity ETF
options) for which the Commission required
consideration of whether the available supply of an
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94835
201,100,100
45,495,000
Number of
market participants with
25,000 same
side positions
80
18
not a tool that should be used to address
a potential limited supply of the
underlying of an underlying. Position
and exercise limits do not limit the total
number of options that may be held, but
rather they limit the number of
positions a single customer may hold or
exercise at one time.47 ‘‘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.’’ 48 Position and exercise limit
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
underlying (whether it be a corporate stock or an
ETF) or the contents of an ETF (commodity or
otherwise) should be considered when an exchange
proposed to establish those limits. 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’’). The Exchange notes when the
Commission approved this filing, the position
limits in Cboe Rule 8.30 were the same as they are
today. For reference, the current position and
exercise limits for options on SPDR Gold Shares
ETF (‘‘GLD’’) and options on iShares Silver Trust
(‘‘SLV’’) are 250,000 contracts, or 10 times that
proposed position and exercise limit for the Bitcoin
Fund options.
47 For example, suppose an option has a position
limit of 25,000 option contracts and there are a total
of 10 investors trading that option. If all 10
investors max out their positions, that would result
in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide
to begin trading that option and also max out their
positions. This would result in 500,000 option
contracts outstanding at that time. An increase in
the number of investors could cause an increase in
outstanding options even if position limits remain
unchanged.
48 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
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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.’’ 49
The Exchange notes that a
Registration Statement on Form S–1 was
filed with the Commission for each
Bitcoin Fund, each of which described
the supply of Bitcoin as being limited to
21,000,000 (of which approximately
90% had already been mined), and that
the limit would be reached around the
year 2140.50 Each Registration
Statement permits an unlimited number
of shares of the applicable Bitcoin ETF
to be created. Further, the Commission
approved proposed rule changes that
permitted the listing and trading of
shares of each Bitcoin Fund, which
approval did not comment on the
sufficient supply of Bitcoin or address
whether there was a risk that permitting
an unlimited number of shares for a
Bitcoin Fund would impact the supply
of Bitcoin.51 Therefore, the Exchange
believes the Commission had ample
time and opportunity to consider
whether the supply of Bitcoin was
sufficient to permit the creation of
unlimited Bitcoin Fund shares, and
does not believe considering this supply
with respect to the establishment of
position and exercise limits is
appropriate given its lack of relevance to
the purpose of position and exercise
limits. However, given the significant
size of the Bitcoin supply, the proposed
positions limits are more than sufficient
to protect investors and the market.
Based on the above information
demonstrating, among other things, that
each Bitcoin Fund is characterized by a
substantial number of outstanding
shares that are actively traded and
widely held, the Exchange believes the
proposed position and exercise limits
are extremely conservative compared to
those of ETF options with similar
market characteristics. The proposed
position and exercise limits reasonably
and appropriately balance the liquidity
provisioning in the market against the
prevention of manipulation. The
Exchange believes these proposed limits
are effectively designed to prevent an
individual customer or entity from
establishing options positions that could
be used to manipulate the market of the
49 See
id.
Pre-Effective Amendment No. 5 to Form S–
1 Registration Statement No. 333–254652, Fidelity
Fund, filed January 9, 2024, at 53–54; and
Amendment No. 8 to Form S–1 Registration
Statement No. 333–257474, ARK 21 Fund, filed
January 9, 2024, at 15.
51 See Bitcoin ETP Order.
50 See
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21:22 Nov 27, 2024
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underlying as well as the Bitcoin
market.52
The Exchange represents that it has
the necessary systems capacity to
support the new Bitcoin Fund options.
As discussed above, 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.
Today, the Exchange has an adequate
surveillance program in place for
options. The Exchange intends to apply
those same program procedures to
options on the Bitcoin Fund that it
applies to the Exchange’s other options
products.53 The Exchange’s staff will
have access to the surveillance programs
conducted by its affiliate exchanges,
MIAX Pearl and MIAX Sapphire with
respect to the underlying Bitcoin Funds
when conducting surveillances for
market abuse or manipulation in the
options on the Bitcoin Funds. The
Exchange will review activity in the
underlying Bitcoin Fund when
conducting surveillances for market
abuse or manipulation in the options on
the Bitcoin Funds. Additionally, the
Exchange is a member of the ISG under
the Intermarket Surveillance Group
Agreement. ISG members work together
to coordinate surveillance and
investigative information sharing in the
stock, options, and futures markets. In
addition to obtaining surveillance data
from MIAX Pearl and MIAX Sapphire,
the Exchange will be able to obtain
information from Cboe and other
markets through ISG. In addition, the
Exchange has a Regulatory Services
Agreement with FINRA. Pursuant to a
multi-party 17d-2 joint plan, all options
exchanges allocate regulatory
responsibilities to FINRA to conduct
certain options-related market
surveillance that are common to rules of
all options exchanges.54
52 See
Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
53 The surveillance program includes real-time
patterns for price and volume movements and posttrade surveillance patterns (e.g., spoofing, marking
the close, pinging, phishing).
54 Section 19(g)(1) of the Act, among other things,
requires every SRO registered as a national
securities exchange or national securities
association to comply with the Act, the rules and
regulations thereunder, and the SRO’s own rules,
and, absent reasonable justification or excuse,
enforce compliance by its members and persons
associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d–2. Section 17(d)(1)
of the Act allows the Commission to relieve an SRO
of certain responsibilities with respect to members
of the SRO who are also members of another SRO
(‘‘common members’’). Specifically, Section
17(d)(1) allows the Commission to relieve an SRO
of its responsibilities to: (i) receive regulatory
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The underlying shares of spot bitcoin
ETPs, including the Bitcoin Funds, are
also subject to safeguards related to
addressing market abuse and
manipulation. As the Commission
stated in Bitcoin ETP Order:
Each Exchange has a comprehensive
surveillance-sharing agreement with the
CME via their common membership in
the Intermarket Surveillance Group.
This facilitates the sharing of
information that is available to the CME
through its surveillance of its markets,
including its surveillance of the CME
bitcoin futures market.55
The Exchange states that, given the
consistently high correlation between
the CME bitcoin futures market and the
spot bitcoin market, as confirmed by the
Commission through robust correlation
analysis, the Commission was able to
conclude that such surveillance sharing
agreements could reasonably be
‘‘expected to assist in surveilling for
fraudulent and manipulative acts and
practices in the specific context of the
[Bitcoin ETPs].’’ 56
In light of surveillance measures
related to both options and futures as
well as the underlying Bitcoin Funds,57
the Exchange believes that existing
surveillance procedures are designed to
deter and detect possible manipulative
behavior which might potentially arise
from listing and trading the proposed
options on the Bitcoin Funds. Further,
the Exchange represents that it will
implement any new surveillance
procedures it deems necessary to
effectively monitor the trading of
options on the Bitcoin Funds. Finally,
the Commission has previously
approved the listing and trading of
options on other commodity ETFs
structured as a trust, such as SPDR®
Gold Trust,58 the iShares COMEX Gold
reports from such members; (ii) examine such
members for compliance with the Act and the rules
and regulations thereunder, and the rules of the
SRO; or (iii) carry out other specified regulatory
responsibilities with respect to such members.
55 See Bitcoin ETP Order, 89 FR at 3010–11.
56 See Bitcoin ETP Order, 89 FR at 3010–11.
57 See Securities Exchange Act Release No. 99295
(January 8, 2024), 89 FR 2321, 2334–35 (January 12,
2024) (SR–NASDAQ–2023–016) (Notice of Filing of
Amendment No. 1 to a Proposed Rule Change To
List and Trade Shares of the iShares Bitcoin Trust
Under Nasdaq Rule 5711(d)).
58 See Securities Exchange Act Release No. 57897
(May 30, 2008), 73 FR 32061 (June 5, 2008) (SR–
Amex–2008–15; SR–CBOE–2005–11; SR–ISE–2008–
12; SR–NYSEArca–2008–52; and SRPhlx–2008–17)
(Order Granting Approval of a Proposed Rule
Change, as Modified, and Notice of Filing and
Order Granting Accelerated Approval of Proposed
Rule Changes, as Modified, Relating to Listing and
Trading Options on the SPDR Gold Trust).
E:\FR\FM\29NON1.SGM
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Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
Trust 59 the iShares Silver Trust,60 the
ETFS Gold Trust,61 and the ETFS Silver
Trust.62
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. In this regard
and as indicated above, the Exchange
notes that the rule change is being
proposed as a competitive response to
filings submitted by Cboe.63
The Exchange does not believe that
the proposed rule change will impose
any burden on intramarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act
as options on the Bitcoin Funds will be
equally available to all market
participants who wish to trade such
options and will trade generally in the
same manner as other options. Further,
options on the Bitcoin Funds will be
subject to Exchange Rules that currently
govern the listing and trading of options
on ETFs, including permissible
expirations, strike prices, minimum
increments, position and exercise limits
(including as proposed to modify
herein), and margin requirements. Also,
and as stated above, the Exchange
already lists options on other
commodity ETFs structured as a trust.64
Further, the Bitcoin Funds would need
to satisfy the maintenance listing
standards set forth in the Exchange
Rules in the same manner as any other
ETF for the Exchange to continue listing
options on them.
The Exchange does not believe that
the proposal to list to list and trade
Bitcoin Funds options 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
59 See Securities Exchange Act Release No. 59055
(December 4, 2008), 73 FR 75148 (December 10,
2008) (SR–Amex–2008–68; SR–BSE–2008–51; SR–
CBOE–2008–72; SR–ISE–2008–58; SRNYSEArca–
2008–66; and SR–Phlx–2008–58) (Notice of Filing
and Order Granting Accelerated Approval of
Proposed Rule Changes Relating to the Listing and
Trading Options on Shares of the iShares COMEX
Gold Trust and the iShares Silver Trust).
60 Id.
61 See Securities Exchange Act Release No. 61483
(February 3, 2010), 75 FR 6753 (February 10, 2010)
(SR–CBOE–2010–007; SR–ISE–2009–106; SR–
NYSEAmex–2009–86; and SR–NYSEArca–2009–
110) (Order Granting Approval of Proposed Rule
Changes and Notice of Filing and Order Granting
Accelerated Approval of a Proposed Rule Change
Relating to Listing and Trading Options on the
ETFS Gold Trust and the ETFS Silver Trust).
62 Id.
63 See supra note 5.
64 See Exchange Rule 402(i)(4).
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may make the Exchange a more
attractive marketplace to market
participants at other exchanges, such
market participants are free to elect to
become market participants on the
Exchange. Additionally, other options
exchanges are free to amend their listing
rules, as applicable, to permit them to
list and trade options on the 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,
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
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 65 and Rule
19b–4(f)(6) thereunder.66 Because the
foregoing proposed rule change does
not: (i) significantly affect the protection
of investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 67 and
65 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
67 15 U.S.C. 78s(b)(3)(A)(iii).
66 17
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94837
subparagraph (f)(6) of Rule 19b–4
thereunder.68
A proposed rule change filed under
Rule 19b–4(f)(6) 69 under the Act does
not normally become operative prior to
30 days after the date of the filing.
However, pursuant to Rule 19b–
4(f)(6)(iii),70 the Commission may
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has requested that the
Commission waive the 30-day operative
delay so that the proposal may become
operative immediately upon filing. The
Commission previously approved the
listing of options on the Fidelity Wise
Origin Bitcoin Fund the ARK 21Shares
Bitcoin ETF.71 The Exchange has
provided information regarding the
underlying Bitcoin Funds, including,
among other things, information
regarding trading volume, the number of
beneficial holders, and the market
capitalization of the Bitcoin Funds. The
proposal also establishes position and
exercise limits for options on the
Bitcoin Funds and provides information
regarding the surveillance procedures
that will apply to Bitcoin Fund options.
The Commission believes that waiver of
the operative delay could benefit
investors by providing an additional
venue for trading Bitcoin Fund options.
Therefore, the Commission believes that
waiver of the 30-day operative delay is
consistent with the protection of
investors and the public interest.
Accordingly, the Commission hereby
waives the 30-day operative delay and
designates the proposed rule change as
operative upon filing.72
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
68 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Commission
waives this requirement.
69 17 CFR 240.19b–4(f)(6).
70 17 CFR 240.19b–4(f)(6)(iii).
71 See Securities Exchange Act Release No.
101387 (October 18, 2024), 89 FR 84948 (October
24, 2024) (SR–Cboe–2024–035) (Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 2 and 3, To Permit
the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds).
72 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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94838
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
khammond on DSK9W7S144PROD with NOTICES
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
submitted on or before December 20,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.73
Sherry R. Haywood,
Assistant Secretary.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
[FR Doc. 2024–27989 Filed 11–27–24; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
MIAX–2024–43 on the subject line.
Submission for OMB Review;
Comment Request; Extension: Rule
17e–1
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–MIAX–2024–43. 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–MIAX–2024–43 and should be
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21:22 Nov 27, 2024
Jkt 265001
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–224, OMB Control No.
3235–0217]
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) (‘‘Paperwork
Reduction Act’’), the Securities and
Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for extension of the
previously approved collection of
information described below.
Rule 17e–1 (17 CFR 270.17e–1) under
the Investment Company Act of 1940
(15 U.S.C. 80a–1 et seq.) (the
‘‘Investment Company Act’’) deems a
remuneration as ‘‘not exceeding the
usual and customary broker’s
commission’’ for purposes of Section
17(e)(2)(A) of the Investment Company
Act (15 U.S.C. 80a–17(e)(2)(A)) if,
among other things, a registered
investment company’s (‘‘fund’s’’) board
of directors, including a majority of the
directors who are not interested persons
of the fund, has adopted procedures
reasonably designed to provide that the
remuneration to an affiliated broker is
reasonable and fair compared to that
received by other brokers in connection
with comparable transactions involving
similar securities being purchased or
sold on a securities exchange during a
comparable period of time and the
board makes and approves such changes
as it deems necessary. In addition, each
quarter, the board must determine that
all transactions effected under the rule
during the preceding quarter complied
with the established procedures
(‘‘review requirement’’). Rule 17e–1 also
requires the fund to (i) maintain
permanently in an easily accessible
73 17
PO 00000
CFR 200.30–3(a)(12), (59).
Frm 00138
Fmt 4703
Sfmt 4703
place a written copy of the procedures
adopted by the board for complying
with the requirements of the rule; and
(ii) maintain for a period of six years,
the first two in an easily accessible
place, a written record of each
transaction subject to the rule, setting
forth the amount and source of the
commission, fee, or other remuneration
received; the identity of the broker; the
terms of the transaction; and the
materials used to determine that the
transactions were effected in
compliance with the procedures
adopted by the board (‘‘recordkeeping
requirement’’). The review and
recordkeeping requirements of rule 17e–
1 permit Commission staff to monitor
the reasonableness and fairness of
remuneration received by affiliated
persons of the fund. Without the
recordkeeping requirement,
Commission inspectors would have
difficulty ascertaining whether funds
were complying with rule 17e–1.
Based upon an analysis of fund filings
on Form N–CEN, approximately 1,614
funds report reliance on rule 17e–1.1
Based on staff experience and
conversations with fund representatives,
we estimate that the burden of
compliance with rule 17e–1 is
approximately 50 hours per fund per
year. This time is spent, for example,
reviewing the applicable transactions
and maintaining records. Accordingly,
we calculate the total estimated annual
internal burden of complying with the
review and recordkeeping requirements
of rule 17e–1 to be approximately
80,700 hours.2 We further estimate that,
of these:
• 60 percent (48,420 hours) are spent
by senior accountants, at an estimated
hourly wage of $266,3 for a total of
approximately $12,879,720 per year; 4
• 30 percent (24,210 hours) are spent
by in-house attorneys at an estimated
hourly wage of $511, for a total of
1 Staff estimate is based on a three-year average
of funds reporting reliance on rule 17e–1 covering
calendar years 2022–2024.
2 1,614 funds × 50 hours per fund = 80,700 hours.
3 The Commission’s estimates concerning the
allocation of burden hours and the relevant wage
rates are based on consultations with industry
representatives and on salary information for the
securities industry compiled by the Securities
Industry and Financial Markets Association; the
estimated wage figures are also based on published
rates for senior accountants and in-house attorneys,
modified to account for an 1800-hour work-year
and multiplied by 5.35 to account for bonuses, firm
size, employee benefits, and overhead, yielding
effective hourly rates of $266 and $511,
respectively; see Securities Industry and Financial
Markets Association, Report on Management &
Professional Earnings in the Securities Industry
2013.
4 48,420 hours × $266 per hour = $12,879,720.
E:\FR\FM\29NON1.SGM
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Agencies
[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94828-94838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27989]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101717; File No. SR-MIAX-2024-43]
Self-Regulatory Organizations; MIAX Exchange LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 402, Criteria for Underlying Securities, Exchange Rule
307, Position Limits, and Exchange Rule 309, Exercise Limits To Allow
the Exchange To List and Trade Options on the Fidelity Wise Origin
Bitcoin Fund (the ``Fidelity Fund'') and the ARK 21Shares Bitcoin ETF
(the ``ARK 21 Fund'')
November 22, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 21, 2024, Miami International Securities Exchange, LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange
Rule 309, Exercise Limits.
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings, at MIAX's principal office, and at the Commission's
Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange
Rule 309, Exercise Limits,\3\ to allow the Exchange to list and trade
options on Fidelity Wise Origin Bitcoin Fund (the ``Fidelity Fund'')
and the ARK 21Shares Bitcoin ETF (the ``ARK 21 Fund'' and, with the
Fidelity Fund, the ``Bitcoin Funds''), designating the Bitcoin Funds as
appropriate for options trading on the Exchange.\4\ This is a
competitive filing based on a similar proposal submitted by Cboe
Exchange, Inc. (``Cboe'') and approved by the Securities and Exchange
Commission (``Commission'').\5\
---------------------------------------------------------------------------
\3\ The Exchange notes that its affiliate exchanges, MIAX Pearl
and MIAX Sapphire, submitted substantively identical proposals. The
Exchange notes that all the rules of Chapter III of the MIAX Options
Exchange, including Rules 307 and 309, are incorporated by reference
to MIAX Pearl and MIAX Sapphire. The Exchange also notes that all of
the rules of Chapter III of the MIAX Options Exchange, including
Rules 307 and 309, and the rules of Chapter IV of the MIAX Options
Exchange, including Rule 402, are incorporated by reference to MIAX
Emerald.
\4\ On January 10, 2024, the Commission approved proposals by
NYSE Arca, Inc., The Nasdaq Stock Market LLC, and Cboe BZX Exchange,
Inc. to list and trade the shares of 11 bitcoin-based commodity-
based trust shares and trust units, including the iShares Bitcoin
Trust. See Securities Exchange Act Release No. 99306 (Jan. 10,
2024), 89 FR 3008 (Jan. 17, 2024) (order approving File Nos. SR-
NYSEARCA-2021-90; SR-NYSEARCA-2023-44; SR-NYSEARCA-2023-58; SR-
NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-
CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-
CboeBZX-2023-044; SR-CboeBZX-2023-072) (``Bitcoin ETP Order'').
\5\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (SR-CBOE-2024-35)(Self-
Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, to
Permit the Listing and Trading of Options on Bitcoin Exchange Traded
Funds).
---------------------------------------------------------------------------
Current Exchange Rule 402(i)(4) provides that securities deemed
appropriate for options trading include shares or other securities
(``Exchange Traded Fund Shares'' or ``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 Exchange Rule 402(i), which permits options trading on
ETFS that: (1) represent interests in registered investment
companies (or series thereof) organized as open-end management
investment companies, unit investment trusts or similar entities
that hold portfolios of securities and/or financial instruments
(``Funds''), including, but not limited to, stock index futures
contracts, options on futures, options on securities and indices,
equity caps, collars and floors, swap agreements, forward contracts,
repurchase agreements and reverse repurchase agreements (the
``Financial Instruments''), and money market instruments, including,
but not limited to, U.S. government securities and repurchase
agreements (the ``Money Market Instruments'') comprising or
otherwise based on or representing investments in broad-based
indexes or portfolios of securities and/or Financial Instruments and
Money Market Instruments (or that hold securities in one or more
other registered investment companies that themselves hold such
portfolios of securities and/or Financial Instruments and Money
Market Instruments); (2) represent interests in a trust or similar
entity that holds a specified non-U.S. currency or currencies
deposited with the trust which when aggregated in some specified
minimum number may be surrendered to the trust or similar entity by
the beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''); (3)
represent commodity pool interests principally engaged, directly or
indirectly, in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on commodity
futures contracts, swaps, forward contracts and/or options on
physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs''); (4) are issued by the are issued by the SPDR[supreg] Gold
Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, the
ETFS Silver Trust, the Aberdeen Standard Physical Gold Trust, the
ETFS Palladium Trust, the ETFS Platinum Trust, the Sprott Physical
Gold Trust, or the iShares Bitcoin Trust; or (5) represent an
interest in a registered investment company (``Investment Company'')
organized as an open-end management company or similar entity, that
invests in a portfolio of securities selected by the Investment
Company's investment adviser consistent with the Investment
Company's investment objectives and policies, which is issued in a
specified aggregate minimum number in return for a deposit of a
specified portfolio of securities and/or a cash amount with a value
equal to the next determined net asset value (``NAV''), and when
aggregated in the same specified minimum number, may be redeemed at
a holder's request, which holder will be paid a specified portfolio
of securities and/or cash with a value equal to the next determined
NAV (``Managed Fund Share''); provided that all of the conditions
listed in (5)(i) and 5(ii) are met.
---------------------------------------------------------------------------
The Bitcoin Funds are Bitcoin-backed commodity ETFs structured as
trusts. Similar to any ETFs currently deemed appropriate for options
trading under Exchange Rule 402(i), the investment objective of each
Bitcoin Fund is for its shares to reflect the performance of Bitcoin
(less the expenses of the trust's operations), offering investors an
[[Page 94829]]
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 each Bitcoin Fund satisfies the Exchange's
initial listing standards for ETFs on which the Exchange may list
options. Specifically, each Bitcoin Fund satisfies the initial listing
standards set forth in Exchange Rule 402(i)(5)(i), as is the case for
other ETFs on which the Exchange lists options (including trusts that
hold commodities). Exchange Rule 402(i)(5)(i) requires that the ETFs
must either (1) meet the criteria and standards set forth in Exchange
Rule 402(a) or 402(b),\8\ or (2) be available for creation or
redemption each business day from or through the issuer in cash or in
kind at a price related to net asset value, and the issuer must be
obligated to issue 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. Each Bitcoin Fund satisfies Exchange Rule
402(i)(5(i)(B), as each is subject to this creation and redemption
process.
---------------------------------------------------------------------------
\8\ Subparagraphs a and b of Exchange Rule 402 provide for
guidelines to be used by the Exchange when evaluating potential
underlying securities for Exchange option transactions.
---------------------------------------------------------------------------
While not required by the Rules for purposes of options listings,
the Exchange believes each Bitcoin Fund satisfies the criteria and
guidelines set forth in Exchange Rule 402. Pursuant to Exchange Rule
402, 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.\9\ Each
Bitcoin Fund is an NMS Stock as defined in Rule 600 of Regulation NMS
under the Act.\10\ The Exchange believes each Bitcoin Fund is
characterized by a substantial number of outstanding shares that are
widely held and actively traded.
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\9\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Exchange Rule
403(b).
\10\ 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:
------------------------------------------------------------------------
Shares
Bitcoin Fund outstanding
------------------------------------------------------------------------
Fidelity Fund........................................ 201,100,100
ARK 21 Fund.......................................... 45,495,000
------------------------------------------------------------------------
Each Bitcoin Fund had significantly more than 7,000,000 shares
outstanding (approximately 29 and 6.5 times that amount, respectively),
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 402(b)(1). 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 the Bitcoin Funds as of the specified dates:
------------------------------------------------------------------------
Beneficial
Bitcoin Fund holders Date
------------------------------------------------------------------------
Fidelity Fund........................... 279,656 6/27/2024
ARK 21 Fund............................. 69,425 6/26/2024
------------------------------------------------------------------------
As this table shows, each Bitcoin Fund has significantly more than
2,000 beneficial holders (approximately 140 and 35 times more,
respectively), which is the minimum number of holders the Exchange
generally requires for corporate stock in order to list options on that
stock pursuant to Exchange Rule 402(b)(2). Therefore, the Exchange
believes the shares of each Bitcoin Fund are widely held.
As demonstrated above, despite the fact that the Bitcoin Funds had
been trading for approximately seven months \11\ only as of August 7,
2024, the six-month trading volume for each as of that date was
substantially higher than 2,400,000 shares (approximately 464 and 124
times that amount, respectively), which is the minimum 12-month volume
the Exchange generally requires for a corporate stock in order to list
options on that security as set forth in Exchange Rule 402(b)(4).
Additionally, as of August 7, 2024, the trading volume for each Bitcoin
Fund was in the top 5% of all ETFs that are currently trading. The
Exchange believes this data demonstrates each Bitcoin Fund is
characterized as having shares that are actively traded.
---------------------------------------------------------------------------
\11\ The Bitcoin Funds began trading on January 11, 2024.
---------------------------------------------------------------------------
Options on the Bitcoin Funds will also be subject to the Exchange's
continued listing standards set forth in Exchange Rule 403(g), for ETFs
deemed appropriate for options trading pursuant to Exchange Rule
402(i). Specifically, Exchange Rule 403(g) provides that ETFs that were
initially approved for options trading pursuant to Exchange Rule 402(i)
shall be deemed not to meet the requirements for continued approval,
and the Exchange shall not open for trading any additional series of
option contracts of the class covering that such ETFs, if the ETFs are
delisted from trading pursuant to Exchange Rule 403(b)(4), are halted
or suspended from trading in their primary market. Additionally,
options on ETFs may be subject to the suspension of opening
transactions in any of the following circumstances: (1) in the case of
options covering ETFs approved for trading
[[Page 94830]]
under Exchange Rule 402(i)(5)(i)(A), in accordance with the terms of
paragraphs (b)(1), (2), and (3) of Exchange Rule 403; (2) in the case
of options covering ETFs approved for trading under Exchange Rule
402(i)(5)(i)(B), following the initial twelve-month period beginning
upon the commencement of trading in the ETFs on a national securities
exchange and are defined as an NMS stock, there are fewer than 50
record and/or beneficial holders of such ETFs 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 ETFs
are based is no longer calculated or available; or (4) such other event
shall occur or condition exist that in the opinion of the Exchange
makes further dealing in such options on the Exchange inadvisable.
Options on each Bitcoin Fund would be physically settled contracts
with American-style exercise.\12\ Consistent with current Exchange Rule
404, 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 \13\ at the
commencement of trading on the Exchange and may also list series of
options on a Bitcoin Fund for trading on a weekly,\14\ monthly,\15\ or
quarterly \16\ basis. The Exchange may also list long-term equity
option series (``LEAPS'') that expire from 12 to 39 months from the
time they are listed.\17\
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\12\ See Exchange Rule 401, which provides that the rights and
obligations of holders and writers are set forth in the Rules of the
Options Clearing Corporation (``OCC''); see also OCC Rules, Chapters
VIII (which governs exercise and assignment) and Chapter IX (which
governs the discharge of delivery and payment obligations arising
out of the exercise of physically settled stock option contracts).
\13\ See Exchange Rule 404(b). The monthly expirations are
subject to certain listing criteria for underlying securities
described within Exchange Rule 404 and its Interpretations and
Policies. 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 Exchange Rule 404(c),
additional series of options of the same class may be opened for
trading on the Exchange when the Exchange deems it necessary to
maintain an orderly market, to meet customer demand or when the
market price of the underlying stock moves more than five strike
prices from the initial exercise price or prices. Pursuant to
Exchange Rule 404(e), 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.
\14\ See Exchange Rule 404, Interpretations and Policies .02.
\15\ See Exchange Rule 404, Interpretations and Policies .13.
\16\ See Exchange Rule 404, Interpretations and Policies .03.
\17\ See Exchange Rule 404(d).
---------------------------------------------------------------------------
Pursuant to Exchange Rule 404, Interpretation and Policy .06, which
governs strike prices of series of options on ETFs, the interval
between strike prices of series of options on ETFs approved for options
trading pursuant to Exchange Rule 402(i) shall be fixed at a price per
share which is reasonably close to the price per share at which the
underlying security is traded in the primary market at or about the
same time such series of options is first open for trading on the
Exchange, or at such intervals as may have been established on another
options exchange prior to the initiation of trading on the Exchange.
With respect to the Short Term Options Series or Weekly Program, during
the month prior to expiration of an option class that is selected for
the Short Term Option Series Program, the strike price intervals for
the related non-Short Term Option (``Related non-Short Term Option'')
shall be the same as the strike price intervals for the Short Term
Option.\18\ Specifically, the Exchange may open for trading Short Term
Option Series at strike price intervals of (i) $0.50 or greater where
the strike price is less than $100, and $1 or greater where the strike
price is between $100 and $150 for all option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150.\19\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\20\ the $0.50 Strike
Program,\21\ and the $2.50 Strike Price Program.\22\ Pursuant to
Exchange Rule 510, where the price of a series of options for a Bitcoin
Fund is less than $3.00, the minimum increment will be $0.05, and where
the price is $3.00 or higher, the minimum increment will be $0.10 \23\
consistent with the minimum increments for options on other ETFs listed
on the Exchange. Any and all new series of a Bitcoin Fund options that
the Exchange lists will be consistent and comply with the expirations,
strike prices, and minimum increments set forth in Rules 404 and 510,
as applicable.
---------------------------------------------------------------------------
\18\ See Exchange Rule 404, Interpretations and Policies .02(e).
\19\ Id.
\20\ See Exchange Rule 404, Interpretation and Policy .01.
\21\ See Exchange Rule 404, Interpretation and Policy .04.
\22\ See Exchange Rule 404(f).
\23\ See Exchange Rule 510.
---------------------------------------------------------------------------
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 ETFs 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 Bitcoin Funds options on the
Exchange in the same manner as they apply to other options on all other
ETFs that are listed and traded on the Exchange, including the
precious-metal backed commodity ETFs already deemed appropriate for
options trading on the Exchange pursuant to current Exchange Rule
402(i)(4).
The Exchange also proposes to amend Rules 307 and 309.
Specifically, the Exchange proposes to amend Supplementary Material .01
to Exchange Rule 307 to provide a position limit of 25,000 same side
option contracts for each Bitcoin Fund option. Additionally, pursuant
to the proposed change to Supplementary Material .01 to Exchange Rule
309, the exercise limits for options on each Bitcoin Fund will be
equivalent to this proposed position limit.
The Exchange determined these proposed position and exercise limits
considering, among other things, the approximate six-month average
daily volume (``ADV'') and outstanding shares of each underlying
Bitcoin Fund (which as discussed above demonstrate that each Bitcoin
Fund is widely held and actively traded and thus justify these
conservatively proposed position limits), as set forth below, along
with market capitalization (as of August 7, 2024):
[[Page 94831]]
----------------------------------------------------------------------------------------------------------------
Market
Underlying Bitcoin Fund Six-month ADV Outstanding capitalization
(shares) shares ($)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund.......................................... 8,902,893 201,100,100 14,217,013,188
ARK 21 Fund............................................ 2,378,886 45,495,000 2,487,666,600
----------------------------------------------------------------------------------------------------------------
The Exchange then compared the number of outstanding shares of the
Bitcoin Funds to those of other ETFs. The following table provides the
approximate average position (and exercise limit) of ETF options with
similar outstanding shares (as of August 27, 2024), compared to the
proposed position and exercise limit for the Bitcoin Fund options:
------------------------------------------------------------------------
Average limit
of other ETF Proposed limit
Underlying Bitcoin Fund options (contracts)
(contracts)
------------------------------------------------------------------------
Fidelity Fund........................... \24\ 188,110 25,000
ARK 21 Fund............................. \25\ 108,696 25,000
------------------------------------------------------------------------
The Exchange considered current position and exercise limits of
options on ETFs with outstanding shares comparable to those of each
Bitcoin Fund, with the proposed limit significantly lower (between two
and ten times lower) than the average limits of the options on the
other ETFs. As discussed above, the Bitcoin Funds are actively held and
widely traded: (1) each Bitcoin Fund (as of August 7, 2024) had
significantly more than 7,000,000 shares outstanding, which is the
minimum number of shares of a corporate stock that the Exchange
generally requires to list options on that stock pursuant to Rule
402(b)(1); (2) each Bitcoin Fund (as of the dates listed above) had
significantly 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 Rule 402(b)(2); and
(3) each Bitcoin Fund had a six-month trading volume substantially
higher than 2,400,000 shares, which is the minimum 12-month volume the
Exchange generally requires for a security in order to list options on
that security as set forth in Rule 402(b)(3).
---------------------------------------------------------------------------
\24\ Over 80% of the ETFs used for comparison have a limit of at
least 200,000, and more than half have a limit of 250,000.
Additionally, the three-month ADV of the majority of the ETFs used
for comparison was lower than the Fidelity Fund three-month ADV of
5,665,027 shares.
\25\ Nearly 80% of the ETFs used for comparison have a limit of
at least 75,000 (and up to 250,000). Additionally, the three-month
ADV of the majority of ETFs used for comparison was lower (many more
than four times lower) than the ARK 21 Fund three-month ADV of
1,737,327 shares.
---------------------------------------------------------------------------
With respect to outstanding shares, if a market participant held
the maximum number of positions possible pursuant to the proposed
position and exercise limits, the equivalent shares represented by the
proposed position/exercise limit would represent the following
approximate percentage of current outstanding shares:
----------------------------------------------------------------------------------------------------------------
Proposed
position/exercise Percentage of
Underlying Bitcoin Fund limit (in Outstanding outstanding
equivalent shares shares (%)
shares)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund............................................. 2,500,000 201,100,100 1.2
ARK 21 Fund............................................... 2,500,000 45,495,000 5.5
----------------------------------------------------------------------------------------------------------------
As this table demonstrates, if a market participant held the
maximum permissible options positions in one of the Bitcoin Fund
options and exercised all of them at the same time, that market
participant would control a small percentage of the outstanding shares
of the underlying Bitcoin Fund.
Rule 309 provides two methods of qualifying for a position limit
tier above 25,000 option contracts. The first method is based on six-
month trading volume in the underlying security, and the second method
is based on slightly lower six-month trading volume and number of
shares outstanding in the underlying security. An underlying stock or
ETF that qualifies for method two based on trading volume and number of
shares outstanding would be required to have the minimum number of
outstanding shares as shown in middle column of the table below.
The table, which provides the equivalent shares of the position
limits applicable to equity options, including ETFs, further represents
the percentages of the minimum number of outstanding shares that an
underlying stock or ETF must have to qualify for that position limit
(under the second method described above), all of which are higher than
the percentages for the Bitcoin Funds.
------------------------------------------------------------------------
Minimum Percentage of
Position/Exercise Limit (in Outstanding Outstanding
equivalent shares) Shares Shares (%)
------------------------------------------------------------------------
2,500,000............................ \26\ 6,300,000 40.0
5,000,000............................ 40,000,000 12.5
[[Page 94832]]
7,500,000............................ 120,000,000 6.3
20,000,000........................... 240,000,000 8.3
25,000,000........................... 300,000,000 8.3
------------------------------------------------------------------------
The equivalent shares represented by the proposed position and
exercise limits for each Bitcoin Fund as a percentage of outstanding
shares of the underlying Bitcoin Fund is significantly lower than the
percentage for the lowest possible position limit for equity options of
25,000 (under 6% compared to 40%) and is lower than that percentage for
each current position limit bucket.\27\
---------------------------------------------------------------------------
\26\ This is the minimum number of outstanding shares an
underlying security must have for the Exchange to continue to list
options on that security, so this would be the smallest number of
outstanding shares permissible for any corporate option that would
have a position limit of 25,000 contract. See Rule 404,
Interpretation and Policy .01. This rule applies to corporate stock
options but not ETF options, which currently have no requirement
regarding outstanding shares of the underlying ETF for the Exchange
to continue listing options on that ETF. Therefore, there may be ETF
options trading for which the 25,000 contract position limits
represents an even larger percentage of outstanding shares of the
underlying ETF than set forth above.
\27\ As these percentages are based on the minimum number of
outstanding shares an underlying security must have to qualify for
the applicable position limit, these are the highest possible
percentages that would apply to any option subject to that position
and exercise limit.
---------------------------------------------------------------------------
Further, the proposed position and exercise limits for each Bitcoin
Fund option are significantly below the limits that would otherwise
apply pursuant to current Rule 307. These position and exercise limits
are the lowest position and exercise limits available in the options
industry, are extremely conservative and more than appropriate given
the market capitalization, average daily volume, and high number of
outstanding shares of the Bitcoin Funds.
All of the above information demonstrates that the proposed
position and exercise limits for the Bitcoin Fund options are more than
reasonable and appropriate. The trading volume, ADV, and outstanding
shares of each Bitcoin Fund demonstrate that these funds are actively
traded and widely held, and proposed position and exercise limits are
well below those of other ETFs with similar market characteristics. The
proposed position and exercise limits are the lowest position and
exercise limits available for equity options in the industry, are
extremely conservative, and are more than appropriate given each
Bitcoin Fund's market capitalization, ADV, and high number of
outstanding shares.
The Exchange further notes that Exchange Rule 1502, which governs
margin requirements applicable to trading on the Exchange, including
options on ETFs, will also apply to the trading of the Bitcoin Fund
options. Notwithstanding the position limits in Exchange Rule 307(d)
and exercise limits in Exchange Rule 309, the Exchange proposes the
position and exercise limits for the options on the Bitcoin Fund to be
25,000 contracts on the same side pursuant to proposed Supplementary
Material .01 to Exchange Rule 307 and proposed Supplementary Material
.01 to Exchange Rule 309.
The Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Bitcoin Funds. Also
the Exchange represents that it has the necessary systems capacity to
support the new option series. The Exchange believes that its existing
surveillance and reporting safeguards are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading options on ETFs, including the proposed Bitcoin
Funds options.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to Bitcoin Fund options that it applies to the Exchange's
other options products.\28\ The Exchange's staff will have access to
the surveillance programs conducted by its affiliate exchanges, MIAX
Pearl and MIAX Sapphire with respect to trading in the shares of the
underlying Bitcoin Funds when conducting surveillances for market abuse
or manipulation in the options on the Bitcoin Funds. Additionally, the
Exchange is a member of the Intermarket Surveillance Group (``ISG'')
under the Intermarket Surveillance Group Agreement. ISG members work
together to coordinate surveillance and investigative information
sharing in the stock, options, and futures markets. In addition to
obtaining surveillance data from MIAX Pearl and MIAX Sapphire, the
Exchange will be able to obtain information regarding trading in the
shares of the underlying Bitcoin Funds from Cboe and other markets
through ISG. In addition, the Exchange has a Regulatory Services
Agreement with the Financial Industry Regulatory Authority (``FINRA'').
Pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate regulatory responsibilities to FINRA to conduct certain
options-related market surveillance that are common to rules of all
options exchanges.\29\
---------------------------------------------------------------------------
\28\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\29\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot bitcoin exchange-traded products
(``ETPs''), including the Bitcoin Funds, are also subject to safeguards
related to addressing market abuse and manipulation. As the Commission
stated in Bitcoin ETP Order:
Each Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that
is available to the CME through its surveillance of its markets,
including its surveillance of the CME bitcoin futures market.\30\
---------------------------------------------------------------------------
\30\ See Bitcoin ETP Order, 89 FR at 3010-11.
---------------------------------------------------------------------------
The Exchange states that, given the consistently high
correlation between the CME bitcoin futures market and the spot
bitcoin market, as confirmed by the Commission through robust
correlation analysis, the Commission was able to conclude that such
surveillance sharing agreements could reasonably be ``expected to
assist in surveilling for fraudulent and
[[Page 94833]]
manipulative acts and practices in the specific context of the
[Bitcoin ETPs].'' \31\
---------------------------------------------------------------------------
\31\ See Bitcoin ETP Order, 89 FR at 3010-11.
In light of surveillance measures related to both options and
futures as well as the underlying Bitcoin Funds,\32\ the Exchange
believes that existing surveillance procedures are designed to deter
and detect possible manipulative behavior which might potentially arise
from listing and trading the proposed options on the Bitcoin Funds.
Further, the Exchange represents that it will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on Bitcoin Funds.
---------------------------------------------------------------------------
\32\ See Securities Exchange Act Release Nos. 99290 (January 8,
2024), 89 FR 2338, 2343, 2347--2348 (January 12, 2024) (SR-CboeBZX-
2023-044) Notice of Filing of Amendment No. 3 to a Proposed Rule
Change to List and Trade Shares of the Fidelity Wise Origin Bitcoin
Fund Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares); and
99288 (January 8, 2024), 89 FR 2387, 2392, 2399--2400 (January 12,
2024) (SR-CboeBZX-2023-028) (Notice of Filing of Amendment No. 5 to
a Proposed Rule Change To List and Trade Shares of the ARK 21Shares
Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares). See also Securities Exchange Act Release No. 99306 (Jan.
10, 2024), 89 FR 3008 (Jan. 17, 2024) (order approving File Nos. SR-
NYSEARCA-2021-90; SR-NYSEARCA-2023-44; SR-NYSEARCA-2023-58; SR-
NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-
CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-
CboeBZX-2023-044; SR-CboeBZX-2023-072) (``Bitcoin ETP Order'').
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and Options Price Reporting Authority or ``OPRA''
have the necessary systems capacity to handle the additional traffic
associated with the listing of new series that may result from the
introduction of options on Bitcoin Funds up to the number of
expirations currently permissible under the Rules. Because the proposal
is limited to one class, the Exchange believes any additional traffic
that may be generated from the introduction of Bitcoin Funds options
will be manageable.
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 ETPs in the unregulated over-the-
counter (``OTC'') options market (if the Commission approves Bitcoin
ETPs for exchange-trading),\33\ 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
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 ETFs options, including ETFs that hold commodities
(i.e., precious metals) that it currently lists and trades on the
Exchange.
---------------------------------------------------------------------------
\33\ 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.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\34\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \35\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section (6)(b)(5) \36\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78f(b).
\35\ 15 U.S.C. 78f(b)(5).
\36\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the 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
the Bitcoin Funds will provide investors with a greater opportunity to
realize the benefits of utilizing options on an ETF based on a Bitcoin
Fund, including cost efficiencies and increased hedging strategies. The
Exchange believes that offering Bitcoin Funds options will benefit
investors by providing them with an additional, relatively lower-cost
risk management tool, allowing them to manage, more easily, their
positions and associated risks in their portfolios in connection with
exposure to 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 option 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,\37\
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.
---------------------------------------------------------------------------
\37\ See Exchange Rule 402(i)(4).
---------------------------------------------------------------------------
The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules, previously filed with the Commission. Options on
Bitcoin Funds must 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 including permissible
[[Page 94834]]
expirations, strike prices, minimum increments, position and exercise
limits (as proposed herein), and margin requirements, will govern the
listing and trading of options on the Bitcoin Funds.
The Exchange believes the proposed position and exercise limits are
designed to prevent fraudulent and manipulative acts and practices and
promote just and equitable principles of trade, as 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. The proposed position and exercise
limits for options on each of the Bitcoin Funds is 25,000 contracts.
These position and exercise limits are the lowest position and exercise
limits available in the options industry, are extremely conservative
and more than appropriate given each of the Bitcoin Funds market
capitalization, average daily volume, and high number of outstanding
shares for each. The information above demonstrates that the average
position and exercise limits of options on ETFs with comparable
outstanding shares and trading volume to those of the Bitcoin Funds are
significantly higher than the proposed position and exercise limits for
Bitcoin Fund options. Therefore, the proposed position and exercise
limits for the Bitcoin Fund options are conservative relative to
options on ETFs with comparable market characteristics.
Further, given that the issuer of each Bitcoin Fund may create and
redeem shares that represent an interest in Bitcoin, the Exchange
believes it is relevant to compare the size of a position limit to the
market capitalization of the Bitcoin market. As of August 27, 2024, the
global supply of Bitcoin was 19,745,940, and the price of one Bitcoin
was approximately $59,466.82,\38\ which equates to a market
capitalization of approximately $1.165 trillion. Consider the proposed
position and exercise limit of 25,000 option contracts for each Bitcoin
Fund option. A position and exercise limit of 25,000 same side
contracts effectively restricts a market participant from holding
positions that could result in the receipt of no more than 2,500,000 of
Fidelity Fund shares or ARK 21 Fund shares, as applicable (if that
market participant exercised all its options. The following table shows
the share price of each Bitcoin Fund on August 27, 2024, the value of
2,500,000 shares of the Bitcoin Fund at that price, and the approximate
percentage of that value of the size of the Bitcoin market:
---------------------------------------------------------------------------
\38\ See Blockchain.com [verbar] Charts--Total Circulating
Bitcoin.
----------------------------------------------------------------------------------------------------------------
Value of
August 27, 2,500,000 shares Percentage of
Underlying Bitcoin Fund 2024 share of bitcoin fund bitcoin market
price ($) ($) (%)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund................................................ 54.33 135,825,000 0.01
ARK 21 Fund.................................................. 62.08 155,200,000 0.01
----------------------------------------------------------------------------------------------------------------
Therefore, if a market participant with the maximum 25,000 same
side contracts in either Fidelity Fund options or ARK 21 Fund options
exercised all positions at one time, such an event would have no
practical impact on the Bitcoin market.
The Exchange also believes the proposed limits are appropriate
given position limits for Bitcoin futures. For example, the Chicago
Mercantile Exchange (``CME'') imposes a position limit of 2,000 futures
(for the initial spot month) on its Bitcoin futures contract.\39\ On
August 28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. A
position of 2,000 CME Bitcoin futures, therefore, would have a notional
value of $589,500,000. The following table shows the share price of
each Bitcoin Fund on August 28, 2024 and the approximate number of
option contracts that equates to that notional value:
---------------------------------------------------------------------------
\39\ See CME Rulebook Chapter 350 (description of CME Bitcoin
Futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME Bitcoin futures contract is valued at five Bitcoins as
defined by the CME CF Bitcoin Reference Rate (``BRR''). See CME Rule
35001.
------------------------------------------------------------------------
August 28, Number of
Underlying Bitcoin Fund 2024 share option
price ($) contracts
------------------------------------------------------------------------
Fidelity Fund........................... 51.47 114,532
ARK 21 Fund............................. 58.83 100,203
------------------------------------------------------------------------
The approximate number of option contracts for each Bitcoin Fund
that equate to the notional value of CME Bitcoin futures is
significantly higher than the proposed limit of 25,000 options contract
for each Bitcoin Fund option. The fact that many options ultimately
expire out of-the-money and thus are not exercised for shares of the
underlying, while the delta of a Bitcoin Future is 1, further
demonstrates how conservative the proposed limits of 25,000 options
contracts are for the Bitcoin Fund options.
The Exchange notes, unlike options contracts, CME position limits
are calculated on a net futures-equivalent basis by contract and
include contracts that aggregate into one or more base contracts
according to an aggregation ratio(s).\40\ Therefore, if a portfolio
includes positions in options on futures, CME would aggregate those
positions into the underlying futures contracts in accordance with a
table published by CME on a delta equivalent value for the relevant
spot month, subsequent spot month, single month and all month position
limits.\41\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position
[[Page 94835]]
shall not constitute a position limit violation. Considering CME's
position limits on futures for Bitcoin, the Exchange believes that that
the proposed same side position limits are more than appropriate for
the Bitcoin Fund options.
---------------------------------------------------------------------------
\40\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\41\ Id.
---------------------------------------------------------------------------
The Exchange believes the proposed position and exercise limits
will have no material impact to the supply of Bitcoin. For example,
consider again the proposed position limit of 25,000 option contracts
for each Bitcoin Fund option. As noted above, a position limit of
25,000 same side contracts effectively restricts a market participant
from holding positions that could result in the receipt of no more than
2,500,000 shares of the applicable Bitcoin Fund (if that market
participant exercised all its options). As of August 7, 2024, the
Bitcoin Funds had the number of shares outstanding set forth in the
table below. The table below also sets forth the approximate number of
market participants that could hold the maximum of 25,000 same side
positions in each Bitcoin Fund that would equate to the number of
shares outstanding of that Bitcoin Fund:
------------------------------------------------------------------------
Number of
market
Shares participants
Underlying Bitcoin Fund outstanding with 25,000
same side
positions
------------------------------------------------------------------------
Fidelity Fund........................ 201,100,100 80
ARK 21 Fund.......................... 45,495,000 18
------------------------------------------------------------------------
This means if 80 market participants had 25,000 same side positions
in Fidelity Fund options, each of them would have to simultaneously
exercise all of those options to create a scenario that may put the
underlying security under stress. Similarly, this means if 18 market
participants had 25,000 same side positions in ARK 21 Fund options,
each of them would have to simultaneously exercise all of those options
to create a scenario that may put the underlying security under stress.
The Exchange believes it is highly unlikely for either such event to
occur; however, even if either such event did occur, the Exchange would
not expect either Bitcoin Fund to be under stress because such an event
would merely induce the creation of more shares through the trust's
creation and redemption process.
As of August 7, 2024, the global supply of Bitcoin was
approximately 19,736,528.\42\ Based on the $47.88 price of a Fidelity
Fund share on August 7, 2024, a market participant could have redeemed
one Bitcoin for approximately 1,149 Fidelity Fund shares. Another
22,677,270,672 Fidelity Fund shares could be created before the supply
of Bitcoin was exhausted. As a result, 9,070 market participants would
have to simultaneously exercise 25,000 same side positions in Fidelity
Fund options to receive shares of the Fidelity Fund holding the entire
global supply of Bitcoin. Similarly, based on the $54.68 price of an
ARK 21 Fund share on August 7, 2024, a market participant could have
redeemed one Bitcoin for approximately 1,006 ARK 21 Fund Shares.
Another 19,855 ARK 21 Fund shares could be created before the supply of
Bitcoin were exhausted. As a result, 7,941 market participants would
have to simultaneously exercise 25,000 same side positions in ARK 21
Fund options to receive shares of the ARK 21 Fund holding the entire
global supply of Bitcoin. Unlike the Bitcoin Funds, the number of
shares that corporations may issue is limited. However, like
corporations, which authorize additional shares, repurchase shares, or
split their shares, the Bitcoin Funds may create, redeem, or split
shares in response to demand. While the supply of Bitcoin is limited to
21,000,000, it is believed that it will take more than 100 years to
fully mine the remaining Bitcoin.\43\ The supply of Bitcoin is larger
than the available supply of most securities.\44\ Given the significant
unlikelihood of any of these events ever occurring, the Exchange does
not believe options on the Bitcoin Funds should be subject to position
and exercise limits even lower than those proposed (which are already
equal to the lowest available limit for equity options in the industry)
to protect the supply of Bitcoin.\45\
---------------------------------------------------------------------------
\42\ See Blockchain.com [verbar] Charts--Total Circulating
Bitcoin (which also shows the price of one Bitcoin equal to
$55,033.47).
\43\ See Pre-Effective Amendment No. 5 to Form S-1 Registration
Statement No. 333-254652, Fidelity Fund, filed January 9, 2024, at
53-54; and Amendment No. 8 to Form S-1 Registration Statement No.
333-257474, ARK 21 Fund, filed January 9, 2024, at 15.
\44\ The market capitalization of Bitcoin would rank in the top
10 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
\45\ This would be even more unlikely with respect to the
Bitcoin Funds for which the Exchange proposes lower position limits.
---------------------------------------------------------------------------
The Exchange believes the available supply of Bitcoin is not
relevant to the determination of position and exercise limits for
options overlying the Bitcoin Funds.\46\ Position and exercise limits
are not a tool that should be used to address a potential limited
supply of the underlying of an underlying. Position and exercise limits
do not limit the total number of options that may be held, but rather
they limit the number of positions a single customer may hold or
exercise at one time.\47\ ``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.'' \48\ Position and exercise limit 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
[[Page 94836]]
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.''
\49\
---------------------------------------------------------------------------
\46\ The Exchange is unaware of any proposed rule change related
to position and exercise limits for any equity option (including
commodity ETF options) for which the Commission required
consideration of whether the available supply of an underlying
(whether it be a corporate stock or an ETF) or the contents of an
ETF (commodity or otherwise) should be considered when an exchange
proposed to establish those limits. 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''). The Exchange notes when the Commission approved this
filing, the position limits in Cboe Rule 8.30 were the same as they
are today. For reference, the current position and exercise limits
for options on SPDR Gold Shares ETF (``GLD'') and options on iShares
Silver Trust (``SLV'') are 250,000 contracts, or 10 times that
proposed position and exercise limit for the Bitcoin Fund options.
\47\ For example, suppose an option has a position limit of
25,000 option contracts and there are a total of 10 investors
trading that option. If all 10 investors max out their positions,
that would result in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide to begin trading
that option and also max out their positions. This would result in
500,000 option contracts outstanding at that time. An increase in
the number of investors could cause an increase in outstanding
options even if position limits remain unchanged.
\48\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\49\ See id.
---------------------------------------------------------------------------
The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each Bitcoin Fund, each of which
described the supply of Bitcoin as being limited to 21,000,000 (of
which approximately 90% had already been mined), and that the limit
would be reached around the year 2140.\50\ Each Registration Statement
permits an unlimited number of shares of the applicable Bitcoin ETF to
be created. Further, the Commission approved proposed rule changes that
permitted the listing and trading of shares of each Bitcoin Fund, which
approval did not comment on the sufficient supply of Bitcoin or address
whether there was a risk that permitting an unlimited number of shares
for a Bitcoin Fund would impact the supply of Bitcoin.\51\ Therefore,
the Exchange believes the Commission had ample time and opportunity to
consider whether the supply of Bitcoin was sufficient to permit the
creation of unlimited Bitcoin Fund shares, and does not believe
considering this supply with respect to the establishment of position
and exercise limits is appropriate given its lack of relevance to the
purpose of position and exercise limits. However, given the significant
size of the Bitcoin supply, the proposed positions limits are more than
sufficient to protect investors and the market.
---------------------------------------------------------------------------
\50\ See Pre-Effective Amendment No. 5 to Form S-1 Registration
Statement No. 333-254652, Fidelity Fund, filed January 9, 2024, at
53-54; and Amendment No. 8 to Form S-1 Registration Statement No.
333-257474, ARK 21 Fund, filed January 9, 2024, at 15.
\51\ See Bitcoin ETP Order.
---------------------------------------------------------------------------
Based on the above information demonstrating, among other things,
that each Bitcoin Fund is characterized by a substantial number of
outstanding shares that are actively traded and widely held, the
Exchange believes the proposed position and exercise limits are
extremely conservative compared to those of ETF options with similar
market characteristics. The proposed position and exercise limits
reasonably and appropriately balance the liquidity provisioning in the
market against the prevention of manipulation. The Exchange believes
these proposed limits are effectively designed to prevent an individual
customer or entity from establishing options positions that could be
used to manipulate the market of the underlying as well as the Bitcoin
market.\52\
---------------------------------------------------------------------------
\52\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------
The Exchange represents that it has the necessary systems capacity
to support the new Bitcoin Fund options. As discussed above, 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.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options on the Bitcoin Fund that it applies to the
Exchange's other options products.\53\ The Exchange's staff will have
access to the surveillance programs conducted by its affiliate
exchanges, MIAX Pearl and MIAX Sapphire with respect to the underlying
Bitcoin Funds when conducting surveillances for market abuse or
manipulation in the options on the Bitcoin Funds. The Exchange will
review activity in the underlying Bitcoin Fund when conducting
surveillances for market abuse or manipulation in the options on the
Bitcoin Funds. Additionally, the Exchange is a member of the ISG under
the Intermarket Surveillance Group Agreement. ISG members work together
to coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition to obtaining
surveillance data from MIAX Pearl and MIAX Sapphire, the Exchange will
be able to obtain information from Cboe and other markets through ISG.
In addition, the Exchange has a Regulatory Services Agreement with
FINRA. Pursuant to a multi-party 17d-2 joint plan, all options
exchanges allocate regulatory responsibilities to FINRA to conduct
certain options-related market surveillance that are common to rules of
all options exchanges.\54\
---------------------------------------------------------------------------
\53\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\54\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot bitcoin ETPs, including the Bitcoin
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in Bitcoin ETP Order:
Each Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that is
available to the CME through its surveillance of its markets, including
its surveillance of the CME bitcoin futures market.\55\
---------------------------------------------------------------------------
\55\ See Bitcoin ETP Order, 89 FR at 3010-11.
---------------------------------------------------------------------------
The Exchange states that, given the consistently high correlation
between the CME bitcoin futures market and the spot bitcoin market, as
confirmed by the Commission through robust correlation analysis, the
Commission was able to conclude that such surveillance sharing
agreements could reasonably be ``expected to assist in surveilling for
fraudulent and manipulative acts and practices in the specific context
of the [Bitcoin ETPs].'' \56\
---------------------------------------------------------------------------
\56\ See Bitcoin ETP Order, 89 FR at 3010-11.
---------------------------------------------------------------------------
In light of surveillance measures related to both options and
futures as well as the underlying Bitcoin Funds,\57\ the Exchange
believes that existing surveillance procedures are designed to deter
and detect possible manipulative behavior which might potentially arise
from listing and trading the proposed options on the Bitcoin Funds.
Further, the Exchange represents that it will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on the Bitcoin Funds. Finally, the Commission has
previously approved the listing and trading of options on other
commodity ETFs structured as a trust, such as SPDR[supreg] Gold
Trust,\58\ the iShares COMEX Gold
[[Page 94837]]
Trust \59\ the iShares Silver Trust,\60\ the ETFS Gold Trust,\61\ and
the ETFS Silver Trust.\62\
---------------------------------------------------------------------------
\57\ See Securities Exchange Act Release No. 99295 (January 8,
2024), 89 FR 2321, 2334-35 (January 12, 2024) (SR-NASDAQ-2023-016)
(Notice of Filing of Amendment No. 1 to a Proposed Rule Change To
List and Trade Shares of the iShares Bitcoin Trust Under Nasdaq Rule
5711(d)).
\58\ See Securities Exchange Act Release No. 57897 (May 30,
2008), 73 FR 32061 (June 5, 2008) (SR-Amex-2008-15; SR-CBOE-2005-11;
SR-ISE-2008-12; SR-NYSEArca-2008-52; and SRPhlx-2008-17) (Order
Granting Approval of a Proposed Rule Change, as Modified, and Notice
of Filing and Order Granting Accelerated Approval of Proposed Rule
Changes, as Modified, Relating to Listing and Trading Options on the
SPDR Gold Trust).
\59\ See Securities Exchange Act Release No. 59055 (December 4,
2008), 73 FR 75148 (December 10, 2008) (SR-Amex-2008-68; SR-BSE-
2008-51; SR-CBOE-2008-72; SR-ISE-2008-58; SRNYSEArca-2008-66; and
SR-Phlx-2008-58) (Notice of Filing and Order Granting Accelerated
Approval of Proposed Rule Changes Relating to the Listing and
Trading Options on Shares of the iShares COMEX Gold Trust and the
iShares Silver Trust).
\60\ Id.
\61\ See Securities Exchange Act Release No. 61483 (February 3,
2010), 75 FR 6753 (February 10, 2010) (SR-CBOE-2010-007; SR-ISE-
2009-106; SR-NYSEAmex-2009-86; and SR-NYSEArca-2009-110) (Order
Granting Approval of Proposed Rule Changes and Notice of Filing and
Order Granting Accelerated Approval of a Proposed Rule Change
Relating to Listing and Trading Options on the ETFS Gold Trust and
the ETFS Silver Trust).
\62\ Id.
---------------------------------------------------------------------------
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. In this regard and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to filings submitted by Cboe.\63\
---------------------------------------------------------------------------
\63\ See supra note 5.
---------------------------------------------------------------------------
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as options on the
Bitcoin Funds will be equally available to all market participants who
wish to trade such options and will trade generally in the same manner
as other options. Further, options on the Bitcoin Funds will be subject
to Exchange Rules that currently govern the listing and trading of
options on ETFs, including permissible expirations, strike prices,
minimum increments, position and exercise limits (including as proposed
to modify herein), and margin requirements. Also, and as stated above,
the Exchange already lists options on other commodity ETFs structured
as a trust.\64\ Further, the Bitcoin Funds would need to satisfy the
maintenance listing standards set forth in the Exchange Rules in the
same manner as any other ETF for the Exchange to continue listing
options on them.
---------------------------------------------------------------------------
\64\ See Exchange Rule 402(i)(4).
---------------------------------------------------------------------------
The Exchange does not believe that the proposal to list to list and
trade Bitcoin Funds options 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. Additionally, other options exchanges are free to amend their
listing rules, as applicable, to permit them to list and trade options
on the 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, 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \65\ and Rule 19b-4(f)(6) thereunder.\66\
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \67\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\68\
---------------------------------------------------------------------------
\65\ 15 U.S.C. 78s(b)(3)(A)(iii).
\66\ 17 CFR 240.19b-4(f)(6).
\67\ 15 U.S.C. 78s(b)(3)(A)(iii).
\68\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission waives this requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \69\ under the
Act does not normally become operative prior to 30 days after the date
of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\70\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative immediately upon filing. The
Commission previously approved the listing of options on the Fidelity
Wise Origin Bitcoin Fund the ARK 21Shares Bitcoin ETF.\71\ The Exchange
has provided information regarding the underlying Bitcoin Funds,
including, among other things, information regarding trading volume,
the number of beneficial holders, and the market capitalization of the
Bitcoin Funds. The proposal also establishes position and exercise
limits for options on the Bitcoin Funds and provides information
regarding the surveillance procedures that will apply to Bitcoin Fund
options. The Commission believes that waiver of the operative delay
could benefit investors by providing an additional venue for trading
Bitcoin Fund options. Therefore, the Commission believes that waiver of
the 30-day operative delay is consistent with the protection of
investors and the public interest. Accordingly, the Commission hereby
waives the 30-day operative delay and designates the proposed rule
change as operative upon filing.\72\
---------------------------------------------------------------------------
\69\ 17 CFR 240.19b-4(f)(6).
\70\ 17 CFR 240.19b-4(f)(6)(iii).
\71\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (SR-Cboe-2024-035) (Notice of
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2
and 3, To Permit the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds).
\72\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the
[[Page 94838]]
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or 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-MIAX-2024-43 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-MIAX-2024-43. 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-MIAX-2024-43 and should be
submitted on or before December 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\73\
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\73\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27989 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P