Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To List and Trade Option Contracts on the iShares Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the ARK21Shares Bitcoin ETF, 94794-94801 [2024-27995]

Download as PDF 94794 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices 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 rule-comments@ sec.gov. Please include file number SR– PEARL–2024–53 on the subject line. Paper Comments khammond on DSK9W7S144PROD with NOTICES • 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–PEARL–2024–53. 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–PEARL–2024–53 and should be submitted on or before December 20, 2024. VerDate Sep<11>2014 21:22 Nov 27, 2024 Jkt 265001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.87 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–27990 Filed 11–27–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101712; File No. SR– NYSEARCA–2024–100] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To List and Trade Option Contracts on the iShares Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the ARK21Shares Bitcoin ETF November 22, 2024. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on November 20, 2024, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade option contracts on the iShares Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the ARK21Shares Bitcoin ETF. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. 87 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Rule 5.3–O (Criteria for Underlying Securities), Rule 5.4–O (Withdrawal of Approval of Underlying Securities), Rule 5.32–O (Terms of FLEX Options), and Rule 6.8–O (Position Limits),) to allow the Exchange to list and trade options on the following exchangetraded products: the iShares Bitcoin Trust (‘‘iShares Bitcoin’’ or ‘‘IBIT’’), the Fidelity Wise Origin Bitcoin Fund (‘‘Fidelity Wise’’ or ‘‘FBTC’’), and the ARK21Shares Bitcoin ETF (‘‘ARK21’’ or ‘‘ARKB’’) (collectively, the ‘‘Bitcoin Funds’’ or ‘‘Funds’’). The Exchange notes that this is a competitive filing as the Commission recently approved rule proposals by Nasdaq ISE, LLC (‘‘ISE’’) and Cboe Exchange, Inc. (‘‘Cboe’’) to allow the listing and trading of options on IBIT 4 and on FBTC and ARKB, respectively.5 The Exchange notes that bitcoin-backed ETPs are already approved for options trading on its affiliated exchange, NYSE American LLC.6 As discussed below, the Exchange believes options on the Bitcoin Funds would permit hedging, and allow for more liquidity, better price efficiency, and less volatility with respect to the underlying Funds. Further, permitting the listing of such 4 See Securities Exchange Act Release No. 101128 (September 20, 2024), 89 FR 78942 (September 26, 2024) (SR–ISE–2024–03) (Notice of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 4, and 5, to Permit the Listing and Trading of Options on the iShares Bitcoin Trust) (‘‘IBIT Approval Order’’). 5 See Securities Exchange Act Release No. 101387 (October 18, 2024), 89 FR 84948 (October 24, 2024) (SE–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) (‘‘FBTC and ARKB Approval Order’’). 6 See Securities Exchange Act Release No. 101386 (October 18, 2024), 89 FR 84960 (October 24, 2024) (SR–NYSEAMER–2024–49) (Order approving the listing and trading of options on shares of the Grayscale Bitcoin Trust (BTC) (symbol: GBTC), the Grayscale Bitcoin Mini Trust (BTC) (symbol: BTC), and the Bitwise Bitcoin ETF (symbol: BITB)) (the ‘‘American Bitcoin Options Approval Order’’). See also NYSE American Rule 915, Commentary .10(a). Taken together with the IBIT Approval Order and the FBTC and ARKB Approval Order, the Bitcoin Approval Order, further illustrates that this proposal does not raise any new or novel issues not previously considered by the Commission. E:\FR\FM\29NON1.SGM 29NON1 94795 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices options would enhance the transparency and efficiency of markets in these and correlated products. Rule 5.3–O provides that, subject to certain other criteria set forth in the Rule,7 securities deemed appropriate for options trading include ExchangeTraded Fund Shares (or ETFs) that represent certain types of interests 8 and exchange-traded products (‘‘ETPs’’) structured as trusts that hold precious metals (which are deemed commodities).9 Like ETPs backed by khammond on DSK9W7S144PROD with NOTICES 7 To be eligible for options trading, ETFs and ETPs must satisfy the initial listing criteria set forth in Rule 5.3–O(g)(1) through (2). 8 Rule 5.3–O(g) permits options trading on ETFs that are traded on a national securities exchange and are defined as an ‘‘NMS stock’’ in Rule 600(b)(55) of Regulation NMS, that represent interests in registered investment companies (or series thereof) organized as open-end management investment companies, unit investment trusts or similar entities that hold portfolios of securities and/or financial instruments including, but not limited to, stock index futures contracts, options on futures, options on securities and indexes, equity caps, collars and floors, swap agreements, forward contracts, repurchase agreements and reverse purchase agreements (the ‘‘Financial Instruments’’), and money market instruments, including, but not limited to, U.S. government securities and repurchase agreements (the ‘‘Money Market Instruments’’) comprising or otherwise based on or representing investments in indexes or portfolios of securities and/or Financial Instruments and Money Market Instruments (or that hold securities in one or more other registered investment companies that themselves hold such portfolios of securities and/ or Financial Instruments and Money Market Instruments); interests in a trust or similar entity that holds a specified non-U.S. currency deposited with the trust or similar entity when aggregated in some specified minimum number may be surrendered to the trust by the beneficial owner to receive the specified non-U.S. currency and pays the beneficial owner interest and other distributions on deposited non-U.S. currency, if any, declared and paid by the trust (‘‘Currency Trust Shares’’); commodity pool interests principally engaged, directly or indirectly, in holding and/or managing portfolios or baskets of securities, commodity futures contracts, options on commodity futures contracts, swaps, forward contracts and/or options on physical commodities and/or non-U.S. currency (‘‘Commodity Pool Units’’); or represents an interest in a registered investment company (‘‘Investment Company’’) organized as an open-end management investment company or similar entity, that invests in a portfolio of securities selected by the Investment Company’s investment adviser consistent with the Investment Company’s investment objectives and policies, which is issued in a specified aggregate minimum number in return for a deposit of a specified portfolio of securities and/or a cash amount with a value equal to the next determined net asset value (‘‘NAV’’), and when aggregated in the same specified minimum number, may be redeemed at a holder’s request, which holder will be paid a specified portfolio of securities and/or cash with a value equal to the next determined NAV (‘‘Managed Fund Share’’); provided that all of the conditions listed in Rules 5.3–O and 5.4–O are met. See Rule 5.3–O(g)(i)–(iii) and (vii). 9 Rule 5.3–O(g) permits the listing and trading of options on shares of the following trusts: SPDR Gold Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS Silver Trust, the ETFS Gold Trust, ETFS Palladium Trust, or ETFS Platinum Trust. See Rule 5.3–O(g)(iv)–(vi) and (viii)–(ix). VerDate Sep<11>2014 21:22 Nov 27, 2024 Jkt 265001 precious metals (i.e., commodities), the Exchange proposes to allow options trading on the Bitcoin Funds that hold Bitcoin—which is also deemed a commodity.10 The Bitcoin Funds are structured as trusts that hold bitcoin. Like ETFs and ETPs currently deemed appropriate for options trading, the investment objective of each Bitcoin Fund trust is for its shares to reflect the performance of Bitcoin (less the expenses of the trust’s operations), offering investors an opportunity to gain exposure to Bitcoin without the complexities of Bitcoin delivery. Each 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.11 The Bitcoin Funds provide investors with cost-efficient alternatives that allow a level of participation in the Bitcoin market through the securities market. The Exchange believes each Bitcoin Fund satisfies the Exchange’s initial listing standards set forth in Rule 5.3– O(a).12 The Exchange notes that the Bitcoin Funds also satisfy the listing standard applied to ETFs traded on the Exchange that they be available for creation and redemption each business day as set forth in Rule 5.3–O(g)(1)(B).13 First, each of the Bitcoin Funds satisfy the criteria and guidelines set forth in Rule 5.3–O. Pursuant to Rule 5.3–O(b), a security 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 10 See proposed Rule 5.3–O, Commentary .01 (The Exchange may list and trade options on shares of IBIT, FBTC, and ARKB, pursuant to Rules 5.3– O and 5.4–O). 11 Each trust may include minimal cash. 12 Rule 5.3–O(a) provides for guidelines to be used by the Exchange when evaluating potential underlying securities for Exchange option transactions. 13 Rule 5.3–O(g)(1)(B) requires that ETFs must be available for creation or redemption each business day from or through the issuer in cash or in kind at a price related to net asset value, and the issuer must be obligated to issue ETFs in a specified aggregate number even if some or all of the investment assets required to be deposited have not been received by the issuer, subject to the condition that the person obligated to deposit the investments has undertaken to deliver the investment assets as soon as possible and such undertaking is secured by the delivery and maintenance of collateral consisting of cash or cash equivalents satisfactory to the issuer, as provided in the respective prospectus. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 traded.14 Each of the Bitcoin Funds is an NMS Stock as defined in Rule 600 of Regulation NMS under the Act.15 The Exchange believes each Bitcoin Fund is characterized by a substantial number of outstanding shares that are widely held and actively traded. The Bitcoin Funds had the following number of shares outstanding: Bitcoin Fund IBIT (as of 8/12/24) .............. FBTC (as of 8/7/24) .............. ARKB (as of 8/7/24) ............. Shares outstanding 611,040,000 201,100,100 45,495,000 As shown above, each of the Bitcoin Funds 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 the Exchange’s rules. 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. Bitcoin Fund IBIT .......... FBTC ....... ARKB ....... Number of beneficial holders 193,956 (as of 5/22/23). 279,656 (as of 6/27/24). 69,425 (as of 6/26/24). Each Bitcoin Fund has 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 pursuant to the Exchange’s rules. Therefore, the Exchange believes the shares of each Bitcoin Fund are widely held. In addition, the Exchange believes the shares of each Bitcoin Fund are actively traded. The total trading volume (by shares and notional) for these funds since they began trading and the average daily volume (‘‘ADV’’) over the 30-day 14 The criteria and guidelines for a security to be considered widely held and actively traded are set forth in Rule 5.3–O(a), subject to exceptions. 15 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’’). E:\FR\FM\29NON1.SGM 29NON1 94796 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices period of July 9 through August 7, 2024, was as follows: Bitcoin Fund Trading volume (shares) Trading volume (notional $) IBIT (as of 5/13/24) ...................................................................................................................... FBTC (as of 8/7/24) ..................................................................................................................... ARKB (as of 8/7/24) .................................................................................................................... 34,825,921 1,112,861,581 279,360,739 1,246,060,738 250,354,755 90,484,307 khammond on DSK9W7S144PROD with NOTICES As demonstrated above, even though these Bitcoin Funds have been trading for less than one year, the trading volume for each is 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. The Exchange believes this data demonstrates each Bitcoin Fund is characterized by a substantial number of outstanding shares that are actively traded. In addition to satisfying the Exchange’s initial listing standards, options on Bitcoin Funds will be subject to the Exchange’s continued listing standards as set forth in Rule 5.4–O.16 Pursuant to Rule 5.4–O(b)(5), the Exchange will not open for trading any additional series of option contracts covering a fund traded on the Exchange if such fund ceases to be an ‘‘NMS stock’’ or the fund is halted from trading on its primary market.17 Additionally, options on funds traded on the Exchange may be subject to the suspension of opening transactions as follows: (1) the fund no longer meets the terms of Rule 5.4–O(b)(1)–(4); (2) following the initial twelve-month period beginning upon the commencement of trading of the fund, there are fewer than 50 record and/or beneficial holders of the fund for 30 or more consecutive trading days; (3) the value of the underlying commodity is no longer calculated or available; or (4) such other event occurs or condition exists that in the opinion of the Exchange makes further dealing on the Exchange inadvisable. Options on each Bitcoin Fund will be physically settled contracts with American-style exercise.18 Consistent 16 The Exchange proposes to adopt Commentary .02 to Rule 5.4–O to specify that for purposes of the continued listing standards set forth in Rule 5.3– O(k), the Bitcoin Funds will be deemed ‘‘ExchangeTraded Fund Shares.’’ See proposed Commentary .02 to Rule 5.4–O. 17 See Rule 5.4–O(k). 18 See Rule 6.5–O (Rights and Obligations of Holders and Writers), which provides that the rights and obligations of holders and writers of option contracts of any class of options dealt in on the Exchange shall be as set forth in the Rules of the Clearing Corporation. See also OCC Rules, Chapter VIII, which governs exercise and assignment, and VerDate Sep<11>2014 21:22 Nov 27, 2024 Jkt 265001 with Rule 6.4–O, which governs the opening of options series on a specific underlying security (including ETFs and ETPs), the Exchange will open at least one expiration month for options on each Bitcoin Fund 19 at the commencement of trading on the Exchange and may also list series of options on Bitcoin Funds for trading on a weekly,20 monthly,21 or quarterly 22 basis. The Exchange may also list longterm equity option series (‘‘LEAPS’’) that expire from twelve to thirty-nine months from the time they are listed.23 Pursuant to Rule 6.4–O, Commentary .05(a), which governs strike prices of series of options on ETFs, the interval between strike prices of series of options on Bitcoin Funds will be $1 or greater when the strike price is $200 or less and $5 or greater where the strike price is over $200.24 Additionally, the Exchange Chapter IX, which governs the discharge of delivery and payment obligations arising out of the exercise of physically settled stock option contracts. OCC Rules can be located at: https://www.theocc.com/ getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/ occrules.pdf. 19 See Rule 6.4–O(d). The monthly expirations are subject to certain listing criteria for underlying securities described within Rule 5.3–O. Monthly listings expire the third Friday of the month. The term ‘‘expiration date’’ (unless separately defined elsewhere in the OCC By-Laws), when used in respect of an option contract (subject to certain exceptions), means the third Friday of the expiration month of such option contract, or if such Friday is a day on which the exchange on which such option is listed is not open for business, the preceding day on which such exchange is open for business. See OCC By-Laws Article I, Section 1. Pursuant to Rule 903(d), additional series of options of the same class may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market, to meet customer demand or when the market price of the underlying stock moves more than five strike prices from the initial exercise price or prices. New series of options on an individual stock may be added until the beginning of the month in which the options contract will expire. Due to unusual market conditions, the Exchange, in its discretion, may add a new series of options on an individual stock until the close of trading on the business day prior to expiration. 20 See Rule 6.4–O, Commentary .07. 21 See Rule 6.4–O, Commentary .09. 22 See Rule 6.4–O, Commentary .08. 23 See Rule 6.4–O(d). 24 The Exchange notes that for options listed pursuant to the Short Term Option Series Program, the Monthly Options Series Program, and the Quarterly Options Series Program, Rule 6.4–O, Commentary .07 through .09, specifically set forth PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 ADV (shares) 26,000,000 6,014,335 1,893,335 may list series of options pursuant to the $1 Strike Price Interval Program,25 the $0.50 Strike Program,26 the $2.50 Strike Price Program,27 and the $5 Strike Program.28 Pursuant to Rule 6.72–O, where the price of a series of a Bitcoin Fund option is less than $3.00, the minimum increment will be $0.05, and where the price is $3.00 or higher, the minimum increment will be $0.10.29 Any and all new series of Bitcoin Fund options that the Exchange lists will be consistent and comply with the expirations, strike prices, and minimum increments set forth in Rules 6.4–O and 6.72–O, as applicable. Further, the Exchange notes that Rule 4.16–O, which governs margin requirements applicable to the trading of all options on the Exchange, including options on ETFs and ETPs, will also apply to the trading of Bitcoin Fund options. Rule 5.32(f)(1) permits the Exchange to authorize for trading a FLEX option class on any equity security if it may authorize for trading a non-FLEX option class on that equity security pursuant to Rule 5.3–O.30 At this time, the Exchange is not proposing to permit Bitcoin Fund options to trade as FLEX options.31 The Exchange therefore proposes to modify Rule 5.32(f)(1) to specify this exception, which will add clarity and transparency to Exchange Rules.32 intervals between strike prices on Quarterly Options Series, Short Term Option Series, and Monthly Options Series, respectively. 25 See Rule 6.4–O, Commentary .04. 26 See Rule 6.4–O, Commentary .13. 27 See Rule 6.4–O, Commentary .03. 28 See Rule 6.4–O, Commentary .10. 29 If options on a Bitcoin Fund are eligible to participate in the Penny Interval Program, the minimum increment of $0.01 below $3.00 and $0.50 above $3.00 would apply. See Rule 6.4– O(a)(3). See also Rule 6.72A–O (which describes the requirements for the Penny Interval Program). 30 See Rule 5.32–O(f)(1). See generally Section 4 (Flexible Exchange (‘‘FLEX’’) Options). 31 The Exchange will continue ongoing discussions with the Commission regarding appropriate position limits for the Bitcoin Funds and plans to submit a separate rule filing that would permit the Exchange to authorize for trading FLEX options on the Funds (which filing may propose changes to existing FLEX option position limits for such options if appropriate). 32 See proposed Rule 5.32(f)(1) (providing, in relevant part, that the Exchange may approve and open for trading any FLEX Equity Options series on any equity security that is eligible for Non-FLEX E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices khammond on DSK9W7S144PROD with NOTICES Position and Exercise Limits Position and exercise limits for options, including options on Bitcoin Funds, are determined pursuant to Rules 6.8–O and 6.9–O, respectively. Position and exercise limits for options vary according to the number of outstanding shares and the trading volumes of the underlying security over the past six months, where the largest in capitalization and the most frequently traded funds have an option position and exercise limit of 250,000 contracts (with adjustments for splits, recapitalizations, etc.) on the same side of the market; and smaller capitalization funds have position and exercise limits of 200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for splits, re-capitalizations, etc.) on the same side of the market.33 Position limits are designed to limit the number of options contracts traded on the Exchange in an underlying security that an investor, acting alone or in concert with others directly or indirectly, may control. The purpose of position limits is 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. Accordingly, position limits must balance concerns regarding mitigating potential manipulation and the cost of inhibiting potential hedging activity that investors may use for legitimate economic purposes. To achieve this balance, the Exchange proposes to set the position and exercise limits for the options on the Bitcoin Funds at 25,000 Options trading under Rule 5.3–O ‘‘except those set forth in Commentary .01 to Rule 5.3–O,’’ i.e., the Bitcoin Funds). 33 See Commentary .06(a)–(e) to Rule 6.8–O. For an option to be eligible for the 50,000-contract limit, the security underlying the option must have most recent six-month trading volume of at least 20,000,000 shares, or most recent six-month trading volume of at least 15,000,000 shares and at least 40,000,000 shares currently outstanding. For an option to be eligible for the 75,000-contract limit, the underlying security must have most recent sixmonth trading volume of at least 40,000,000 shares, or most recent six-month trading volume of at least 30,000,000 shares and at least 120,000,000 shares currently outstanding. For an option to be eligible for the 200,000-contract limit, the underlying security must have most recent six-month trading volume of at least 80,000,000 shares, or most recent six-month trading volume of at least 60,000,000 shares and at least 240,000,000 shares currently outstanding. For an option to be eligible for the 250,000-contract limit, the security underlying the option must have most recent six-month trading volume of at least 100,000,000 shares, or most recent six-month trading volume of at least 75,000,000 shares and at least 300,000,000 shares currently outstanding. The 25,000-contract limit applies to options on underlying securities that do not qualify for a higher contract limit. See Commentary .07(c) to Rule 6.8–O. In addition, Commentary .07(f) to Rule 6.8–O establishes higher position limits for options on certain ETFs. VerDate Sep<11>2014 21:22 Nov 27, 2024 Jkt 265001 contracts, which limits are already in place for the Bitcoin Funds as traded on other options exchanges and the bitcoinbacked ETPs available for options trading on NYSE American LLC.34 Capping the position limit at 25,000 contracts, the lowest limit available in options, would address concerns related to manipulation and protection of investors as this number is conservative for the Bitcoin Funds and therefore appropriate given their liquidity. The Exchange believes that the proposed 25,000-contract position limit is conservative for options on the Bitcoin Funds.35 Based on the foregoing, the Exchange believes the proposal to list options on the Bitcoin Funds with positions and exercise limits of 25,000 on the same side, the lowest position limit available in the options industry, is conservative and appropriate given the market capitalization, average daily volume, and high number of outstanding shares for each of the Bitcoin Funds. 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 Bitcoin Funds as well as the Bitcoin market.36 As described herein, options on the Bitcoin Funds will trade in the same manner as any other ETF or ETP options on the Exchange, except that the Bitcoin Funds will not be eligible for FLEX options trading. The Exchange Rules that currently apply to the listing and trading of options on the Exchange, including, for example, Rules that govern listing criteria, expiration and exercise prices, minimum increments, margin requirements, customer accounts and trading halt procedures will apply to the listing and trading of Bitcoin 34 See proposed 6.8–O, Commentary .07(f) See supra notes 4 and 5 (regarding the IBIT Approval Order and the FBTC and ARKB Approval Order). See also NYSE American Rule 904, Commentary .07(f) (setting 25,000 position limits for the Grayscale Bitcoin Trust (BTC) (symbol: GBTC), the Grayscale Bitcoin Mini Trust (BTC) (symbol: BTC), and the Bitwise Bitcoin ETF (symbol: BITB)). 35 The Exchange may file a subsequent rule change to amend the position and exercise limit for options on any or all the Bitcoin Funds based on additional data regarding trading activity, to continue to balance any concerns regarding manipulation. A higher position limit would allow institutional investors to utilize options on the Bitcoin Funds for prudent risk management purposes. 36 See Securities Exchange Act Release No. 39489 (December 24, 1997), 63 FR 276 (January 5, 1998) (SR–CBOE–1997–11). PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 94797 Funds on the Exchange in the same manner as they apply to all other ETFs and ETPs that are listed and traded on the Exchange, including the precious metal-backed commodity ETPs already deemed appropriate for options trading on the Exchange. Further, as described above, Exchange Rules regarding position and exercise limits will likewise apply to options on the Bitcoin Funds except that, as proposed, the position and exercise limits will be set at 25,000 on the same side. * * * * * The Exchange notes that options on Bitcoin Funds would not be available for trading until The Options Clearing Corporation (‘‘OCC’’) represents to the Exchange that it is fully able to clear and settle such options. The Exchange has also analyzed its capacity and represents that it and The Options Price Reporting Authority (‘‘OPRA’’) have the necessary systems capacity to handle the additional traffic associated with the listing of options on Bitcoin Funds. The Exchange believes any additional traffic that would be generated from the trading of options on Bitcoin Funds would be manageable. The Exchange represents that Exchange members will not have a capacity issue as a result of this proposed rule change. The Exchange represents that the same surveillance procedures applicable to all other options currently listed and traded on the Exchange will apply to options on Bitcoin Funds, and that it has the necessary systems capacity to support the new option series. The Exchange’s existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might arise from listing and trading options on ETFs and ETPs, such as (existing) precious metal-backed ETP options, as well as the proposed options on Bitcoin Funds. The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of options on Bitcoin Funds in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange’s market surveillance staff also conducts surveillances with respect to the Bitcoin Funds and, as appropriate, would review activity in the underlying Funds when conducting surveillances for market abuse or manipulation in the options on each Trust. Additionally, the Exchange is a member of the Intermarket Surveillance Group (‘‘ISG’’) under the ISG Agreement. ISG members work together to coordinate surveillance and investigative information sharing in the stock, options, and futures markets. The Exchange will be able to obtain E:\FR\FM\29NON1.SGM 29NON1 94798 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices khammond on DSK9W7S144PROD with NOTICES information regarding trading in the shares of the underlying Trusts from Nasdaq, LLC, Cboe Exchange, Inc., and other markets on which the Trusts trade through the ISG. In addition, the Exchange has a Regulatory Services Agreement (‘‘RSA’’) 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 surveillances.37 Further, the Exchange will implement any new surveillance procedures it deems necessary to effectively monitor the trading of options on the Bitcoin Funds. 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 its order approving proposals of several exchanges to list and trade shares of spot bitcoin-based exchangetraded products (‘‘Bitcoin ETP Order’’ 38): 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.39 Given the consistently high correlation between the CME bitcoin futures market and the spot bitcoin market, as confirmed by the 37 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. 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. 38 See Securities Exchange Act Release No. 99306 (January 10, 2024), 89 FR 3008 (January 17, 2024) (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; SRCboeBZX– 2023–044; and SR–CboeBZX–2023–072) (Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, to List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units) (‘‘Bitcoin ETP Order’’). 39 See Bitcoin ETP Order, 89 FR at 3009. VerDate Sep<11>2014 21:22 Nov 27, 2024 Jkt 265001 Commission through robust correlation analysis, and given that the ‘‘CME’s surveillance can assist in detecting [the impact of fraud or manipulation] on CME bitcoin future prices,’’ 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].’’ 40 In light of surveillance measures related to both options and futures as well as the underlying Bitcoin Funds,41 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. Finally, quotation and last sale information for ETFs is available via the Consolidated Tape Association (‘‘CTA’’) high speed line. Quotation and last sale information for such securities is also available from the exchange on which such securities are listed. Quotation and last sale information for options on Bitcoin Funds will be available via OPRA and major market data vendors. The Exchange believes that offering options on the Bitcoin Funds will benefit investors by providing them with an additional, relatively lower cost investing tool to gain exposure to the price of Bitcoin and hedging vehicle to meet their investment needs in connection with Bitcoin-related products and positions. The Exchange expects investors will transact in options on Bitcoin Funds in the unregulated over-the-counter (‘‘OTC’’) options market,42 but may prefer to trade such options in a listed environment to receive the benefits of trading listed options, including (1) 40 See Bitcoin ETP Order, 89 FR at 3010–11. Amendment No. 1 to Proposed Rule Change to List and Trade Shares of the iShares Bitcoin Trust under Nasdaq Rule 5711(d), Commodity-Based Trust Shares (SR–NASDAQ– 2023–016), filed Jan. 5, 2024, available at https:// www.sec.gov/comments/sr-nasdaq-2023-016/ srnasdaq2023016-357659-883042.pdf; Amendment No. 5 to 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 (SR–CboeBZX–2023–028), filed Jan. 5, 2024, available at https://www.sec.gov/comments/srcboebzx-2023-028/srcboebzx2023028-358679884202.pdf; and Amendment No. 3 to 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 (SR– CboeBZX–2023–044), filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023044/srcboebzx2023044-358759-884163.pdf. 42 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. 41 See PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 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 options on the Bitcoin Funds 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 Exchange notes that the ETPs that hold 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 options on any ETFs or ETPs that hold commodities (i.e., precious metals) that it currently lists and trades on the Exchange. 2. Statutory Basis The Exchange believes that its proposed rule change is consistent with Section 6(b) of the Act 43 in general and furthers the objectives of Section 6(b)(5) of the Act 44 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanisms of a free and open market and a national market system, and, in general, to protect investors and the public interest. 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 an opportunity to realize the benefits of utilizing options on a Bitcoin Fund, including cost efficiencies and increased hedging strategies. The Exchange believes that offering Bitcoin Fund options will benefit investors by providing them with a relatively lower-cost risk management tool, which will allow them to manage their positions and associated risk in their portfolios more easily in connection with exposure to the price of Bitcoin and with Bitcoin-related products and positions. Additionally, the Exchange’s offering of Bitcoin Fund 43 15 44 15 E:\FR\FM\29NON1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 29NON1 khammond on DSK9W7S144PROD with NOTICES Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices options will provide investors with the ability to transact in such options in a listed market environment as opposed to in the unregulated OTC 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 ETPs,45 which, as described above, are trusts structured in substantially the same manner as the 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 ETP 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 the Bitcoin Funds satisfy the initial listing standards and continued listing standards currently in the Exchange Rules applicable to options on all ETFs and ETPs, including ETPs 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 or ETP options—the same Exchange Rules that currently govern the listing and trading of options, including permissible expirations, strike prices, minimum increments, and margin requirements, will govern the listing and trading of options on the Bitcoin Funds in the same manner. The Exchange believes the proposed rule change to exclude the Bitcoin Funds from being eligible for trading as FLEX options is consistent with the Act, because it will permit the Exchange to continue to participate in ongoing discussions with the Commission regarding appropriate position limits for options on the Bitcoin Funds.46 The proposed position and exercise limit for options on the Bitcoin Funds is 25,000 contracts. These position and 45 See Rule 5.3–O(g). Exchange will submit a separate rule filing that would permit the Exchange to authorize for trading FLEX options on the Bitcoin Funds (which filing may propose changes to existing FLEX option position limits for such options if appropriate). 46 The VerDate Sep<11>2014 21:22 Nov 27, 2024 Jkt 265001 exercise limits are the lowest position and exercise limits available in the options industry, are extremely conservative and more than appropriate given the Bitcoin Funds’ market capitalization, average daily volume, number of beneficial holders, and high number of outstanding shares. The proposed position and exercise limits are consistent with the Act as they addresses concerns related to manipulation and protection of investors because the position and exercise limits are extremely conservative and more than appropriate given the Bitcoin Funds are actively traded. The Exchange also believes the proposed rule change to Rule 5.32–O, to make clear that options on the Bitcoin Funds are not eligible for FLEX trading, will remove impediments to and perfect the mechanism of a free and open market and a national market system because it adds clarity and transparency to Exchange Rules making them easier to navigate and understand to the benefit of investors and the public interest. The Exchange represents that it has the necessary systems capacity to support the new Bitcoin Fund options. The Exchange believes that its existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might arise from listing and trading options, including Bitcoin Fund options. The Exchange’s existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might arise from listing and trading options on ETFs and ETPs, such as (existing) precious metalcommodity backed ETP options as well as the proposed options on Bitcoin Funds. The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of options on Bitcoin Funds in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange’s market surveillance staff also conducts surveillances with respect to the Bitcoin Funds and, as appropriate, would review activity in the underlying Funds when conducting surveillances for market abuse or manipulation in the options on each Trust. Additionally, the Exchange is a member of the Intermarket Surveillance Group (‘‘ISG’’) under the ISG Agreement. ISG members work together to coordinate surveillance and investigative information sharing in the stock, options, and futures markets. The Exchange will be able to obtain information regarding trading in the shares of the underlying Trusts from PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 94799 Nasdaq, LLC, Cboe Exchange, Inc., and other markets on which the Trusts trade through the ISG. In addition, the Exchange is a party to an RSA with FINRA and pursuant to a multi-party 17d–2 joint plan, all options exchanges allocate regulatory responsibilities to FINRA to conduct certain optionsrelated market surveillances. Further, the Exchange will implement any new surveillance procedures it deems necessary to effectively monitor the trading of options on the Bitcoin Funds. 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 its order approving proposals of several exchanges to list and trade shares of spot bitcoin-based ETPs, ‘‘[e]ach 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.’’ 47 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, and given that the ‘‘CME’s surveillance can assist in detecting [the impact of fraud or manipulation] on CME bitcoin future prices,’’ 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].’’ 48 In light of surveillance measures related to both options and futures as well as the underlying Bitcoin Funds,49 the Exchange believes that existing surveillance procedures are designed to deter and detect possible 47 See Bitcoin ETP Order, 89 FR at 3009. Bitcoin ETP Order, 89 FR at 3010–11. 49 See Amendment No. 1 to Proposed Rule Change to List and Trade Shares of the iShares Bitcoin Trust under Nasdaq Rule 5711(d), Commodity-Based Trust Shares (SR–NASDAQ– 2023–016), filed Jan. 5, 2024, available at https:// www.sec.gov/comments/sr-nasdaq-2023-016/ srnasdaq2023016-357659-883042.pdf; Amendment No. 5 to 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 (SR–CboeBZX–2023–028), filed Jan. 5, 2024, available at https://www.sec.gov/comments/srcboebzx-2023-028/srcboebzx2023028-358679884202.pdf; and Amendment No. 3 to 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 (SR– CboeBZX–2023–044), filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023044/srcboebzx2023044-358759-884163.pdf. 48 See E:\FR\FM\29NON1.SGM 29NON1 94800 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices manipulative behavior which might potentially arise from listing and trading the proposed options on the Bitcoin Funds. Further, the Exchange will implement any new surveillance procedures it deems necessary to effectively monitor the trading of options on Bitcoin ETPs. khammond on DSK9W7S144PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Intramarket Competition: The Exchange does not believe that the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act as options on the Bitcoin Funds would need to satisfy the initial listing standards set forth in the Exchange Rules in the same manner as any other option on an ETF before the Exchange could list these options. Additionally, Bitcoin Fund options will be equally available to all market participants who wish to trade such options. The Exchange Rules currently applicable to the listing and trading of options on ETFs on the Exchange will apply in the same manner to the listing and trading of all options on the Bitcoin Funds. Also, and as stated above, the Exchange already lists options on other commodity-based ETPs.50 Intermarket Competition: The Exchange does not believe that the proposal to list and trade options on Bitcoin Funds will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. To the extent that the advent of Bitcoin Fund options trading on the Exchange may make the Exchange a more attractive marketplace to market participants at other exchanges, such market participants are free to elect to become market participants on the Exchange. As noted herein, this is a competitive filing as the Commission recently approved the listing and trading of options on the Bitcoin Funds on other options exchanges.51 Additionally, other options exchanges are free to amend their listing rules, as 50 Rule 5.3–O(g) permits the listing and trading of options on shares of the following trusts: SPDR Gold Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS Silver Trust, the ETFS Gold Trust, ETFS Palladium Trust, or ETFS Platinum Trust. See Rule 5.3–O(g)(iv)–(vi) and (viii)–(ix). 51 See also supra notes 4 and 5 (regarding the IBIT Approval Order and the FBTC and ARKB Approval Order). VerDate Sep<11>2014 21:22 Nov 27, 2024 Jkt 265001 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 No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 52 and Rule 19b–4(f)(6) thereunder.53 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 54 and subparagraph (f)(6) of Rule 19b–4 thereunder.55 52 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 54 15 U.S.C. 78s(b)(3)(A)(iii). 55 17 CFR 240.19b–4(f)(6). In addition, Rule 19b4(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 53 17 PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 A proposed rule change filed under Rule 19b–4(f)(6) 56 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),57 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 iShares Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the ARK21Shares Bitcoin ETF.58 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.59 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 of the proposed rule change, or such shorter time as designated by the Commission. The Commission waives this requirement. 56 17 CFR 240.19b–4(f)(6). 57 17 CFR 240.19b–4(f)(6)(iii). 58 See Securities Exchange Act Release No. 101128 (September 20, 2024), 89 FR 78942 (September 26, 2024) (SR–ISE–2024–03) (SelfRegulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 4, and 5, to Permit the Listing and Trading of Options on the iShares Bitcoin Trust). See also 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). 59 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). E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices action is necessary or appropriate in the 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: khammond on DSK9W7S144PROD with NOTICES 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– NYSEARCA–2024–100 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–NYSEARCA–2024–100. 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 VerDate Sep<11>2014 21:22 Nov 27, 2024 Jkt 265001 submissions should refer to file number SR–NYSEARCA–2024–100 and should be submitted on or before December 20, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.60 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–27995 Filed 11–27–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101729] Notice Pursuant to Rule 15c3–3a, Note H(b)(3) Regarding Application of the Customer Protection Rule Reserve Computations With Respect to U.S. Treasury Securities Securities and Exchange Commission. ACTION: Notice. AGENCY: The Securities and Exchange Commission (‘‘Commission’’) is publishing notice that broker-dealers may include a debit in the customer protection rule reserve computations when depositing cash, U.S. Treasury securities, and/or qualified customer securities to meet a margin requirement of the Fixed Income Clearing Corporation (‘‘FICC’’) resulting from positions in U.S. Treasury securities of the customers of the broker-dealer. FOR FURTHER INFORMATION CONTACT: Randall W. Roy, Deputy Associate Director; Raymond Lombardo, Assistant Director; or Sheila Dombal Swartz, Senior Special Counsel, at (202) 551– 5500, Office of Broker-Dealer Finances, Division of Trading and Markets; Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–7010. SUPPLEMENTARY INFORMATION: SUMMARY: I. Background On December 13, 2023, the Commission adopted rules under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) to amend the standards applicable to covered clearing agencies for U.S. Treasury securities (‘‘U.S. Treasury securities CCAs’’) to enhance risk management practices for central counterparties in the U.S. Treasury market and facilitate additional clearing of U.S. Treasury securities transactions.1 The 60 17 CFR 200.30–3(a)(12). Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule With 1 See PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 94801 Commission also amended the formula for computing reserve account requirements under the broker-dealer customer protection rule.2 The amendments to the formula—which are set forth in Rule 15c3–3a—permit margin required and on deposit with a U.S. Treasury securities CCA to be included as a debit when computing reserve requirements with respect to customers and proprietary accounts of broker-dealers (‘‘PAB’’), subject to certain conditions.3 In particular, the amendments added Item 15 to the customer and PAB reserve computations on which to record the value of the debit and prescribed conditions—set forth in Note H to Item 15—for including the debit in the formulas.4 Each of the conditions in Note H needs to be met for a broker-dealer to include a debit equal to the amount of customer or PAB account holder margin required and on deposit at the U.S. Treasury securities CCA.5 Certain of the conditions in Note H require the broker-dealer to take a number of steps with respect to the customer and PAB account holder margin in its custody.6 Other conditions provide that the U.S. Treasury securities CCA that will receive the customer or PAB account holder margin from the broker-dealer must have adopted rules— approved by the Commission—that require it to take certain steps with respect to calculating margin requirements and handling customer and PAB account holder margin received from the broker-dealer.7 The requirements of Note H are designed to permit the inclusion of the debit in the customer and PAB reserve computations Respect to U.S. Treasury Securities, Exchange Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024) (‘‘Treasury Clearing Release’’). 2 See Treasury Clearing Release, 89 FR at 2760– 68. See also 17 CFR 240.15c3–3a (the formula for computing reserve requirements under the customer protection rule) (‘‘Rule 15c3–3a’’); 17 CFR 240.15c3–3 (the customer protection rule) (‘‘Rule 15c3–3’’). Rule 15c3–3 requires a broker-dealer to compute the net amount of cash owed to customers and PAB account holders under a formula in Rule 15c3–3a (‘‘customer and PAB reserve computations’’). Generally, broker-dealers must perform their customer and PAB reserve computations and make any required deposits in a special reserve account at a bank weekly. See paragraph (e)(3) to Rule 15c3–3. 3 See Treasury Clearing Release, 89 FR at 2760– 68. 4 See id. The amendments also modified Note B to Item 2 of the customer and PAB reserve computations to provide that this item in the reserve computations must include as a credit the market value of customers’ and PAB account holders’ securities on deposit at a U.S. Treasury CCA. See id. at 2761. 5 See Treasury Clearing Release, 89 FR at 2760– 68. 6 See Rule 15c3–3a, Note H(a) and (b)(1). 7 See Rule 15c3–3a, Note H(b)(2). E:\FR\FM\29NON1.SGM 29NON1

Agencies

[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94794-94801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27995]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101712; File No. SR-NYSEARCA-2024-100]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To List and Trade 
Option Contracts on the iShares Bitcoin Trust, the Fidelity Wise Origin 
Bitcoin Fund, and the ARK21Shares Bitcoin ETF

November 22, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on November 20, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the 
``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 self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade option contracts on the 
iShares Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the 
ARK21Shares Bitcoin ETF. The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 5.3-O (Criteria for Underlying 
Securities), Rule 5.4-O (Withdrawal of Approval of Underlying 
Securities), Rule 5.32-O (Terms of FLEX Options), and Rule 6.8-O 
(Position Limits),) to allow the Exchange to list and trade options on 
the following exchange-traded products: the iShares Bitcoin Trust 
(``iShares Bitcoin'' or ``IBIT''), the Fidelity Wise Origin Bitcoin 
Fund (``Fidelity Wise'' or ``FBTC''), and the ARK21Shares Bitcoin ETF 
(``ARK21'' or ``ARKB'') (collectively, the ``Bitcoin Funds'' or 
``Funds'').
    The Exchange notes that this is a competitive filing as the 
Commission recently approved rule proposals by Nasdaq ISE, LLC 
(``ISE'') and Cboe Exchange, Inc. (``Cboe'') to allow the listing and 
trading of options on IBIT \4\ and on FBTC and ARKB, respectively.\5\ 
The Exchange notes that bitcoin-backed ETPs are already approved for 
options trading on its affiliated exchange, NYSE American LLC.\6\ As 
discussed below, the Exchange believes options on the Bitcoin Funds 
would permit hedging, and allow for more liquidity, better price 
efficiency, and less volatility with respect to the underlying Funds. 
Further, permitting the listing of such

[[Page 94795]]

options would enhance the transparency and efficiency of markets in 
these and correlated products.
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    \4\ See Securities Exchange Act Release No. 101128 (September 
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice 
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 
4, and 5, to Permit the Listing and Trading of Options on the 
iShares Bitcoin Trust) (``IBIT Approval Order'').
    \5\ See Securities Exchange Act Release No. 101387 (October 18, 
2024), 89 FR 84948 (October 24, 2024) (SE-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) (``FBTC and ARKB Approval Order'').
    \6\ See Securities Exchange Act Release No. 101386 (October 18, 
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (Order 
approving the listing and trading of options on shares of the 
Grayscale Bitcoin Trust (BTC) (symbol: GBTC), the Grayscale Bitcoin 
Mini Trust (BTC) (symbol: BTC), and the Bitwise Bitcoin ETF (symbol: 
BITB)) (the ``American Bitcoin Options Approval Order''). See also 
NYSE American Rule 915, Commentary .10(a). Taken together with the 
IBIT Approval Order and the FBTC and ARKB Approval Order, the 
Bitcoin Approval Order, further illustrates that this proposal does 
not raise any new or novel issues not previously considered by the 
Commission.
---------------------------------------------------------------------------

    Rule 5.3-O provides that, subject to certain other criteria set 
forth in the Rule,\7\ securities deemed appropriate for options trading 
include Exchange-Traded Fund Shares (or ETFs) that represent certain 
types of interests \8\ and exchange-traded products (``ETPs'') 
structured as trusts that hold precious metals (which are deemed 
commodities).\9\ Like ETPs backed by precious metals (i.e., 
commodities), the Exchange proposes to allow options trading on the 
Bitcoin Funds that hold Bitcoin--which is also deemed a commodity.\10\
---------------------------------------------------------------------------

    \7\ To be eligible for options trading, ETFs and ETPs must 
satisfy the initial listing criteria set forth in Rule 5.3-O(g)(1) 
through (2).
    \8\ Rule 5.3-O(g) permits options trading on ETFs that are 
traded on a national securities exchange and are defined as an ``NMS 
stock'' in Rule 600(b)(55) of Regulation NMS, that represent 
interests in registered investment companies (or series thereof) 
organized as open-end management investment companies, unit 
investment trusts or similar entities that hold portfolios of 
securities and/or financial instruments including, but not limited 
to, stock index futures contracts, options on futures, options on 
securities and indexes, equity caps, collars and floors, swap 
agreements, forward contracts, repurchase agreements and reverse 
purchase agreements (the ``Financial Instruments''), and money 
market instruments, including, but not limited to, U.S. government 
securities and repurchase agreements (the ``Money Market 
Instruments'') comprising or otherwise based on or representing 
investments in indexes or portfolios of securities and/or Financial 
Instruments and Money Market Instruments (or that hold securities in 
one or more other registered investment companies that themselves 
hold such portfolios of securities and/or Financial Instruments and 
Money Market Instruments); interests in a trust or similar entity 
that holds a specified non-U.S. currency deposited with the trust or 
similar entity when aggregated in some specified minimum number may 
be surrendered to the trust by the beneficial owner to receive the 
specified non-U.S. currency and pays the beneficial owner interest 
and other distributions on deposited non-U.S. currency, if any, 
declared and paid by the trust (``Currency Trust Shares''); 
commodity pool interests principally engaged, directly or 
indirectly, in holding and/or managing portfolios or baskets of 
securities, commodity futures contracts, options on commodity 
futures contracts, swaps, forward contracts and/or options on 
physical commodities and/or non-U.S. currency (``Commodity Pool 
Units''); or represents an interest in a registered investment 
company (``Investment Company'') organized as an open-end management 
investment company or similar entity, that invests in a portfolio of 
securities selected by the Investment Company's investment adviser 
consistent with the Investment Company's investment objectives and 
policies, which is issued in a specified aggregate minimum number in 
return for a deposit of a specified portfolio of securities and/or a 
cash amount with a value equal to the next determined net asset 
value (``NAV''), and when aggregated in the same specified minimum 
number, may be redeemed at a holder's request, which holder will be 
paid a specified portfolio of securities and/or cash with a value 
equal to the next determined NAV (``Managed Fund Share''); provided 
that all of the conditions listed in Rules 5.3-O and 5.4-O are met. 
See Rule 5.3-O(g)(i)-(iii) and (vii).
    \9\ Rule 5.3-O(g) permits the listing and trading of options on 
shares of the following trusts: SPDR Gold Trust, the iShares COMEX 
Gold Trust, the iShares Silver Trust, the ETFS Silver Trust, the 
ETFS Gold Trust, ETFS Palladium Trust, or ETFS Platinum Trust. See 
Rule 5.3-O(g)(iv)-(vi) and (viii)-(ix).
    \10\ See proposed Rule 5.3-O, Commentary .01 (The Exchange may 
list and trade options on shares of IBIT, FBTC, and ARKB, pursuant 
to Rules 5.3-O and 5.4-O).
---------------------------------------------------------------------------

    The Bitcoin Funds are structured as trusts that hold bitcoin. Like 
ETFs and ETPs currently deemed appropriate for options trading, the 
investment objective of each Bitcoin Fund trust is for its shares to 
reflect the performance of Bitcoin (less the expenses of the trust's 
operations), offering investors an opportunity to gain exposure to 
Bitcoin without the complexities of Bitcoin delivery. Each 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.\11\ The 
Bitcoin Funds provide investors with cost-efficient alternatives that 
allow a level of participation in the Bitcoin market through the 
securities market.
---------------------------------------------------------------------------

    \11\ Each trust may include minimal cash.
---------------------------------------------------------------------------

    The Exchange believes each Bitcoin Fund satisfies the Exchange's 
initial listing standards set forth in Rule 5.3-O(a).\12\ The Exchange 
notes that the Bitcoin Funds also satisfy the listing standard applied 
to ETFs traded on the Exchange that they be available for creation and 
redemption each business day as set forth in Rule 5.3-O(g)(1)(B).\13\
---------------------------------------------------------------------------

    \12\ Rule 5.3-O(a) provides for guidelines to be used by the 
Exchange when evaluating potential underlying securities for 
Exchange option transactions.
    \13\ Rule 5.3-O(g)(1)(B) requires that ETFs must be available 
for creation or redemption each business day from or through the 
issuer in cash or in kind at a price related to net asset value, and 
the issuer must be obligated to issue ETFs in a specified aggregate 
number even if some or all of the investment assets required to be 
deposited have not been received by the issuer, subject to the 
condition that the person obligated to deposit the investments has 
undertaken to deliver the investment assets as soon as possible and 
such undertaking is secured by the delivery and maintenance of 
collateral consisting of cash or cash equivalents satisfactory to 
the issuer, as provided in the respective prospectus.
---------------------------------------------------------------------------

    First, each of the Bitcoin Funds satisfy the criteria and 
guidelines set forth in Rule 5.3-O. Pursuant to Rule 5.3-O(b), a 
security 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.\14\ Each of the Bitcoin Funds is an 
NMS Stock as defined in Rule 600 of Regulation NMS under the Act.\15\ 
The Exchange believes each Bitcoin Fund is characterized by a 
substantial number of outstanding shares that are widely held and 
actively traded.
---------------------------------------------------------------------------

    \14\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Rule 5.3-O(a), 
subject to exceptions.
    \15\ 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'').
---------------------------------------------------------------------------

    The Bitcoin Funds had the following number of shares outstanding:

------------------------------------------------------------------------
                                                              Shares
                      Bitcoin Fund                          outstanding
------------------------------------------------------------------------
IBIT (as of 8/12/24)....................................     611,040,000
FBTC (as of 8/7/24).....................................     201,100,100
ARKB (as of 8/7/24).....................................      45,495,000
------------------------------------------------------------------------

    As shown above, each of the Bitcoin Funds 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 the Exchange's rules. 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.

------------------------------------------------------------------------
               Bitcoin Fund                 Number of beneficial holders
------------------------------------------------------------------------
IBIT......................................  193,956 (as of 5/22/23).
FBTC......................................  279,656 (as of 6/27/24).
ARKB......................................  69,425 (as of 6/26/24).
------------------------------------------------------------------------

    Each Bitcoin Fund has 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 pursuant to the Exchange's rules. Therefore, the Exchange 
believes the shares of each Bitcoin Fund are widely held.
    In addition, the Exchange believes the shares of each Bitcoin Fund 
are actively traded. The total trading volume (by shares and notional) 
for these funds since they began trading and the average daily volume 
(``ADV'') over the 30-day

[[Page 94796]]

period of July 9 through August 7, 2024, was as follows:

----------------------------------------------------------------------------------------------------------------
                                                                  Trading volume  Trading volume
                          Bitcoin Fund                               (shares)      (notional $)    ADV (shares)
----------------------------------------------------------------------------------------------------------------
IBIT (as of 5/13/24)............................................      34,825,921   1,246,060,738      26,000,000
FBTC (as of 8/7/24).............................................   1,112,861,581     250,354,755       6,014,335
ARKB (as of 8/7/24).............................................     279,360,739      90,484,307       1,893,335
----------------------------------------------------------------------------------------------------------------

    As demonstrated above, even though these Bitcoin Funds have been 
trading for less than one year, the trading volume for each is 
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. The Exchange believes this data 
demonstrates each Bitcoin Fund is characterized by a substantial number 
of outstanding shares that are actively traded.
    In addition to satisfying the Exchange's initial listing standards, 
options on Bitcoin Funds will be subject to the Exchange's continued 
listing standards as set forth in Rule 5.4-O.\16\
---------------------------------------------------------------------------

    \16\ The Exchange proposes to adopt Commentary .02 to Rule 5.4-O 
to specify that for purposes of the continued listing standards set 
forth in Rule 5.3-O(k), the Bitcoin Funds will be deemed ``Exchange-
Traded Fund Shares.'' See proposed Commentary .02 to Rule 5.4-O.
---------------------------------------------------------------------------

    Pursuant to Rule 5.4-O(b)(5), the Exchange will not open for 
trading any additional series of option contracts covering a fund 
traded on the Exchange if such fund ceases to be an ``NMS stock'' or 
the fund is halted from trading on its primary market.\17\ 
Additionally, options on funds traded on the Exchange may be subject to 
the suspension of opening transactions as follows: (1) the fund no 
longer meets the terms of Rule 5.4-O(b)(1)-(4); (2) following the 
initial twelve-month period beginning upon the commencement of trading 
of the fund, there are fewer than 50 record and/or beneficial holders 
of the fund for 30 or more consecutive trading days; (3) the value of 
the underlying commodity is no longer calculated or available; or (4) 
such other event occurs or condition exists that in the opinion of the 
Exchange makes further dealing on the Exchange inadvisable.
---------------------------------------------------------------------------

    \17\ See Rule 5.4-O(k).
---------------------------------------------------------------------------

    Options on each Bitcoin Fund will be physically settled contracts 
with American-style exercise.\18\ Consistent with Rule 6.4-O, which 
governs the opening of options series on a specific underlying security 
(including ETFs and ETPs), the Exchange will open at least one 
expiration month for options on each Bitcoin Fund \19\ at the 
commencement of trading on the Exchange and may also list series of 
options on Bitcoin Funds for trading on a weekly,\20\ monthly,\21\ or 
quarterly \22\ basis. The Exchange may also list long-term equity 
option series (``LEAPS'') that expire from twelve to thirty-nine months 
from the time they are listed.\23\
---------------------------------------------------------------------------

    \18\ See Rule 6.5-O (Rights and Obligations of Holders and 
Writers), which provides that the rights and obligations of holders 
and writers of option contracts of any class of options dealt in on 
the Exchange shall be as set forth in the Rules of the Clearing 
Corporation. See also OCC Rules, Chapter VIII, which governs 
exercise and assignment, and Chapter IX, which governs the discharge 
of delivery and payment obligations arising out of the exercise of 
physically settled stock option contracts. OCC Rules can be located 
at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf.
    \19\ See Rule 6.4-O(d). The monthly expirations are subject to 
certain listing criteria for underlying securities described within 
Rule 5.3-O. Monthly listings expire the third Friday of the month. 
The term ``expiration date'' (unless separately defined elsewhere in 
the OCC By-Laws), when used in respect of an option contract 
(subject to certain exceptions), means the third Friday of the 
expiration month of such option contract, or if such Friday is a day 
on which the exchange on which such option is listed is not open for 
business, the preceding day on which such exchange is open for 
business. See OCC By-Laws Article I, Section 1. Pursuant to Rule 
903(d), additional series of options of the same class may be opened 
for trading on the Exchange when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the 
market price of the underlying stock moves more than five strike 
prices from the initial exercise price or prices. New series of 
options on an individual stock may be added until the beginning of 
the month in which the options contract will expire. Due to unusual 
market conditions, the Exchange, in its discretion, may add a new 
series of options on an individual stock until the close of trading 
on the business day prior to expiration.
    \20\ See Rule 6.4-O, Commentary .07.
    \21\ See Rule 6.4-O, Commentary .09.
    \22\ See Rule 6.4-O, Commentary .08.
    \23\ See Rule 6.4-O(d).
---------------------------------------------------------------------------

    Pursuant to Rule 6.4-O, Commentary .05(a), which governs strike 
prices of series of options on ETFs, the interval between strike prices 
of series of options on Bitcoin Funds will be $1 or greater when the 
strike price is $200 or less and $5 or greater where the strike price 
is over $200.\24\ Additionally, the Exchange may list series of options 
pursuant to the $1 Strike Price Interval Program,\25\ the $0.50 Strike 
Program,\26\ the $2.50 Strike Price Program,\27\ and the $5 Strike 
Program.\28\ Pursuant to Rule 6.72-O, where the price of a series of a 
Bitcoin Fund option is less than $3.00, the minimum increment will be 
$0.05, and where the price is $3.00 or higher, the minimum increment 
will be $0.10.\29\ Any and all new series of Bitcoin Fund options that 
the Exchange lists will be consistent and comply with the expirations, 
strike prices, and minimum increments set forth in Rules 6.4-O and 
6.72-O, as applicable. Further, the Exchange notes that Rule 4.16-O, 
which governs margin requirements applicable to the trading of all 
options on the Exchange, including options on ETFs and ETPs, will also 
apply to the trading of Bitcoin Fund options.
---------------------------------------------------------------------------

    \24\ The Exchange notes that for options listed pursuant to the 
Short Term Option Series Program, the Monthly Options Series 
Program, and the Quarterly Options Series Program, Rule 6.4-O, 
Commentary .07 through .09, specifically set forth intervals between 
strike prices on Quarterly Options Series, Short Term Option Series, 
and Monthly Options Series, respectively.
    \25\ See Rule 6.4-O, Commentary .04.
    \26\ See Rule 6.4-O, Commentary .13.
    \27\ See Rule 6.4-O, Commentary .03.
    \28\ See Rule 6.4-O, Commentary .10.
    \29\ If options on a Bitcoin Fund are eligible to participate in 
the Penny Interval Program, the minimum increment of $0.01 below 
$3.00 and $0.50 above $3.00 would apply. See Rule 6.4-O(a)(3). See 
also Rule 6.72A-O (which describes the requirements for the Penny 
Interval Program).
---------------------------------------------------------------------------

    Rule 5.32(f)(1) permits the Exchange to authorize for trading a 
FLEX option class on any equity security if it may authorize for 
trading a non-FLEX option class on that equity security pursuant to 
Rule 5.3-O.\30\ At this time, the Exchange is not proposing to permit 
Bitcoin Fund options to trade as FLEX options.\31\ The Exchange 
therefore proposes to modify Rule 5.32(f)(1) to specify this exception, 
which will add clarity and transparency to Exchange Rules.\32\
---------------------------------------------------------------------------

    \30\ See Rule 5.32-O(f)(1). See generally Section 4 (Flexible 
Exchange (``FLEX'') Options).
    \31\ The Exchange will continue ongoing discussions with the 
Commission regarding appropriate position limits for the Bitcoin 
Funds and plans to submit a separate rule filing that would permit 
the Exchange to authorize for trading FLEX options on the Funds 
(which filing may propose changes to existing FLEX option position 
limits for such options if appropriate).
    \32\ See proposed Rule 5.32(f)(1) (providing, in relevant part, 
that the Exchange may approve and open for trading any FLEX Equity 
Options series on any equity security that is eligible for Non-FLEX 
Options trading under Rule 5.3-O ``except those set forth in 
Commentary .01 to Rule 5.3-O,'' i.e., the Bitcoin Funds).

---------------------------------------------------------------------------

[[Page 94797]]

Position and Exercise Limits
    Position and exercise limits for options, including options on 
Bitcoin Funds, are determined pursuant to Rules 6.8-O and 6.9-O, 
respectively. Position and exercise limits for options vary according 
to the number of outstanding shares and the trading volumes of the 
underlying security over the past six months, where the largest in 
capitalization and the most frequently traded funds have an option 
position and exercise limit of 250,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market; and 
smaller capitalization funds have position and exercise limits of 
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market.\33\
---------------------------------------------------------------------------

    \33\ See Commentary .06(a)-(e) to Rule 6.8-O. For an option to 
be eligible for the 50,000-contract limit, the security underlying 
the option must have most recent six-month trading volume of at 
least 20,000,000 shares, or most recent six-month trading volume of 
at least 15,000,000 shares and at least 40,000,000 shares currently 
outstanding. For an option to be eligible for the 75,000-contract 
limit, the underlying security must have most recent six-month 
trading volume of at least 40,000,000 shares, or most recent six-
month trading volume of at least 30,000,000 shares and at least 
120,000,000 shares currently outstanding. For an option to be 
eligible for the 200,000-contract limit, the underlying security 
must have most recent six-month trading volume of at least 
80,000,000 shares, or most recent six-month trading volume of at 
least 60,000,000 shares and at least 240,000,000 shares currently 
outstanding. For an option to be eligible for the 250,000-contract 
limit, the security underlying the option must have most recent six-
month trading volume of at least 100,000,000 shares, or most recent 
six-month trading volume of at least 75,000,000 shares and at least 
300,000,000 shares currently outstanding. The 25,000-contract limit 
applies to options on underlying securities that do not qualify for 
a higher contract limit. See Commentary .07(c) to Rule 6.8-O. In 
addition, Commentary .07(f) to Rule 6.8-O establishes higher 
position limits for options on certain ETFs.
---------------------------------------------------------------------------

    Position limits are designed to limit the number of options 
contracts traded on the Exchange in an underlying security that an 
investor, acting alone or in concert with others directly or 
indirectly, may control. The purpose of position limits is 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. Accordingly, position limits must balance 
concerns regarding mitigating potential manipulation and the cost of 
inhibiting potential hedging activity that investors may use for 
legitimate economic purposes. To achieve this balance, the Exchange 
proposes to set the position and exercise limits for the options on the 
Bitcoin Funds at 25,000 contracts, which limits are already in place 
for the Bitcoin Funds as traded on other options exchanges and the 
bitcoin-backed ETPs available for options trading on NYSE American 
LLC.\34\ Capping the position limit at 25,000 contracts, the lowest 
limit available in options, would address concerns related to 
manipulation and protection of investors as this number is conservative 
for the Bitcoin Funds and therefore appropriate given their liquidity. 
The Exchange believes that the proposed 25,000-contract position limit 
is conservative for options on the Bitcoin Funds.\35\
---------------------------------------------------------------------------

    \34\ See proposed 6.8-O, Commentary .07(f) See supra notes 4 and 
5 (regarding the IBIT Approval Order and the FBTC and ARKB Approval 
Order). See also NYSE American Rule 904, Commentary .07(f) (setting 
25,000 position limits for the Grayscale Bitcoin Trust (BTC) 
(symbol: GBTC), the Grayscale Bitcoin Mini Trust (BTC) (symbol: 
BTC), and the Bitwise Bitcoin ETF (symbol: BITB)).
    \35\ The Exchange may file a subsequent rule change to amend the 
position and exercise limit for options on any or all the Bitcoin 
Funds based on additional data regarding trading activity, to 
continue to balance any concerns regarding manipulation. A higher 
position limit would allow institutional investors to utilize 
options on the Bitcoin Funds for prudent risk management purposes.
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange believes the proposal to list 
options on the Bitcoin Funds with positions and exercise limits of 
25,000 on the same side, the lowest position limit available in the 
options industry, is conservative and appropriate given the market 
capitalization, average daily volume, and high number of outstanding 
shares for each of the Bitcoin Funds. 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 
Bitcoin Funds as well as the Bitcoin market.\36\
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------

    As described herein, options on the Bitcoin Funds will trade in the 
same manner as any other ETF or ETP options on the Exchange, except 
that the Bitcoin Funds will not be eligible for FLEX options trading. 
The Exchange Rules that currently apply to the listing and trading of 
options on the Exchange, including, for example, Rules that govern 
listing criteria, expiration and exercise prices, minimum increments, 
margin requirements, customer accounts and trading halt procedures will 
apply to the listing and trading of Bitcoin Funds on the Exchange in 
the same manner as they apply to all other ETFs and ETPs that are 
listed and traded on the Exchange, including the precious metal-backed 
commodity ETPs already deemed appropriate for options trading on the 
Exchange. Further, as described above, Exchange Rules regarding 
position and exercise limits will likewise apply to options on the 
Bitcoin Funds except that, as proposed, the position and exercise 
limits will be set at 25,000 on the same side.
* * * * *
    The Exchange notes that options on Bitcoin Funds would not be 
available for trading until The Options Clearing Corporation (``OCC'') 
represents to the Exchange that it is fully able to clear and settle 
such options. The Exchange has also analyzed its capacity and 
represents that it and The Options Price Reporting Authority (``OPRA'') 
have the necessary systems capacity to handle the additional traffic 
associated with the listing of options on Bitcoin Funds. The Exchange 
believes any additional traffic that would be generated from the 
trading of options on Bitcoin Funds would be manageable. The Exchange 
represents that Exchange members will not have a capacity issue as a 
result of this proposed rule change.
    The Exchange represents that the same surveillance procedures 
applicable to all other options currently listed and traded on the 
Exchange will apply to options on Bitcoin Funds, and that it has the 
necessary systems capacity to support the new option series. The 
Exchange's existing surveillance and reporting safeguards are designed 
to deter and detect possible manipulative behavior which might arise 
from listing and trading options on ETFs and ETPs, such as (existing) 
precious metal-backed ETP options, as well as the proposed options on 
Bitcoin Funds. The Exchange believes that its surveillance procedures 
are adequate to properly monitor the trading of options on Bitcoin 
Funds in all trading sessions and to deter and detect violations of 
Exchange rules.
    Specifically, the Exchange's market surveillance staff also 
conducts surveillances with respect to the Bitcoin Funds and, as 
appropriate, would review activity in the underlying Funds when 
conducting surveillances for market abuse or manipulation in the 
options on each Trust. Additionally, the Exchange is a member of the 
Intermarket Surveillance Group (``ISG'') under the ISG Agreement. ISG 
members work together to coordinate surveillance and investigative 
information sharing in the stock, options, and futures markets. The 
Exchange will be able to obtain

[[Page 94798]]

information regarding trading in the shares of the underlying Trusts 
from Nasdaq, LLC, Cboe Exchange, Inc., and other markets on which the 
Trusts trade through the ISG. In addition, the Exchange has a 
Regulatory Services Agreement (``RSA'') 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 surveillances.\37\ 
Further, the Exchange will implement any new surveillance procedures it 
deems necessary to effectively monitor the trading of options on the 
Bitcoin Funds.
---------------------------------------------------------------------------

    \37\ 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. 
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 its order approving 
proposals of several exchanges to list and trade shares of spot 
bitcoin-based exchange-traded products (``Bitcoin ETP Order'' \38\):
---------------------------------------------------------------------------

    \38\ See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008 (January 17, 2024) (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; SRCboeBZX-2023-044; and SR-
CboeBZX-2023-072) (Order Granting Accelerated Approval of Proposed 
Rule Changes, as Modified by Amendments Thereto, to List and Trade 
Bitcoin-Based Commodity-Based Trust Shares and Trust Units) 
(``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.\39\
---------------------------------------------------------------------------

    \39\ See Bitcoin ETP Order, 89 FR at 3009.
---------------------------------------------------------------------------

    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, and given that the 
``CME's surveillance can assist in detecting [the impact of fraud or 
manipulation] on CME bitcoin future prices,'' 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].'' 
\40\
---------------------------------------------------------------------------

    \40\ 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,\41\ 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.
---------------------------------------------------------------------------

    \41\ See Amendment No. 1 to Proposed Rule Change to List and 
Trade Shares of the iShares Bitcoin Trust under Nasdaq Rule 5711(d), 
Commodity-Based Trust Shares (SR-NASDAQ-2023-016), filed Jan. 5, 
2024, available at https://www.sec.gov/comments/sr-nasdaq-2023-016/srnasdaq2023016-357659-883042.pdf; Amendment No. 5 to 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 (SR-
CboeBZX-2023-028), filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-028/srcboebzx2023028-358679-884202.pdf; and Amendment No. 3 to 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 (SR-CboeBZX-2023-044), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-044/srcboebzx2023044-358759-884163.pdf.
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    Finally, quotation and last sale information for ETFs is available 
via the Consolidated Tape Association (``CTA'') high speed line. 
Quotation and last sale information for such securities is also 
available from the exchange on which such securities are listed. 
Quotation and last sale information for options on Bitcoin Funds will 
be available via OPRA and major market data vendors.
    The Exchange believes that offering options on the Bitcoin Funds 
will benefit investors by providing them with an additional, relatively 
lower cost investing tool to gain exposure to the price of Bitcoin and 
hedging vehicle to meet their investment needs in connection with 
Bitcoin-related products and positions. The Exchange expects investors 
will transact in options on Bitcoin Funds in the unregulated over-the-
counter (``OTC'') options market,\42\ but may prefer to trade such 
options in a listed environment to receive the benefits of trading 
listed options, including (1) enhanced efficiency in initiating and 
closing out position; (2) increased market transparency; and (3) 
heightened contra-party creditworthiness due to the role of OCC as 
issuer and guarantor of all listed options. The Exchange believes that 
listing options on the Bitcoin Funds 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 Exchange notes that the ETPs that 
hold 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 options on any ETFs or ETPs that hold 
commodities (i.e., precious metals) that it currently lists and trades 
on the Exchange.
---------------------------------------------------------------------------

    \42\ 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 that its proposed rule change is consistent 
with Section 6(b) of the Act \43\ in general and furthers the 
objectives of Section 6(b)(5) of the Act \44\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b).
    \44\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 an opportunity to realize 
the benefits of utilizing options on a Bitcoin Fund, including cost 
efficiencies and increased hedging strategies.
    The Exchange believes that offering Bitcoin Fund options will 
benefit investors by providing them with a relatively lower-cost risk 
management tool, which will allow them to manage their positions and 
associated risk in their portfolios more easily in connection with 
exposure to the price of Bitcoin and with Bitcoin-related products and 
positions. Additionally, the Exchange's offering of Bitcoin Fund

[[Page 94799]]

options will provide investors with the ability to transact in such 
options in a listed market environment as opposed to in the unregulated 
OTC 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 ETPs,\45\ which, 
as described above, are trusts structured in substantially the same 
manner as the 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 ETP options it currently lists for trading.
---------------------------------------------------------------------------

    \45\ See Rule 5.3-O(g).
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    The Exchange also believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because it is consistent with current 
Exchange Rules previously filed with the Commission. Options on the 
Bitcoin Funds satisfy the initial listing standards and continued 
listing standards currently in the Exchange Rules applicable to options 
on all ETFs and ETPs, including ETPs 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 or ETP options--the same Exchange Rules that currently govern the 
listing and trading of options, including permissible expirations, 
strike prices, minimum increments, and margin requirements, will govern 
the listing and trading of options on the Bitcoin Funds in the same 
manner.
    The Exchange believes the proposed rule change to exclude the 
Bitcoin Funds from being eligible for trading as FLEX options is 
consistent with the Act, because it will permit the Exchange to 
continue to participate in ongoing discussions with the Commission 
regarding appropriate position limits for options on the Bitcoin 
Funds.\46\
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    \46\ The Exchange will submit a separate rule filing that would 
permit the Exchange to authorize for trading FLEX options on the 
Bitcoin Funds (which filing may propose changes to existing FLEX 
option position limits for such options if appropriate).
---------------------------------------------------------------------------

    The proposed position and exercise limit for options on 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 the Bitcoin 
Funds' market capitalization, average daily volume, number of 
beneficial holders, and high number of outstanding shares. The proposed 
position and exercise limits are consistent with the Act as they 
addresses concerns related to manipulation and protection of investors 
because the position and exercise limits are extremely conservative and 
more than appropriate given the Bitcoin Funds are actively traded.
    The Exchange also believes the proposed rule change to Rule 5.32-O, 
to make clear that options on the Bitcoin Funds are not eligible for 
FLEX trading, will remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it adds 
clarity and transparency to Exchange Rules making them easier to 
navigate and understand to the benefit of investors and the public 
interest.
    The Exchange represents that it has the necessary systems capacity 
to support the new Bitcoin Fund options. The Exchange believes that its 
existing surveillance and reporting safeguards are designed to deter 
and detect possible manipulative behavior which might arise from 
listing and trading options, including Bitcoin Fund options. The 
Exchange's existing surveillance and reporting safeguards are designed 
to deter and detect possible manipulative behavior which might arise 
from listing and trading options on ETFs and ETPs, such as (existing) 
precious metal-commodity backed ETP options as well as the proposed 
options on Bitcoin Funds. The Exchange believes that its surveillance 
procedures are adequate to properly monitor the trading of options on 
Bitcoin Funds in all trading sessions and to deter and detect 
violations of Exchange rules.
    Specifically, the Exchange's market surveillance staff also 
conducts surveillances with respect to the Bitcoin Funds and, as 
appropriate, would review activity in the underlying Funds when 
conducting surveillances for market abuse or manipulation in the 
options on each Trust. Additionally, the Exchange is a member of the 
Intermarket Surveillance Group (``ISG'') under the ISG Agreement. ISG 
members work together to coordinate surveillance and investigative 
information sharing in the stock, options, and futures markets. The 
Exchange will be able to obtain information regarding trading in the 
shares of the underlying Trusts from Nasdaq, LLC, Cboe Exchange, Inc., 
and other markets on which the Trusts trade through the ISG. In 
addition, the Exchange is a party to an RSA with FINRA and pursuant to 
a multi-party 17d-2 joint plan, all options exchanges allocate 
regulatory responsibilities to FINRA to conduct certain options-related 
market surveillances. Further, the Exchange will implement any new 
surveillance procedures it deems necessary to effectively monitor the 
trading of options on the Bitcoin Funds.
    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 its order approving 
proposals of several exchanges to list and trade shares of spot 
bitcoin-based ETPs, ``[e]ach 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.'' \47\ 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, and given that the 
``CME's surveillance can assist in detecting [the impact of fraud or 
manipulation] on CME bitcoin future prices,'' 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].'' 
\48\ In light of surveillance measures related to both options and 
futures as well as the underlying Bitcoin Funds,\49\ the Exchange 
believes that existing surveillance procedures are designed to deter 
and detect possible

[[Page 94800]]

manipulative behavior which might potentially arise from listing and 
trading the proposed options on the Bitcoin Funds. Further, the 
Exchange will implement any new surveillance procedures it deems 
necessary to effectively monitor the trading of options on Bitcoin 
ETPs.
---------------------------------------------------------------------------

    \47\ See Bitcoin ETP Order, 89 FR at 3009.
    \48\ See Bitcoin ETP Order, 89 FR at 3010-11.
    \49\ See Amendment No. 1 to Proposed Rule Change to List and 
Trade Shares of the iShares Bitcoin Trust under Nasdaq Rule 5711(d), 
Commodity-Based Trust Shares (SR-NASDAQ-2023-016), filed Jan. 5, 
2024, available at https://www.sec.gov/comments/sr-nasdaq-2023-016/srnasdaq2023016-357659-883042.pdf; Amendment No. 5 to 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 (SR-
CboeBZX-2023-028), filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-028/srcboebzx2023028-358679-884202.pdf; and Amendment No. 3 to 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 (SR-CboeBZX-2023-044), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-044/srcboebzx2023044-358759-884163.pdf.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    Intramarket Competition: The Exchange does not believe that the 
proposed rule change will impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act as options on the Bitcoin Funds would need to satisfy the 
initial listing standards set forth in the Exchange Rules in the same 
manner as any other option on an ETF before the Exchange could list 
these options. Additionally, Bitcoin Fund options will be equally 
available to all market participants who wish to trade such options. 
The Exchange Rules currently applicable to the listing and trading of 
options on ETFs on the Exchange will apply in the same manner to the 
listing and trading of all options on the Bitcoin Funds. Also, and as 
stated above, the Exchange already lists options on other commodity-
based ETPs.\50\
---------------------------------------------------------------------------

    \50\ Rule 5.3-O(g) permits the listing and trading of options on 
shares of the following trusts: SPDR Gold Trust, the iShares COMEX 
Gold Trust, the iShares Silver Trust, the ETFS Silver Trust, the 
ETFS Gold Trust, ETFS Palladium Trust, or ETFS Platinum Trust. See 
Rule 5.3-O(g)(iv)-(vi) and (viii)-(ix).
---------------------------------------------------------------------------

    Intermarket Competition: The Exchange does not believe that the 
proposal to list and trade options on Bitcoin Funds will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the extent that the 
advent of Bitcoin Fund options trading on the Exchange may make the 
Exchange a more attractive marketplace to market participants at other 
exchanges, such market participants are free to elect to become market 
participants on the Exchange. As noted herein, this is a competitive 
filing as the Commission recently approved the listing and trading of 
options on the Bitcoin Funds on other options exchanges.\51\
---------------------------------------------------------------------------

    \51\ See also supra notes 4 and 5 (regarding the IBIT Approval 
Order and the FBTC and ARKB Approval Order).
---------------------------------------------------------------------------

    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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \52\ and Rule 19b-4(f)(6) thereunder.\53\ 
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 \54\ and subparagraph (f)(6) of 
Rule 19b-4 thereunder.\55\
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    \52\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \53\ 17 CFR 240.19b-4(f)(6).
    \54\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \55\ 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) \56\ 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),\57\ 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 iShares 
Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the 
ARK21Shares Bitcoin ETF.\58\ 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.\59\
---------------------------------------------------------------------------

    \56\ 17 CFR 240.19b-4(f)(6).
    \57\ 17 CFR 240.19b-4(f)(6)(iii).
    \58\ See Securities Exchange Act Release No. 101128 (September 
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Self-
Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of 
Amendment Nos. 4 and 5 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 1, 4, and 5, to 
Permit the Listing and Trading of Options on the iShares Bitcoin 
Trust). See also 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).
    \59\ 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).
---------------------------------------------------------------------------

    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

[[Page 94801]]

action is necessary or appropriate in the 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-NYSEARCA-2024-100 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-NYSEARCA-2024-100. 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-NYSEARCA-2024-100 and should 
be submitted on or before December 20, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
---------------------------------------------------------------------------

    \60\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27995 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P
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