Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To List Options on Certain Bitcoin ETFs, 94818-94828 [2024-27997]
Download as PDF
<![CDATA[
94818
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
and the ARK 21 Fund.52 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 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.53
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
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 rule-comments@
sec.gov. Please include file number SR–
PEARL–2024–54 on the subject line.
khammond on DSK9W7S144PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
52 See Securities Exchange Act Release No.
101387 (October 18, 2024), 89 FR 84948 (October
24, 2024) (SR–Cboe–2024–035) (Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 2 and 3, To Permit
the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds).
53 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).
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–PEARL–2024–54. 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–2024–54 and should be
submitted on or before December 20,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.54
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–27991 Filed 11–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101714; File No. SR–
CboeBZX–2024–118]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To List Options
on Certain Bitcoin ETFs
November 22, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
21, 2024, Cboe BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX Options’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX Options’’)
proposes to amend Rule 19.3. The text
of the proposed rule change is provided
in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 19.3 regarding the criteria for
underlying securities. Specifically, the
Exchange proposes to amend Rule
19.3(i)(4) to allow the Exchange to list
and trade options on shares or other
securities (‘‘Fund Shares’’) that are
principally traded on a national
securities exchange and are defined as
an ‘‘NMS stock’’ under Rule 600 of
Regulation NMS and that represent
interests in the Fidelity Wise Origin
Bitcoin Fund (the ‘‘Fidelity Fund’’) and
the ARK 21Shares Bitcoin ETF (the
‘‘ARK 21 Fund’’ and, with the Fidelity
1 15
54 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00118
Fmt 4703
Sfmt 4703
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
E:\FR\FM\29NON1.SGM
29NON1
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
khammond on DSK9W7S144PROD with NOTICES
Fund, the ‘‘Bitcoin Funds’’).3 Current
Rule 19.3(i) provides that, subject to
certain other criteria set forth in that
Rule, securities deemed appropriate for
options trading include Fund Shares
that represent certain types of interests,4
including interests in certain specific
trusts that hold financial instruments,
money market instruments, or precious
metals (which are deemed
commodities).
The Bitcoin Funds are Bitcoin-backed
commodity exchange-traded funds
(‘‘ETFs’’) structured as trusts. Similar to
any Fund Share currently deemed
appropriate for options trading under
Rule 19.3(i), the investment objective of
each Bitcoin Fund is for its shares to
reflect the performance of Bitcoin (less
the expenses of the trust’s operations),
offering investors an opportunity to gain
exposure to Bitcoin without the
3 See Securities Exchange Act Release No. 99306
(January 10, 2024), 89 FR 3008, 3009 (January 17,
2024) (SR–NYSEArca–2021–90; SR–NYSEArca–
2023–44; SR–NYSEArca–2023–58; SR–NASDAQ–
2023–016; SR–NASDAQ–2023–019; SR–CboeBZX–
2023–028; SR–CboeBZX–2023–038; SR–CboeBZX–
2023–040; SR–CboeBZX–2023–042; SR–CboeBZX–
2023–044; 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
Approval Order’’).
4 See Rule 19.3(i) which permits options trading
on Fund Shares that (1) represent interests in
registered investment companies (or series thereof)
organized as open-end management investment
companies, unit investment trusts or similar
entities, and that hold portfolios of securities
comprising or otherwise based on or representing
investments in indexes or portfolios of securities (or
that hold securities in one or more other registered
investment companies that themselves hold such
portfolios of securities) (‘‘Funds ’’) 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 repurchase
agreements (the ‘‘Financial Instruments’’), and
money market instruments, including, but not
limited to, U.S. government securities and
repurchase agreements (the ‘‘Money Market
Instruments’’) constituting or otherwise based on or
representing an investment in an index or portfolio
of securities and/or Financial Instruments and
Money Market Instruments, or (2) represent
commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing
portfolios or baskets of securities, commodity
futures contracts, options on commodity futures
contracts, swaps, forward 477 contracts and/or
options on physical commodities and/or non-U.S.
currency (‘‘Commodity Pool ETFs’’) or (3) represent
interests in a trust or similar entity that holds a
specified non-U.S. currency or currencies 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 or
currencies and pays the beneficial owner interest
and other distributions on the deposited non-U.S.
currency or currencies, if any, declared and paid by
the trust (‘‘Currency Trust Shares’’), or (4) represent
interests in the SPDR Gold Trust or are issued by
the iShares COMEX Gold Trust or iShares Silver
Trust.
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
complexities of Bitcoin delivery. As is
the case for Fund Shares currently
deemed appropriate for options trading,
a Bitcoin Fund’s shares represent units
of fractional undivided beneficial
interest in the trust, the assets of which
consist principally of Bitcoin and are
designed to track Bitcoin or the
performance of the price of Bitcoin and
offer access to the Bitcoin market.5 The
Bitcoin Funds provide investors with
cost-efficient alternatives that allow a
level of participation in the Bitcoin
market through the securities market.
The primary substantive difference
between Bitcoin Funds and Fund Shares
currently deemed appropriate for
options trading are that Fund Shares
may hold securities, certain financial
instruments, and specified precious
metals (which are deemed
commodities), while Bitcoin Funds hold
Bitcoin (which is also deemed a
commodity).
The Exchange believes each Bitcoin
Fund satisfies the Exchange’s initial
listing standards for Fund Shares on
which the Exchange may list options.
Specifically, each Bitcoin Fund satisfies
the initial listing standards set forth in
Rule 19.3(i), as is the case for other
Fund Shares on which the Exchange
lists options (including trusts that hold
commodities). Rule 19.3(i)(1) requires
that Fund Shares either (1) meet the
criteria and standards set forth in Rule
19.3(a) and (b),6 or (2) are available for
creation or redemption each business
day in cash or in kind from the
investment company, commodity pool
or other entity at a price related to net
asset value, and the investment
company, commodity pool or other
entity is obligated to provide that Fund
Shares may be created even if some or
all of the securities and/or cash required
to be deposited have not been received
by the Fund, the unit investment trust
or the management investment
company, provided the authorized
creation participant has undertaken to
deliver the securities and/or cash 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 Fund, all as described in the Fund’s
or unit trust’s prospectus. Each Bitcoin
Fund satisfies Rule 19.3(i)(1)(B) as each
is subject to this creation and
redemption process.
While not required by the Rules for
purposes of options listings, the
Exchange believes each Bitcoin Fund
5 The
trust may include minimal cash.
19.3(a) and (b) sets forth the criteria an
underlying security must meet for the Exchange to
be able to list options on the underlying.
6 Rule
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
94819
satisfies the criteria and guidelines set
forth in Rule 19.3(a) and (b). Pursuant
to Rule 19.3(a), a security (which
includes a Fund Share) on which
options may be listed and traded on the
Exchange must be registered with the
Securities and Exchange Commission
(‘‘Commission’’) and be an NMS stock
(as defined in Rule 600 of Regulation
NMS under the Securities Exchange Act
of 1934, as amended (the ‘‘Act’’)), and
be characterized by a substantial
number of outstanding shares that are
widely held and actively traded.7 Each
Bitcoin Fund is an NMS Stock as
defined in Rule 600 of Regulation NMS
under the Act.8 The Exchange believes
each Bitcoin Fund is characterized by a
substantial number of outstanding
shares that are widely held and actively
traded.
As of August 7, 2024, the Bitcoin
Funds had the following number of
shares outstanding:
Bitcoin Fund
Fidelity Fund ...................
ARK 21 Fund ..................
Shares
outstanding
201,100,100
45,495,000
Each Bitcoin Fund had significantly
more than 7,000,000 shares outstanding
(approximately 29 and 6.5 times that
amount, respectively), which is the
minimum number of shares of a
corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Rule 19.3(b). The
Exchange believes this demonstrates
that each Bitcoin Fund is characterized
by a substantial number of outstanding
shares.
Further, the below table contains
information regarding the number of
beneficial holders of the Bitcoin Funds
as of the specified dates:
7 The criteria and guidelines for a security to be
considered widely held and actively traded are set
forth in Rule 19.3(b), subject to exceptions.
8 An ‘‘NMS stock’’ means any NMS security other
than an option, and an ‘‘NMS security’’ means any
security or class of securities for which transaction
reports are collected, processed, and made available
pursuant to an effective transaction reporting plan
(or an effective national market system plan for
reporting transaction in listed options). See 17 CFR
242.600(b)(64) (definition of ‘‘NMS security’’) and
(65) (definition of ‘‘NMS stock’’).
9 The Exchange continues to believe assets under
management (‘‘AUM’’), rather than shares
outstanding and number of holders, is a better
measure of investable capacity of ETFs and a more
appropriate figure for determining position and
exercise limits of ETFs and looks forward to further
discussions with the Commission staff on this topic.
10 The Bitcoin Funds began trading on January 11,
2024.
E:\FR\FM\29NON1.SGM
29NON1
94820
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
Beneficial
holders
Bitcoin Fund
Fidelity Fund ............................................................................................................................................................
ARK 21 Fund ...........................................................................................................................................................
As this table shows, each Bitcoin
Fund has significantly more than 2,000
beneficial holders (approximately 140
and 35 times more, respectively), which
is the minimum number of holders the
Exchange generally requires for
corporate stock in order to list options
on that stock pursuant to Rule 19.3(b).
Therefore, the Exchange believes the
shares of each Bitcoin Fund are widely
held.9
The Exchange also believes the shares
of each Bitcoin Fund are actively traded.
As of August 7, 2024, the total trading
khammond on DSK9W7S144PROD with NOTICES
Fidelity Fund ......................................................................................................................................................
ARK 21 Fund ....................................................................................................................................................
As demonstrated above, despite the
fact that the Bitcoin Funds had been
trading for approximately seven
months 10 only as of August 7, 2024, the
six-month trading volume for each as of
that date was substantially higher than
2,400,000 shares (approximately 464
and 124 times that amount,
respectively), which is the minimum 12month volume the Exchange generally
requires for a corporate stock in order to
list options on that security as set forth
in Rule 19.3(b). Additionally, as of
August 7, 2024, the trading volume for
each Bitcoin Fund was in the top 5% of
all ETFs that are currently trading. The
Exchange believes this data
demonstrates each Bitcoin Fund is
characterized as having shares that are
actively traded.
Options on the Bitcoin Funds will be
subject to the Exchange’s continued
listing standards set forth in Rule 19.4(g)
for Fund Shares deemed appropriate for
options trading pursuant to Rule 19.3(i).
Specifically, 19.4(g) provides that Fund
Shares that were initially approved for
options trading pursuant to Rule 19.3
will not be deemed to meet the
requirements for continued approval,
and the Exchange shall not open for
trading any additional series of option
contracts of the class covering such
Fund Shares if the security ceases to be
an NMS stock (see Rule 19.4(b)(4)).
Additionally, the Exchange will not
open for trading any additional series of
option contracts of the class covering
Fund Shares in any of the following
circumstances: (1) in the case of options
covering Fund Shares approved for
trading under Rule 19.3(i)(4)(A), in
accordance with the terms of Rule
19.4(b)(1), (2) and (3); (2) in the case of
options covering Fund Shares approved
pursuant to Rule 19.3(i)(4)(B), following
the initial 12-month period beginning
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
upon the commencement of trading in
the Fund Shares on a national securities
exchange and are defined as NMS stock
under Rule 600 of Regulation NMS,
there were fewer than 50 record and/or
beneficial holders of such Fund Shares
for 30 consecutive days; (3) the value of
the index, non-U.S. currency, portfolio
of commodities including commodity
futures contracts, options on commodity
futures contracts, swaps, forward
contracts and/or options on physical
commodities and/or Financial
Instruments or Money Market
Instruments, or portfolio of securities on
which the Fund Shares are based 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 in such
options on the Exchange inadvisable.
Options on each Bitcoin Fund will be
physically settled contracts with
American-style exercise.11 Consistent
with current Rule 19.6, which governs
the opening of options series on a
specific underlying security (including
Fund Shares), the Exchange will open at
least one expiration month for options
on each Bitcoin Fund 12 at the
11 See Rule 19.2, which provides that the rights
and obligations of holders and writers are set forth
in the Rules of the Options Clearing Corporation
(‘‘OCC’’); and Equity Options Product
Specifications January 3, 2024), available at Equity
Options Specifications (cboe.com); see also OCC
Rules, Chapters VIII (which governs exercise and
assignment) and Chapter IX (which governs the
discharge of delivery and payment obligations
arising out of the exercise of physically settled stock
option contracts).
12 See Rule 19.6(b). The monthly expirations are
subject to certain listing criteria for underlying
securities described within Rule 19.3. Monthly
listings expire the third Friday of the month. The
term ‘‘expiration date’’ (unless separately defined
elsewhere in the OCC By-Laws), when used in
respect of an option contract (subject to certain
exceptions), means the third Friday of the
expiration month of such option contract, or if such
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
6/27/2024
6/26/2024
volume (by shares) for each fund for the
six-month period of February 8 through
August 7, 2024 and the approximate
average daily volume (‘‘ADV’’) (in
shares and notional) over the 30-day
period of July 9 through August 7, 2024
for each Bitcoin Fund was as follows:
6-Month trading
volume
(shares)
Bitcoin Fund
279,656
69,425
Date
1,112,861,581
297,360,739
30-Day ADV
(shares)
6,014,335
1,893,335
30-Day ADV
(notional $)
250,354,755
90,484,307
commencement of trading on the
Exchange and may also list series of
options on a Bitcoin Fund for trading on
a weekly,13 monthly,14 or quarterly 15
basis. The Exchange may also list longterm equity option series (‘‘LEAPS’’)
that expire from 12 to 39 months from
the time they are listed.16
Pursuant to Rule 19.6, Interpretation
and Policy .01, which governs strike
prices of series of options on Fund
Shares, the interval of strikes prices for
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 $200.17 Additionally,
the Exchange may list series of options
pursuant to the $1 Strike Price Interval
Program,18 the $0.50 Strike Program,19
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 19.6(c), additional series of
options of the same class may be opened for trading
on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet
customer demand or when the market price of the
underlying stock moves more than five strike prices
from the initial exercise price or prices. New series
of options on an individual stock may be added
until the beginning of the month in which the
options contract will expire. Due to unusual market
conditions, the Exchange, in its discretion, may add
a new series of options on an individual stock until
the close of trading on the business day prior to
expiration.
13 See Rule 19.6, Interpretation and Policy .05.
14 See Rule 19.6, Interpretation and Policy .08.
15 See Rule 19.6, Interpretation and Policy .04.
16 See Rule 19.8.
17 The Exchange notes that for options listed
pursuant to the Short Term Option Series Program,
the Monthly Options Series Program, and the
Quarterly Options Series Program, Rule 19.6,
Interpretations and Policies .05, .08, and .04
specifically sets forth intervals between strike
prices on Quarterly Options Series, Short Term
Option Series, and Monthly Options Series,
respectively.
18 See Rule 19.6, Interpretation and Policy .02.
19 See Rule 19.6, Interpretation and Policy .06.
E:\FR\FM\29NON1.SGM
29NON1
94821
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
the $2.50 Strike Price Program,20 and
the $5 Strike Program.21 Pursuant to
Rule 21.5, 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 $0.10.22
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 19.6 and
21.5, as applicable.
Bitcoin Fund options will trade in the
same manner as any other Fund Share
options on the Exchange. The Exchange
Rules that currently apply to the listing
and trading of all Fund Share options on
the Exchange, including, for example,
Rules that govern listing criteria,
expirations, exercise prices, minimum
increments, margin requirements,
customer accounts, and trading halt
procedures will apply to the listing and
trading of Bitcoin Funds options on the
Exchange in the same manner as they
apply to other options on all other Fund
Shares that are listed and traded on the
Exchange, including the precious-metal
backed commodity Fund Shares already
deemed appropriate for options trading
on the Exchange pursuant to current
Rule 19.3(i).
Six-month ADV
(shares)
Underlying Bitcoin Fund
Fidelity Fund ........................................................................................................
ARK 21 Fund .......................................................................................................
Outstanding
shares
8,902,893
2,378,886
approximate average position (and
exercise limit) of ETF options with
similar outstanding shares (as of August
27, 2024), compared to the proposed
The Exchange then compared the
number of outstanding shares of the
Bitcoin Funds to those of other ETFs.
The following table provides the
Pursuant to Rules 18.7 and 18.9, the
position and exercise limits,
respectively, for each Bitcoin Fund
option will be 25,000 same side option
contracts.23 The Exchange believes
these proposed position and exercise
limits considering, among other things,
the approximate six-month average
daily volume (‘‘ADV’’) and outstanding
shares of each underlying Bitcoin Fund
(which as discussed above demonstrate
that each Bitcoin Fund is widely held
and actively traded and thus justify
these conservatively proposed position
limits), as set forth below, along with
market capitalization (as of August 7,
2024):
201,100,100
45,495,000
Average limit of
other ETF options
(contracts)
Fidelity Fund ............................................................................................................................................................................
ARK 21 Fund ..........................................................................................................................................................................
khammond on DSK9W7S144PROD with NOTICES
20 See
Rule 19.6, Interpretation and Policy .03.
Rule 19.6(d)(5).
22 If options on a Bitcoin Fund are eligible to
participate in the Penny Interval Program, the
minimum increment will be $0.01 for series with
a price below $3.00 and $0.05 for series with a price
at or above $3.00. See 21.5(d) (which describes the
requirements for the Penny Interval Program).
23 Rule 18.7(a)(1) provides that no Options
Member shall make, for any account in which it has
any interest or for the account of any Customer, an
21 See
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
14,217,013,188
2,487,666,600
position and exercise limit for the
Bitcoin Fund options: 24
Underlying Bitcoin Fund
The Exchange considered current
position and exercise limits of options
on ETFs with outstanding shares
comparable to those of each Bitcoin
Fund, with the proposed limit
significantly lower (between two and
ten times lower) than the average limits
of the options on the other ETFs. As
discussed above, the Bitcoin Funds are
actively held and widely traded: (1)
each Bitcoin Fund (as of August 7, 2024)
had significantly more than 7,000,000
shares outstanding, which is the
minimum number of shares of a
Market capitalization
($)
188,110
108,696
Proposed limit
(contracts)
25,000
25,000
corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Rule 19.3(b)(1); (2)
each Bitcoin Fund (as of the dates listed
above) had significantly more than
2,000 beneficial holders, which is the
minimum number of holders the
Exchange generally requires for
corporate stock in order to list options
on that stock pursuant to Rule
19.3(b)(2); and (3) each Bitcoin Fund
had a six-month trading volume
substantially higher than 2,400,000
shares, which is the minimum 12-month
volume the Exchange generally requires
for a security in order to list options on
that security as set forth in Rule
19.3(b)(4).
With respect to outstanding shares, if
a market participant held the maximum
number of positions possible pursuant
to the proposed position and exercise
limits, the equivalent shares represented
by the proposed position/exercise limit
would represent the following
approximate percentage of current
outstanding shares:
opening transaction on any exchange if the Options
Member has reason to believe that as a result of
such transaction the Options Member or its
Customer would, acting alone or in concert with
others, directly or indirectly, exceed the applicable
position limit fixed by Cboe Exchange, Inc. (‘‘Cboe
Options’’). Cboe Options Rule 8.30, Interpretation
and Policy .10 establishes a position limit for the
Bitcoin Fund options of 25,000.
24 With respect to the Fidelity Fund, over 80% of
the ETFs used for comparison have a limit of at
least 200,000, and more than half have a limit of
250,000. Additionally, the three-month ADV of the
majority of the ETFs used for comparison to the
Fidelity Fund was lower than the Fidelity Fund
three-month ADV of 5,665,027 shares. With respect
to the ARK 21 Fund, nearly 80% of the ETFs used
for comparison have a limit of at least 75,000 (and
up to 250,000). Additionally, the three-month ADV
of the majority of ETFs used for comparison was
lower (many more than four times lower) than the
ARK 21 Fund three-month ADV of 1,737,327
shares.
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
E:\FR\FM\29NON1.SGM
29NON1
94822
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
Proposed
position/exercise
limit
(in equivalent
shares)
Underlying Bitcoin Fund
Fidelity Fund ..............................................................................................................
ARK 21 Fund .............................................................................................................
As this table demonstrates, if a market
participant held the maximum
permissible options positions in one of
the Bitcoin Fund options and exercised
all of them at the same time, that market
participant would control a small
percentage of the outstanding shares of
the underlying Bitcoin Fund.
Cboe Options Rule 8.30,
Interpretation and Policy .02 (which
governs position limits on the Exchange
pursuant to Rule 18.7, provides two
methods of qualifying for a position
Outstanding shares
2,500,000
2,500,000
limit tier above 25,000 option contracts.
The first method is based on six-month
trading volume in the underlying
security, and the second method is
based on slightly lower six-month
trading volume and number of shares
outstanding in the underlying security.
An underlying stock or ETF that
qualifies for method two based on
trading volume and number of shares
outstanding would be required to have
the minimum number of outstanding
201,100,100
45,495,000
1.2
5.5
shares as shown in middle column of
the table below.
The table, which provides the
equivalent shares of the position limits
applicable to equity options, including
ETFs, further represents the percentages
of the minimum number of outstanding
shares that an underlying stock or ETF
must have to qualify for that position
limit (under the second method
described above), all of which are higher
than the percentages for the Bitcoin
Funds.25
Minimum
outstanding
shares
Position/exercise limit
(in equivalent shares)
2,500,000 .................................................................................................................................................
5,000,000 .................................................................................................................................................
7,500,000 .................................................................................................................................................
20,000,000 ...............................................................................................................................................
25,000,000 ...............................................................................................................................................
khammond on DSK9W7S144PROD with NOTICES
Percentage of
outstanding
shares
(%)
6,300,000
40,000,000
120,000,000
240,000,000
300,000,000
Percentage of
outstanding
shares
40.0
12.5
6.3
8.3
8.3
The equivalent shares represented by
the proposed position and exercise
limits for each Bitcoin Fund as a
percentage of outstanding shares of the
underlying Bitcoin Fund is significantly
lower than the percentage for the lowest
possible position limit for equity
options of 25,000 (under 6% compared
to 40%) and is lower than that
percentage for each current position
limit bucket.26
Further, the proposed position and
exercise limits for each Bitcoin Fund
option are significantly below the limits
that would otherwise apply pursuant to
current Rules 18.7 and 18.9 (by
reference to Cboe Rules 8.30 and 8.42).
These position and exercise limits are
the lowest position and exercise limits
available in the options industry, are
extremely conservative and more than
appropriate given the market
capitalization, average daily volume,
and high number of outstanding shares
of the Bitcoin Funds.
All of the above information
demonstrates that the proposed position
and exercise limits for the Bitcoin Fund
options are more than reasonable and
appropriate. The trading volume, ADV,
and outstanding shares of each Bitcoin
Fund demonstrate that these funds are
actively traded and widely held, and
proposed position and exercise limits
are well below those of other ETFs with
similar market characteristics. The
proposed position and exercise limits
are the lowest position and exercise
limits available for equity options in the
industry, are extremely conservative,
and are more than appropriate given
each Bitcoin Fund’s market
capitalization, ADV, and high number of
outstanding shares.
Today, the Exchange has an adequate
surveillance program in place for
options. Cboe intends to apply those
same program procedures to options on
the Bitcoin Funds that it applies to the
Exchange’s other options products.27
The Exchange’s market surveillance
staff would have access to the
surveillances conducted by the
Exchange with respect to the Bitcoin
Funds and would review activity in the
underlying Bitcoin Funds when
conducting surveillances for market
abuse or manipulation in the options on
the Bitcoin Funds. Additionally, the
Exchange is a member of the
Intermarket Surveillance Group (‘‘ISG’’)
under the Intermarket Surveillance
Group Agreement. ISG members work
together to coordinate surveillance and
investigative information sharing in the
stock, options, and futures markets. In
addition to obtaining information from
its affiliated markets, the Exchange
would be able to obtain information
regarding trading in shares of the
Bitcoin Funds from their primary listing
markets and from other markets that
trades shares of the Bitcoin Funds
through ISG. In addition, the Exchange
has a Regulatory Services Agreement
with the Financial Industry Regulatory
Authority (‘‘FINRA’’) for certain market
surveillance, investigation and
examinations functions. Pursuant to a
25 6,300,000 is the minimum number of
outstanding shares an underlying security must
have for the Exchange to continue to list options on
that security, so this would be the smallest number
of outstanding shares permissible for any corporate
option that would have a position limit of 25,000
contract. See Rule 19.4(b)(1). This rule applies to
corporate stock options but not ETF options, which
currently have no requirement regarding
outstanding shares of the underlying ETF for the
Exchange to continue listing options on that ETF.
Therefore, there may be ETF options trading for
which the 25,000 contract position limits represents
an even larger percentage of outstanding shares of
the underlying ETF than set forth above.
26 As these percentages are based on the
minimum number of outstanding shares an
underlying security must have to qualify for the
applicable position limit, these are the highest
possible percentages that would apply to any option
subject to that position and exercise limit.
27 The surveillance program includes surveillance
patterns for price and volume movements as well
as patterns for potential manipulation (e.g.,
spoofing and marking the close).
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
PO 00000
Frm 00122
Fmt 4703
Sfmt 4703
E:\FR\FM\29NON1.SGM
29NON1
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
khammond on DSK9W7S144PROD with NOTICES
multi-party 17d–2 joint plan, all options
exchanges allocate amongst themselves
and FINRA responsibilities to conduct
certain options-related market
surveillance that are common to rules of
all options exchanges.28
The underlying shares of spot bitcoin
exchange-traded products (‘‘ETPs’’),
including the Bitcoin Funds, are also
subject to safeguards related to
addressing market abuse and
manipulation. As the Commission
stated in 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.29 The Exchange
states that, given the consistently high
correlation between the CME Bitcoin
futures market and the spot bitcoin
market, as confirmed by the
Commission through robust correlation
analysis, the Commission was able to
conclude that such surveillance sharing
agreements could reasonably be
‘‘expected to assist in surveilling for
fraudulent and manipulative acts and
practices in the specific context of the
[Bitcoin ETPs].’’ 30 In light of
surveillance measures related to both
options and futures as well as the
underlying Bitcoin Funds,31 the
28 Section 19(g)(1) of the Act, among other things,
requires every self-regulatory organization (‘‘SRO’’)
registered as a national securities exchange or
national securities association to comply with the
Act, the rules and regulations thereunder, and the
SRO’s own rules, and, absent reasonable
justification or excuse, enforce compliance by its
members and persons associated with its members.
See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d–2.
Section 17(d)(1) of the Act allows the Commission
to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also
members of another SRO (‘‘common members’’).
Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities
to: (i) receive regulatory reports from such
members; (ii) examine such members for
compliance with the Act and the rules and
regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory
responsibilities with respect to such members.
29 See Bitcoin ETP Approval Order.
30 See Bitcoin ETP Approval Order, 89 FR 3010–
11.
31 See Securities Exchange Act Release Nos.
99290 (January 8, 2024), 89 FR 2338, 2343, 2347—
2348 (January 12, 2024) (SR–CboeBZX–2023–044)
Notice of Filing of Amendment No. 3 to a Proposed
Rule Change to List and Trade Shares of the Fidelity
Wise Origin Bitcoin Fund Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares); and
99288 (January 8, 2024), 89 FR 2387, 2392, 2399–
2400 (January 12, 2024) (SR–CboeBZX–2023–028)
(Notice of Filing of Amendment No. 5 to a Proposed
Rule Change To List and Trade Shares of the ARK
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
Exchange believes that existing
surveillance procedures are designed to
deter and detect possible manipulative
behavior which might potentially arise
from listing and trading the proposed
options on the Bitcoin Funds. Further,
the Exchange will implement any new
surveillance procedures it deems
necessary to effectively monitor the
trading of options on Bitcoin ETPs.
The Exchange has also analyzed its
capacity and represents that it believes
the Exchange and OPRA have the
necessary systems capacity to handle
the additional traffic associated with the
listing of new series that may result
from the introduction of options on
Bitcoin Funds up to the number of
expirations currently permissible under
the Rules. Because the proposal is
limited to two classes, the Exchange
believes any additional traffic that may
be generated from the introduction of
Bitcoin Fund options will be
manageable.
The Exchange believes that offering
options on Bitcoin Funds will benefit
investors by providing them with an
additional, relatively lower cost
investing tool to gain exposure to the
price of Bitcoin and hedging vehicle to
meet their investment needs in
connection with Bitcoin-related
products and positions. The Exchange
expects investors will transact in
options on Bitcoin Funds in the
unregulated over-the-counter (‘‘OTC’’)
options market,32 but may prefer to
trade such options in a listed
environment to receive the benefits of
trading listing options, including (1)
enhanced efficiency in initiating and
closing out positions; (2) increased
market transparency; and (3) heightened
contra-party creditworthiness due to the
role of OCC as issuer and guarantor of
all listed options. The Exchange
believes that listing Bitcoin Fund
options may cause investors to bring
this liquidity to the Exchange, would
increase market transparency and
21Shares Bitcoin ETF Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares). See also Securities
Exchange Act Release No. 99306 (January 10, 2024),
89 FR 3008, 3009 (January 17, 2024) (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 Approval
Order’’).
32 The Exchange understands from customers that
investors have historically transacted in options on
Fund Shares in the OTC options market if such
options were not available for trading in a listed
environment.
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
94823
enhance the process of price discovery
conducted on the Exchange through
increased order flow. The Fund Shares
that hold financial instruments, money
market instruments, or precious metal
commodities on which the Exchange
may already list and trade options are
trusts structured in substantially the
same manner as Bitcoin Funds and
essentially offer the same objectives and
benefits to investors, just with respect to
different assets. The Exchange notes that
it has not identified any issues with the
continued listing and trading of any
Fund Share options, including Fund
Shares that hold commodities (i.e.,
precious metals) that it currently lists
and trades on the Exchange.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.33 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 34 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 35 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposal to list and trade
options on 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 lowercost risk management tool, which will
33 15
34 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
35 Id.
E:\FR\FM\29NON1.SGM
29NON1
94824
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
allow them to manage their positions
and associated risk in their portfolios
more easily in connection with
exposure to the price of Bitcoin and
with Bitcoin-related products and
positions. Additionally, the Exchange’s
offering of Bitcoin Fund options will
provide investors with the ability to
transact in such options in a listed
market environment as opposed to in
the unregulated OTC options market,
which would increase market
transparency and enhance the process of
price discovery conducted on the
Exchange through increased order flow
to the benefit of all investors. The
Exchange also notes that it already lists
options on other commodity-based
Fund Shares,36 which, as described
above, are trusts structured in
substantially the same manner as
Bitcoin Funds and essentially offer the
same objectives and benefits to
investors, just with respect to a different
commodity (i.e., Bitcoin rather than
precious metals) and for which the
Exchange has not identified any issues
with the continued listing and trading of
commodity-backed Fund Share 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 Fund
Shares, including Fund Shares 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 Fund Share options—the same
Exchange Rules that currently govern
the listing and trading of all Fund Share
options, including permissible
expirations, strike prices and minimum
increments, and applicable margin
requirements, will govern the listing
and trading of options on Bitcoin Funds
in the same manner.
The Exchange believes the proposed
position and exercise limits are
designed to prevent fraudulent and
manipulative acts and practices and
promote just and equitable principles of
trade, as they are designed to address
potential manipulative schemes and
adverse market impacts surrounding the
use of options, such as disrupting the
market in the security underlying the
options. The proposed position and
exercise limits are 25,000 contracts,
which is the lowest limit applicable to
any equity options (including ETF and
options on other Bitcoin ETFs).37 The
Exchange believes the proposed
position and exercise limits are
extremely conservative for each Bitcoin
Fund option given the trading volume
and outstanding shares for each. The
information above demonstrates that the
average position and exercise limits of
August 27,
2024
share price
($)
Bitcoin Fund
Fidelity Fund ..........................................................................................................................
ARK 21 Fund .........................................................................................................................
khammond on DSK9W7S144PROD with NOTICES
Therefore, if a market participant with
the maximum 25,000 same side
contracts in either Fidelity Fund options
or ARK 21 Fund options exercised all
positions at one time, such an event
would have no practical impact on the
Bitcoin market.
options on ETFs with comparable
outstanding shares and trading volume
to those of the Bitcoin Funds are
significantly higher than the proposed
position and exercise limits for Bitcoin
Fund options. Therefore, the proposed
position and exercise limits for the
Bitcoin Fund options are conservative
relative to options on ETFs with
comparable market characteristics.
Further, given that the issuer of each
Bitcoin Fund may create and redeem
shares that represent an interest in
Bitcoin, the Exchange believes it is
relevant to compare the size of a
position limit to the market
capitalization of the Bitcoin market. As
of August 27, 2024, the global supply of
Bitcoin was 19,745,940, and the price of
one Bitcoin was approximately
$59,466.82,38 which equates to a market
capitalization of approximately $1.165
trillion. Consider the proposed position
and exercise limit of 25,000 option
contracts for each Bitcoin Fund option.
A position and exercise limit of 25,000
same side contracts effectively restricts
a market participant from holding
positions that could result in the receipt
of no more than 2,500,000 of Fidelity
Fund shares or ARK 21 Fund shares, as
applicable (if that market participant
exercised all its options. The following
table shows the share price of each
Bitcoin Fund on August 27, 2024, the
value of 2,500,000 shares of the Bitcoin
Fund at that price, and the approximate
percentage of that value of the size of
the Bitcoin market:
The Exchange also believes the
proposed limits are appropriate given
position limits for Bitcoin futures. For
example, the Chicago Mercantile
Exchange (‘‘CME’’) imposes a position
limit of 2,000 futures (for the initial spot
month) on its Bitcoin futures contract.39
On August 28, 2024, CME Aug 24
Value of
2,500,000 shares
of Bitcoin fund
($)
54.33
62.08
August 28, 2024
share price
($)
Fidelity Fund ................................................................................................................................................
Rule 19.3(i)(4).
Cboe Options Rule 8.30.
38 See Blockchain.com | Charts—Total Circulating
Bitcoin.
37 See
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
39 See CME Rulebook Chapter 350 (description of
CME Bitcoin Futures) and Chapter 5, Position
Limit, Position Accountability and Reportable Level
Table in the Interpretations & Special Notices. Each
PO 00000
Frm 00124
135,825,000
155,200,000
Fmt 4703
Sfmt 4703
0.01
0.01
Bitcoin Futures settled at $58,950. A
position of 2,000 CME Bitcoin futures,
therefore, would have a notional value
of $589,500,000. The following table
shows the share price of each Bitcoin
Fund on August 28, 2024 and the
approximate number of option contracts
that equates to that notional value:
Bitcoin Fund
36 See
Percentage of
bitcoin market
51.47
Number of
option contracts
114,532
CME Bitcoin futures contract is valued at five
Bitcoins as defined by the CME CF Bitcoin
Reference Rate (‘‘BRR’’). See CME Rule 35001.
E:\FR\FM\29NON1.SGM
29NON1
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
August 28, 2024
share price
($)
Bitcoin Fund
ARK 21 Fund ...............................................................................................................................................
The approximate number of option
contracts for each Bitcoin Fund that
equate to the notional value of CME
Bitcoin futures is significantly higher
than the proposed limit of 25,000
options contract for each Bitcoin Fund
option. The fact that many options
ultimately expire out-of-the-money and
thus are not exercised for shares of the
underlying, while the delta of a Bitcoin
Future is 1, further demonstrates how
conservative the proposed limits of
25,000 options contracts are for the
Bitcoin Fund options.
The Exchange notes, unlike options
contracts, CME position limits are
calculated on a net futures-equivalent
basis by contract and include contracts
that aggregate into one or more base
contracts according to an aggregation
ratio(s).40 Therefore, if a portfolio
includes positions in options on futures,
CME would aggregate those positions
into the underlying futures contracts in
accordance with a table published by
CME on a delta equivalent value for the
relevant spot month, subsequent spot
month, single month and all month
position limits.41 If a position exceeds
position limits because of an option
assignment, CME permits market
participants to liquidate the excess
position within one business day
without being considered in violation of
its rules. Additionally, if at the close of
trading, a position that includes options
exceeds position limits for futures
contracts, when evaluated using the
delta factors as of that day’s close of
trading but does not exceed the limits
when evaluated using the previous
day’s delta factors, then the position
shall not constitute a position limit
violation. Considering CME’s position
limits on futures for Bitcoin, the
Exchange believes that that the
proposed same side position limits are
more than appropriate for the Bitcoin
Fund options.
Number of
option contracts
100,203
The Exchange believes the proposed
position and exercise limits will have
no material impact to the supply of
Bitcoin. For example, consider again the
proposed position limit of 25,000 option
contracts for each Bitcoin Fund option.
As noted above, a position limit of
25,000 same side contracts effectively
restricts a market participant from
holding positions that could result in
the receipt of no more than 2,500,000
shares of the applicable Bitcoin Fund (if
that market participant exercised all its
options). As of August 7, 2024, the
Bitcoin Funds had the number of shares
outstanding set forth in the table below.
The table below also sets forth the
approximate number of market
participants that could hold the
maximum of 25,000 same side positions
in each Bitcoin Fund that would equate
to the number of shares outstanding of
that Bitcoin Fund:
Shares
outstanding
Bitcoin Fund
Fidelity Fund ................................................................................................................................................
ARK 21 Fund ...............................................................................................................................................
khammond on DSK9W7S144PROD with NOTICES
58.83
94825
Number of market
participants with
25,000 same side
positions
201,100,100
45,495,000
80
18
This means if 80 market participants
had 25,000 same side positions in
Fidelity Fund options, each of them
would have to simultaneously exercise
all of those options to create a scenario
that may put the underlying security
under stress. Similarly, this means if 18
market participants had 25,000 same
side positions in ARK 21 Fund options,
each of them would have to
simultaneously exercise all of those
options to create a scenario that may put
the underlying security under stress.
The Exchange believes it is highly
unlikely for either such event to occur;
however, even if either such event did
occur, the Exchange would not expect
either Bitcoin Fund to be under stress
because such an event would merely
induce the creation of more shares
through the trust’s creation and
redemption process.
As of August 7, 2024, the global
supply of Bitcoin was approximately
19,736,528.42 Based on the $47.88 price
of a Fidelity Fund share on August 7,
2024, a market participant could have
redeemed one Bitcoin for approximately
1,149 Fidelity Fund shares. Another
22,677,270,672 Fidelity Fund shares
could be created before the supply of
Bitcoin was exhausted. As a result,
9,070 market participants would have to
simultaneously exercise 25,000 same
side positions in Fidelity Fund options
to receive shares of the Fidelity Fund
holding the entire global supply of
Bitcoin. Similarly, based on the $54.68
price of an ARK 21 Fund share on
August 7, 2024, a market participant
could have redeemed one Bitcoin for
approximately 1,006 ARK 21 Fund
Shares. Another 19,855 ARK 21 Fund
shares could be created before the
supply of Bitcoin were exhausted. As a
result, 7,941 market participants would
have to simultaneously exercise 25,000
same side positions in ARK 21 Fund
options to receive shares of the ARK 21
Fund holding the entire global supply of
Bitcoin. Unlike the Bitcoin Funds, the
number of shares that corporations may
issue is limited. However, like
corporations, which authorize
additional shares, repurchase shares, or
split their shares, the Bitcoin Funds may
create, redeem, or split shares in
response to demand. While the supply
of Bitcoin is limited to 21,000,000, it is
believed that it will take more than 100
years to fully mine the remaining
Bitcoin.43 The supply of Bitcoin is larger
than the available supply of most
40 See CME Rulebook Chapter 5, Position Limit,
Position Accountability and Reportable Level Table
in the Interpretations & Special Notices.
41 Id.
42 See Blockchain.com | Charts—Total Circulating
Bitcoin (which also shows the price of one Bitcoin
equal to $55,033.47).
43 See Pre-Effective Amendment No. 5 to Form S–
1 Registration Statement No. 333–254652, Fidelity
Fund, filed January 9, 2024, at 53—54; and
Amendment No. 8 to Form S–1 Registration
Statement No. 333–257474, ARK 21 Fund, filed
January 9, 2024, at 15.
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
E:\FR\FM\29NON1.SGM
29NON1
94826
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
khammond on DSK9W7S144PROD with NOTICES
securities.44 Given the significant
unlikelihood of any of these events ever
occurring, the Exchange does not
believe options on the Bitcoin Funds
should be subject to position and
exercise limits even lower than those
proposed (which are already equal to
the lowest available limit for equity
options in the industry) to protect the
supply of Bitcoin.45
The Exchange believes the available
supply of Bitcoin is not relevant to the
determination of position and exercise
limits for options overlying the Bitcoin
Funds.46 Position and exercise limits are
not a tool that should be used to address
a potential limited supply of the
underlying of an underlying. Position
and exercise limits do not limit the total
number of options that may be held, but
rather they limit the number of
positions a single customer may hold or
exercise at one time.47 ‘‘Since the
inception of standardized options
trading, the options exchanges have had
rules imposing limits on the aggregate
number of options contracts that a
member or customer could hold or
exercise.’’ 48 Position and exercise limit
rules are intended ‘‘to prevent the
44 The market capitalization of Bitcoin would
rank in the top 10 among securities. See https://
companiesmarketcap.com/usa/largest-companiesin-the-usa-by-market-cap/.
45 This would be even more unlikely with respect
to the Bitcoin Funds for which the Exchange
proposes lower position limits.
46 Prior to Bitcoin ETFs, the Exchange is unaware
of any proposed rule change related to position and
exercise limits for any equity option (including
commodity ETF options) for which the Commission
required consideration of whether the available
supply of an underlying (whether it be a corporate
stock or an ETF) or the contents of an ETF
(commodity or otherwise) should be considered
when an exchange proposed to establish those
limits. See, e.g., Securities Exchange Act Release
No. 57894 (May 30, 2008), 73 FR 32061 (June 5,
2008) (SR–CBOE–2005–11) (approval order in
which the Commission stated that the ‘‘listing and
trading of Gold Trust Options will be subject to the
exchanges’ rules pertaining to position and exercise
limits and margin’’). The Exchange notes when the
Commission approved this filing, the position
limits in Rule 8.30 were the same as they are today.
For reference, the current position and exercise
limits for options on SPDR Gold Shares ETF
(‘‘GLD’’) and options on iShares Silver Trust
(‘‘SLV’’) are 250,000 contracts, or 10 times that
proposed position and exercise limit for the Bitcoin
Fund options.
47 For example, suppose an option has a position
limit of 25,000 option contracts and there are a total
of 10 investors trading that option. If all 10
investors max out their positions, that would result
in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide
to begin trading that option and also max out their
positions. This would result in 500,000 option
contracts outstanding at that time. An increase in
the number of investors could cause an increase in
outstanding options even if position limits remain
unchanged.
48 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
establishment of options positions that
can be used or might create incentives
to manipulate or disrupt the underlying
market so as to benefit the options
position. In particular, position and
exercise limits are designed to minimize
the potential for mini-manipulations
and for corners or squeezes of the
underlying market. In addition, such
limits serve to reduce the possibility for
disruption of the options market itself,
especially in illiquid options classes.’’ 49
The Exchange notes that a
Registration Statement on Form S–1 was
filed with the Commission for each
Bitcoin Fund, each of which described
the supply of Bitcoin as being limited to
21,000,000 (of which approximately
90% had already been mined), and that
the limit would be reached around the
year 2140.50 Each Registration
Statement permits an unlimited number
of shares of the applicable Bitcoin ETF
to be created. Further, the Commission
approved proposed rule changes that
permitted the listing and trading of
shares of each Bitcoin Fund, which
approval did not comment on the
sufficient supply of Bitcoin or address
whether there was a risk that permitting
an unlimited number of shares for a
Bitcoin Fund would impact the supply
of Bitcoin.51 Therefore, the Exchange
believes the Commission had ample
time and opportunity to consider
whether the supply of Bitcoin was
sufficient to permit the creation of
unlimited Bitcoin Fund shares, and
does not believe considering this supply
with respect to the establishment of
position and exercise limits is
appropriate given its lack of relevance to
the purpose of position and exercise
limits. However, given the significant
size of the Bitcoin supply, the proposed
positions limits are more than sufficient
to protect investors and the market.
Based on the above information
demonstrating, among other things, that
each Bitcoin Fund is characterized by a
substantial number of outstanding
shares that are actively traded and
widely held, the Exchange believes the
proposed position and exercise limits
are extremely conservative compared to
those of ETF options with similar
market characteristics. The proposed
position and exercise limits reasonably
and appropriately balance the liquidity
provisioning in the market against the
prevention of manipulation. The
49 See
id.
Pre-Effective Amendment No. 5 to Form S–
1 Registration Statement No. 333–254652, Fidelity
Fund, filed January 9, 2024, at 53—54; and
Amendment No. 8 to Form S–1 Registration
Statement No. 333–257474, ARK 21 Fund, filed
January 9, 2024, at 15.
51 See Bitcoin ETP Approval Order.
50 See
PO 00000
Frm 00126
Fmt 4703
Sfmt 4703
Exchange believes these proposed limits
are effectively designed to prevent an
individual customer or entity from
establishing options positions that could
be used to manipulate the market of the
underlying as well as the Bitcoin
market.52
The Exchange represents that it has
the necessary systems capacity to
support the new Bitcoin Fund options.
As discussed above, the Exchange
believes that its existing surveillance
and reporting safeguards are designed to
deter and detect possible manipulative
behavior which might arise from listing
and trading Fund Share options,
including Bitcoin Fund options.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. 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 the Bitcoin Fund options will be
equally available to all market
participants who wish to trade such
options and will trade generally in the
same manner as other options. The
Exchange Rules that currently apply to
the listing and trading of all Fund Share
options on the Exchange, including, for
example, Rules that govern listing
criteria, expirations, exercise prices,
minimum increments, margin
requirements, customer accounts, and
trading halt procedures will apply to the
listing and trading of Bitcoin Funds
options on the Exchange in the same
manner as they apply to other options
on all other Fund Shares that are listed
and traded on the Exchange. Also, and
as stated above, the Exchange already
lists options on other commodity-based
Fund Share.53 Further, the Bitcoin
Funds would need to satisfy the
maintenance listing standards set forth
in the Exchange Rules in the same
manner as any other Fund Share for the
Exchange to continue listing options on
them.
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
52 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
53 See Rule 19.3(i)(4)
E:\FR\FM\29NON1.SGM
29NON1
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
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. The
Commission a rule filing of another
exchange to permit the listing and
trading of options on the Bitcoin
Funds.54 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
The Exchange neither solicited nor
received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
khammond on DSK9W7S144PROD with NOTICES
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
54 See Securities Exchange Act Release No.
101387 (October 18, 2024), 89 FR 8498 (October 24,
2024) (SR–CBOE–2024–035). The Exchange notes
the Commission recently approved a rule filing of
another exchange to permit the listing and trading
of options on the iShares Bitcoin Trust. See
Securities Exchange Act Release No. 101128
(September 20, 2024), 89 FR 78942 (September 26,
2024) (SR–ISE–2024–03).
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
19(b)(3)(A) of the Act 55 and Rule 19b–
4(f)(6) thereunder.56
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act normally does not become operative
for 30 days after the date of its filing.
However, Rule 19b–4(f)(6)(iii) 57 permits
the Commission to designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has requested
that the Commission waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Commission previously
approved the listing of options on the
Bitcoin Funds.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 options on the Bitcoin
Funds. 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 operative upon
filing.
Thus, 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
operative upon filing.59
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
55 15
U.S.C. 78s(b)(3)(A).
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.
57 17 CFR 240.19b–4(f)(6)(iii).
58 See Securities Exchange Act Release No.
101387 (Oct. 18, 2024), 89 FR 84948 (Oct. 24, 2024).
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).
56 17
PO 00000
Frm 00127
Fmt 4703
Sfmt 4703
94827
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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–
CboeBZX–2024–118 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–CboeBZX–2024–118. 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–CboeBZX–2024–118 and should be
submitted on or before December 20,
2024.
E:\FR\FM\29NON1.SGM
29NON1
94828
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.60
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–27997 Filed 11–27–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101717; File No. SR–MIAX–
2024–43]
Self-Regulatory Organizations; MIAX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 402, Criteria for Underlying
Securities, Exchange Rule 307,
Position Limits, and Exchange Rule
309, Exercise Limits To Allow the
Exchange To List and Trade Options
on the Fidelity Wise Origin Bitcoin
Fund (the ‘‘Fidelity Fund’’) and the ARK
21Shares Bitcoin ETF (the ‘‘ARK 21
Fund’’)
November 22, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
21, 2024, Miami International Securities
Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
khammond on DSK9W7S144PROD with NOTICES
The Exchange proposes to amend
Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule
307, Position Limits, and Exchange Rule
309, Exercise Limits.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/miax-options/rule-filings, at
MIAX’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
60 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
21:22 Nov 27, 2024
Jkt 265001
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule
307, Position Limits, and Exchange Rule
309, Exercise Limits,3 to allow the
Exchange to list and trade options on
Fidelity Wise Origin Bitcoin Fund (the
‘‘Fidelity Fund’’) and the ARK 21Shares
Bitcoin ETF (the ‘‘ARK 21 Fund’’ and,
with the Fidelity Fund, the ‘‘Bitcoin
Funds’’), designating the Bitcoin Funds
as appropriate for options trading on the
Exchange.4 This is a competitive filing
based on a similar proposal submitted
by Cboe Exchange, Inc. (‘‘Cboe’’) and
approved by the Securities and
Exchange Commission
(‘‘Commission’’).5
Current Exchange Rule 402(i)(4)
provides that securities deemed
appropriate for options trading include
shares or other securities (‘‘Exchange
3 The Exchange notes that its affiliate exchanges,
MIAX Pearl and MIAX Sapphire, submitted
substantively identical proposals. The Exchange
notes that all the rules of Chapter III of the MIAX
Options Exchange, including Rules 307 and 309, are
incorporated by reference to MIAX Pearl and MIAX
Sapphire. The Exchange also notes that all of the
rules of Chapter III of the MIAX Options Exchange,
including Rules 307 and 309, and the rules of
Chapter IV of the MIAX Options Exchange,
including Rule 402, are incorporated by reference
to MIAX Emerald.
4 On January 10, 2024, the Commission approved
proposals by NYSE Arca, Inc., The Nasdaq Stock
Market LLC, and Cboe BZX Exchange, Inc. to list
and trade the shares of 11 bitcoin-based
commodity-based trust shares and trust units,
including the iShares Bitcoin Trust. See Securities
Exchange Act Release No. 99306 (Jan. 10, 2024), 89
FR 3008 (Jan. 17, 2024) (order approving File Nos.
SR–NYSEARCA–2021–90; SR–NYSEARCA–2023–
44; SR–NYSEARCA–2023–58; SR–NASDAQ–2023–
016; SR–NASDAQ–2023–019; SR–CboeBZX–2023–
028; SR–CboeBZX–2023–038; SR–CboeBZX–2023–
040; SR–CboeBZX–2023–042; SR–CboeBZX–2023–
044; SR–CboeBZX–2023–072) (‘‘Bitcoin ETP
Order’’).
5 See Securities Exchange Act Release No. 101387
(October 18, 2024), 89 FR 84948 (October 24, 2024)
(SR–CBOE–2024–35)(Self-Regulatory Organizations;
Cboe Exchange, Inc.; Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 2 and 3, to Permit
the Listing and Trading of Options on Bitcoin
Exchange Traded Funds).
PO 00000
Frm 00128
Fmt 4703
Sfmt 4703
Traded Fund Shares’’ or ‘‘ETFs’’) that
represent certain types of interests,6
including interests in certain specific
trusts that hold financial instruments,
money market instruments, or precious
metals (which are deemed
commodities).
The Bitcoin Funds are Bitcoin-backed
commodity ETFs structured as trusts.
Similar to any ETFs currently deemed
appropriate for options trading under
Exchange Rule 402(i), the investment
objective of each Bitcoin Fund is for its
shares to reflect the performance of
Bitcoin (less the expenses of the trust’s
operations), offering investors an
6 See Exchange Rule 402(i), which permits
options trading on ETFS that: (1) represent interests
in registered investment companies (or series
thereof) organized as open-end management
investment companies, unit investment trusts or
similar entities that hold portfolios of securities
and/or financial instruments (‘‘Funds’’), including,
but not limited to, stock index futures contracts,
options on futures, options on securities and
indices, equity caps, collars and floors, swap
agreements, forward contracts, repurchase
agreements and reverse repurchase agreements (the
‘‘Financial Instruments’’), and money market
instruments, including, but not limited to, U.S.
government securities and repurchase agreements
(the ‘‘Money Market Instruments’’) comprising or
otherwise based on or representing investments in
broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market
Instruments (or that hold securities in one or more
other registered investment companies that
themselves hold such portfolios of securities and/
or Financial Instruments and Money Market
Instruments); (2) represent interests in a trust or
similar entity that holds a specified non-U.S.
currency or currencies deposited with the trust
which when aggregated in some specified minimum
number may be surrendered to the trust or similar
entity by the beneficial owner to receive the
specified non-U.S. currency or currencies and pays
the beneficial owner interest and other distributions
on the deposited non-U.S. currency or currencies,
if any, declared and paid by the trust (‘‘Currency
Trust Shares’’); (3) represent commodity pool
interests principally engaged, directly or indirectly,
in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward
contracts and/or options on physical commodities
and/or non-U.S. currency (‘‘Commodity Pool
ETFs’’); (4) are issued by the are issued by the
SPDR® Gold Trust, the iShares COMEX Gold Trust,
the iShares Silver Trust, the ETFS Silver Trust, the
Aberdeen Standard Physical Gold Trust, the ETFS
Palladium Trust, the ETFS Platinum Trust, the
Sprott Physical Gold Trust, or the iShares Bitcoin
Trust; or (5) represent an interest in a registered
investment company (‘‘Investment Company’’)
organized as an open-end management company or
similar entity, that invests in a portfolio of
securities selected by the Investment Company’s
investment adviser consistent with the Investment
Company’s investment objectives and policies,
which is issued in a specified aggregate minimum
number in return for a deposit of a specified
portfolio of securities and/or a cash amount with a
value equal to the next determined net asset value
(‘‘NAV’’), and when aggregated in the same
specified minimum number, may be redeemed at a
holder’s request, which holder will be paid a
specified portfolio of securities and/or cash with a
value equal to the next determined NAV (‘‘Managed
Fund Share’’); provided that all of the conditions
listed in (5)(i) and 5(ii) are met.
E:\FR\FM\29NON1.SGM
29NON1
]]>Agencies
[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94818-94828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27997]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101714; File No. SR-CboeBZX-2024-118]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To List
Options on Certain Bitcoin ETFs
November 22, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 21, 2024, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX
Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'')
proposes to amend Rule 19.3. The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 19.3 regarding the criteria for
underlying securities. Specifically, the Exchange proposes to amend
Rule 19.3(i)(4) to allow the Exchange to list and trade options on
shares or other securities (``Fund Shares'') that are principally
traded on a national securities exchange and are defined as an ``NMS
stock'' under Rule 600 of Regulation NMS and that represent interests
in the Fidelity Wise Origin Bitcoin Fund (the ``Fidelity Fund'') and
the ARK 21Shares Bitcoin ETF (the ``ARK 21 Fund'' and, with the
Fidelity
[[Page 94819]]
Fund, the ``Bitcoin Funds'').\3\ Current Rule 19.3(i) provides that,
subject to certain other criteria set forth in that Rule, securities
deemed appropriate for options trading include Fund Shares that
represent certain types of interests,\4\ including interests in certain
specific trusts that hold financial instruments, money market
instruments, or precious metals (which are deemed commodities).
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008, 3009 (January 17, 2024) (SR-NYSEArca-2021-90; SR-
NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ-2023-016; SR-
NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-
CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; 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 Approval Order'').
\4\ See Rule 19.3(i) which permits options trading on Fund
Shares that (1) represent interests in registered investment
companies (or series thereof) organized as open-end management
investment companies, unit investment trusts or similar entities,
and that hold portfolios of securities comprising or otherwise based
on or representing investments in indexes or portfolios of
securities (or that hold securities in one or more other registered
investment companies that themselves hold such portfolios of
securities) (``Funds '') 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 repurchase agreements (the ``Financial Instruments''), and
money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements (the ``Money Market
Instruments'') constituting or otherwise based on or representing an
investment in an index or portfolio of securities and/or Financial
Instruments and Money Market Instruments, or (2) represent commodity
pool interests principally engaged, directly or indirectly, in
holding and/or managing portfolios or baskets of securities,
commodity futures contracts, options on commodity futures contracts,
swaps, forward 477 contracts and/or options on physical commodities
and/or non-U.S. currency (``Commodity Pool ETFs'') or (3) represent
interests in a trust or similar entity that holds a specified non-
U.S. currency or currencies 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 or currencies and pays the beneficial
owner interest and other distributions on the deposited non-U.S.
currency or currencies, if any, declared and paid by the trust
(``Currency Trust Shares''), or (4) represent interests in the SPDR
Gold Trust or are issued by the iShares COMEX Gold Trust or iShares
Silver Trust.
---------------------------------------------------------------------------
The Bitcoin Funds are Bitcoin-backed commodity exchange-traded
funds (``ETFs'') structured as trusts. Similar to any Fund Share
currently deemed appropriate for options trading under Rule 19.3(i),
the investment objective of each Bitcoin Fund is for its shares to
reflect the performance of Bitcoin (less the expenses of the trust's
operations), offering investors an opportunity to gain exposure to
Bitcoin without the complexities of Bitcoin delivery. As is the case
for Fund Shares currently deemed appropriate for options trading, a
Bitcoin Fund's shares represent units of fractional undivided
beneficial interest in the trust, the assets of which consist
principally of Bitcoin and are designed to track Bitcoin or the
performance of the price of Bitcoin and offer access to the Bitcoin
market.\5\ The Bitcoin Funds provide investors with cost-efficient
alternatives that allow a level of participation in the Bitcoin market
through the securities market. The primary substantive difference
between Bitcoin Funds and Fund Shares currently deemed appropriate for
options trading are that Fund Shares may hold securities, certain
financial instruments, and specified precious metals (which are deemed
commodities), while Bitcoin Funds hold Bitcoin (which is also deemed a
commodity).
---------------------------------------------------------------------------
\5\ The trust may include minimal cash.
---------------------------------------------------------------------------
The Exchange believes each Bitcoin Fund satisfies the Exchange's
initial listing standards for Fund Shares on which the Exchange may
list options. Specifically, each Bitcoin Fund satisfies the initial
listing standards set forth in Rule 19.3(i), as is the case for other
Fund Shares on which the Exchange lists options (including trusts that
hold commodities). Rule 19.3(i)(1) requires that Fund Shares either (1)
meet the criteria and standards set forth in Rule 19.3(a) and (b),\6\
or (2) are available for creation or redemption each business day in
cash or in kind from the investment company, commodity pool or other
entity at a price related to net asset value, and the investment
company, commodity pool or other entity is obligated to provide that
Fund Shares may be created even if some or all of the securities and/or
cash required to be deposited have not been received by the Fund, the
unit investment trust or the management investment company, provided
the authorized creation participant has undertaken to deliver the
securities and/or cash 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 Fund, all as described in
the Fund's or unit trust's prospectus. Each Bitcoin Fund satisfies Rule
19.3(i)(1)(B) as each is subject to this creation and redemption
process.
---------------------------------------------------------------------------
\6\ Rule 19.3(a) and (b) sets forth the criteria an underlying
security must meet for the Exchange to be able to list options on
the underlying.
---------------------------------------------------------------------------
While not required by the Rules for purposes of options listings,
the Exchange believes each Bitcoin Fund satisfies the criteria and
guidelines set forth in Rule 19.3(a) and (b). Pursuant to Rule 19.3(a),
a security (which includes a Fund Share) on which options may be listed
and traded on the Exchange must be registered with the Securities and
Exchange Commission (``Commission'') and be an NMS stock (as defined in
Rule 600 of Regulation NMS under the Securities Exchange Act of 1934,
as amended (the ``Act'')), and be characterized by a substantial number
of outstanding shares that are widely held and actively traded.\7\ Each
Bitcoin Fund is an NMS Stock as defined in Rule 600 of Regulation NMS
under the Act.\8\ The Exchange believes each Bitcoin Fund is
characterized by a substantial number of outstanding shares that are
widely held and actively traded.
---------------------------------------------------------------------------
\7\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Rule 19.3(b),
subject to exceptions.
\8\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
\9\ The Exchange continues to believe assets under management
(``AUM''), rather than shares outstanding and number of holders, is
a better measure of investable capacity of ETFs and a more
appropriate figure for determining position and exercise limits of
ETFs and looks forward to further discussions with the Commission
staff on this topic.
\10\ The Bitcoin Funds began trading on January 11, 2024.
---------------------------------------------------------------------------
As of August 7, 2024, the Bitcoin Funds had the following number of
shares outstanding:
------------------------------------------------------------------------
Shares
Bitcoin Fund outstanding
------------------------------------------------------------------------
Fidelity Fund........................................ 201,100,100
ARK 21 Fund.......................................... 45,495,000
------------------------------------------------------------------------
Each Bitcoin Fund had significantly more than 7,000,000 shares
outstanding (approximately 29 and 6.5 times that amount, respectively),
which is the minimum number of shares of a corporate stock that the
Exchange generally requires to list options on that stock pursuant to
Rule 19.3(b). The Exchange believes this demonstrates that each Bitcoin
Fund is characterized by a substantial number of outstanding shares.
Further, the below table contains information regarding the number
of beneficial holders of the Bitcoin Funds as of the specified dates:
[[Page 94820]]
------------------------------------------------------------------------
Beneficial
Bitcoin Fund holders Date
------------------------------------------------------------------------
Fidelity Fund........................... 279,656 6/27/2024
ARK 21 Fund............................. 69,425 6/26/2024
------------------------------------------------------------------------
As this table shows, each Bitcoin Fund has significantly more than
2,000 beneficial holders (approximately 140 and 35 times more,
respectively), which is the minimum number of holders the Exchange
generally requires for corporate stock in order to list options on that
stock pursuant to Rule 19.3(b). Therefore, the Exchange believes the
shares of each Bitcoin Fund are widely held.\9\
The Exchange also believes the shares of each Bitcoin Fund are
actively traded. As of August 7, 2024, the total trading volume (by
shares) for each fund for the six-month period of February 8 through
August 7, 2024 and the approximate average daily volume (``ADV'') (in
shares and notional) over the 30-day period of July 9 through August 7,
2024 for each Bitcoin Fund was as follows:
----------------------------------------------------------------------------------------------------------------
6-Month trading 30-Day ADV 30-Day ADV
Bitcoin Fund volume (shares) (shares) (notional $)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund............................................. 1,112,861,581 6,014,335 250,354,755
ARK 21 Fund............................................... 297,360,739 1,893,335 90,484,307
----------------------------------------------------------------------------------------------------------------
As demonstrated above, despite the fact that the Bitcoin Funds had
been trading for approximately seven months \10\ only as of August 7,
2024, the six-month trading volume for each as of that date was
substantially higher than 2,400,000 shares (approximately 464 and 124
times that amount, respectively), which is the minimum 12-month volume
the Exchange generally requires for a corporate stock in order to list
options on that security as set forth in Rule 19.3(b). Additionally, as
of August 7, 2024, the trading volume for each Bitcoin Fund was in the
top 5% of all ETFs that are currently trading. The Exchange believes
this data demonstrates each Bitcoin Fund is characterized as having
shares that are actively traded.
Options on the Bitcoin Funds will be subject to the Exchange's
continued listing standards set forth in Rule 19.4(g) for Fund Shares
deemed appropriate for options trading pursuant to Rule 19.3(i).
Specifically, 19.4(g) provides that Fund Shares that were initially
approved for options trading pursuant to Rule 19.3 will not be deemed
to meet the requirements for continued approval, and the Exchange shall
not open for trading any additional series of option contracts of the
class covering such Fund Shares if the security ceases to be an NMS
stock (see Rule 19.4(b)(4)). Additionally, the Exchange will not open
for trading any additional series of option contracts of the class
covering Fund Shares in any of the following circumstances: (1) in the
case of options covering Fund Shares approved for trading under Rule
19.3(i)(4)(A), in accordance with the terms of Rule 19.4(b)(1), (2) and
(3); (2) in the case of options covering Fund Shares approved pursuant
to Rule 19.3(i)(4)(B), following the initial 12-month period beginning
upon the commencement of trading in the Fund Shares on a national
securities exchange and are defined as NMS stock under Rule 600 of
Regulation NMS, there were fewer than 50 record and/or beneficial
holders of such Fund Shares for 30 consecutive days; (3) the value of
the index, non-U.S. currency, portfolio of commodities including
commodity futures contracts, options on commodity futures contracts,
swaps, forward contracts and/or options on physical commodities and/or
Financial Instruments or Money Market Instruments, or portfolio of
securities on which the Fund Shares are based 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 in such options on
the Exchange inadvisable.
Options on each Bitcoin Fund will be physically settled contracts
with American-style exercise.\11\ Consistent with current Rule 19.6,
which governs the opening of options series on a specific underlying
security (including Fund Shares), the Exchange will open at least one
expiration month for options on each Bitcoin Fund \12\ at the
commencement of trading on the Exchange and may also list series of
options on a Bitcoin Fund for trading on a weekly,\13\ monthly,\14\ or
quarterly \15\ basis. The Exchange may also list long-term equity
option series (``LEAPS'') that expire from 12 to 39 months from the
time they are listed.\16\
---------------------------------------------------------------------------
\11\ See Rule 19.2, which provides that the rights and
obligations of holders and writers are set forth in the Rules of the
Options Clearing Corporation (``OCC''); and Equity Options Product
Specifications January 3, 2024), available at Equity Options
Specifications (cboe.com); see also OCC Rules, Chapters VIII (which
governs exercise and assignment) and Chapter IX (which governs the
discharge of delivery and payment obligations arising out of the
exercise of physically settled stock option contracts).
\12\ See Rule 19.6(b). The monthly expirations are subject to
certain listing criteria for underlying securities described within
Rule 19.3. Monthly listings expire the third Friday of the month.
The term ``expiration date'' (unless separately defined elsewhere in
the OCC By-Laws), when used in respect of an option contract
(subject to certain exceptions), means the third Friday of the
expiration month of such option contract, or if such Friday is a day
on which the exchange on which such option is listed is not open for
business, the preceding day on which such exchange is open for
business. See OCC By-Laws Article I, Section 1. Pursuant to Rule
19.6(c), additional series of options of the same class may be
opened for trading on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying stock moves more than five
strike prices from the initial exercise price or prices. New series
of options on an individual stock may be added until the beginning
of the month in which the options contract will expire. Due to
unusual market conditions, the Exchange, in its discretion, may add
a new series of options on an individual stock until the close of
trading on the business day prior to expiration.
\13\ See Rule 19.6, Interpretation and Policy .05.
\14\ See Rule 19.6, Interpretation and Policy .08.
\15\ See Rule 19.6, Interpretation and Policy .04.
\16\ See Rule 19.8.
---------------------------------------------------------------------------
Pursuant to Rule 19.6, Interpretation and Policy .01, which governs
strike prices of series of options on Fund Shares, the interval of
strikes prices for 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.\17\ Additionally, the Exchange may list
series of options pursuant to the $1 Strike Price Interval Program,\18\
the $0.50 Strike Program,\19\
[[Page 94821]]
the $2.50 Strike Price Program,\20\ and the $5 Strike Program.\21\
Pursuant to Rule 21.5, 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.\22\ 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 19.6 and 21.5,
as applicable.
---------------------------------------------------------------------------
\17\ The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Monthly Options Series
Program, and the Quarterly Options Series Program, Rule 19.6,
Interpretations and Policies .05, .08, and .04 specifically sets
forth intervals between strike prices on Quarterly Options Series,
Short Term Option Series, and Monthly Options Series, respectively.
\18\ See Rule 19.6, Interpretation and Policy .02.
\19\ See Rule 19.6, Interpretation and Policy .06.
\20\ See Rule 19.6, Interpretation and Policy .03.
\21\ See Rule 19.6(d)(5).
\22\ If options on a Bitcoin Fund are eligible to participate in
the Penny Interval Program, the minimum increment will be $0.01 for
series with a price below $3.00 and $0.05 for series with a price at
or above $3.00. See 21.5(d) (which describes the requirements for
the Penny Interval Program).
---------------------------------------------------------------------------
Bitcoin Fund options will trade in the same manner as any other
Fund Share options on the Exchange. The Exchange Rules that currently
apply to the listing and trading of all Fund Share options on the
Exchange, including, for example, Rules that govern listing criteria,
expirations, exercise prices, minimum increments, margin requirements,
customer accounts, and trading halt procedures will apply to the
listing and trading of Bitcoin Funds options on the Exchange in the
same manner as they apply to other options on all other Fund Shares
that are listed and traded on the Exchange, including the precious-
metal backed commodity Fund Shares already deemed appropriate for
options trading on the Exchange pursuant to current Rule 19.3(i).
Pursuant to Rules 18.7 and 18.9, the position and exercise limits,
respectively, for each Bitcoin Fund option will be 25,000 same side
option contracts.\23\ The Exchange believes these proposed position and
exercise limits considering, among other things, the approximate six-
month average daily volume (``ADV'') and outstanding shares of each
underlying Bitcoin Fund (which as discussed above demonstrate that each
Bitcoin Fund is widely held and actively traded and thus justify these
conservatively proposed position limits), as set forth below, along
with market capitalization (as of August 7, 2024):
---------------------------------------------------------------------------
\23\ Rule 18.7(a)(1) provides that no Options Member shall make,
for any account in which it has any interest or for the account of
any Customer, an opening transaction on any exchange if the Options
Member has reason to believe that as a result of such transaction
the Options Member or its Customer would, acting alone or in concert
with others, directly or indirectly, exceed the applicable position
limit fixed by Cboe Exchange, Inc. (``Cboe Options''). Cboe Options
Rule 8.30, Interpretation and Policy .10 establishes a position
limit for the Bitcoin Fund options of 25,000.
----------------------------------------------------------------------------------------------------------------
Six-month ADV Outstanding Market
Underlying Bitcoin Fund (shares) shares capitalization ($)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund....................................... 8,902,893 201,100,100 14,217,013,188
ARK 21 Fund......................................... 2,378,886 45,495,000 2,487,666,600
----------------------------------------------------------------------------------------------------------------
The Exchange then compared the number of outstanding shares of the
Bitcoin Funds to those of other ETFs. The following table provides the
approximate average position (and exercise limit) of ETF options with
similar outstanding shares (as of August 27, 2024), compared to the
proposed position and exercise limit for the Bitcoin Fund options: \24\
---------------------------------------------------------------------------
\24\ With respect to the Fidelity Fund, over 80% of the ETFs
used for comparison have a limit of at least 200,000, and more than
half have a limit of 250,000. Additionally, the three-month ADV of
the majority of the ETFs used for comparison to the Fidelity Fund
was lower than the Fidelity Fund three-month ADV of 5,665,027
shares. With respect to the ARK 21 Fund, nearly 80% of the ETFs used
for comparison have a limit of at least 75,000 (and up to 250,000).
Additionally, the three-month ADV of the majority of ETFs used for
comparison was lower (many more than four times lower) than the ARK
21 Fund three-month ADV of 1,737,327 shares.
------------------------------------------------------------------------
Average limit of
Underlying Bitcoin Fund other ETF options Proposed limit
(contracts) (contracts)
------------------------------------------------------------------------
Fidelity Fund.................. 188,110 25,000
ARK 21 Fund.................... 108,696 25,000
------------------------------------------------------------------------
The Exchange considered current position and exercise limits of
options on ETFs with outstanding shares comparable to those of each
Bitcoin Fund, with the proposed limit significantly lower (between two
and ten times lower) than the average limits of the options on the
other ETFs. As discussed above, the Bitcoin Funds are actively held and
widely traded: (1) each Bitcoin Fund (as of August 7, 2024) had
significantly more than 7,000,000 shares outstanding, which is the
minimum number of shares of a corporate stock that the Exchange
generally requires to list options on that stock pursuant to Rule
19.3(b)(1); (2) each Bitcoin Fund (as of the dates listed above) had
significantly more than 2,000 beneficial holders, which is the minimum
number of holders the Exchange generally requires for corporate stock
in order to list options on that stock pursuant to Rule 19.3(b)(2); and
(3) each Bitcoin Fund had a six-month trading volume substantially
higher than 2,400,000 shares, which is the minimum 12-month volume the
Exchange generally requires for a security in order to list options on
that security as set forth in Rule 19.3(b)(4).
With respect to outstanding shares, if a market participant held
the maximum number of positions possible pursuant to the proposed
position and exercise limits, the equivalent shares represented by the
proposed position/exercise limit would represent the following
approximate percentage of current outstanding shares:
[[Page 94822]]
----------------------------------------------------------------------------------------------------------------
Proposed
position/exercise Percentage of
Underlying Bitcoin Fund limit (in Outstanding shares outstanding
equivalent shares (%)
shares)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund.......................................... 2,500,000 201,100,100 1.2
ARK 21 Fund............................................ 2,500,000 45,495,000 5.5
----------------------------------------------------------------------------------------------------------------
As this table demonstrates, if a market participant held the
maximum permissible options positions in one of the Bitcoin Fund
options and exercised all of them at the same time, that market
participant would control a small percentage of the outstanding shares
of the underlying Bitcoin Fund.
Cboe Options Rule 8.30, Interpretation and Policy .02 (which
governs position limits on the Exchange pursuant to Rule 18.7, provides
two methods of qualifying for a position limit tier above 25,000 option
contracts. The first method is based on six-month trading volume in the
underlying security, and the second method is based on slightly lower
six-month trading volume and number of shares outstanding in the
underlying security. An underlying stock or ETF that qualifies for
method two based on trading volume and number of shares outstanding
would be required to have the minimum number of outstanding shares as
shown in middle column of the table below.
The table, which provides the equivalent shares of the position
limits applicable to equity options, including ETFs, further represents
the percentages of the minimum number of outstanding shares that an
underlying stock or ETF must have to qualify for that position limit
(under the second method described above), all of which are higher than
the percentages for the Bitcoin Funds.\25\
---------------------------------------------------------------------------
\25\ 6,300,000 is the minimum number of outstanding shares an
underlying security must have for the Exchange to continue to list
options on that security, so this would be the smallest number of
outstanding shares permissible for any corporate option that would
have a position limit of 25,000 contract. See Rule 19.4(b)(1). This
rule applies to corporate stock options but not ETF options, which
currently have no requirement regarding outstanding shares of the
underlying ETF for the Exchange to continue listing options on that
ETF. Therefore, there may be ETF options trading for which the
25,000 contract position limits represents an even larger percentage
of outstanding shares of the underlying ETF than set forth above.
------------------------------------------------------------------------
Percentage of
Position/exercise limit (in Minimum outstanding outstanding
equivalent shares) shares shares
------------------------------------------------------------------------
2,500,000...................... 6,300,000 40.0
5,000,000...................... 40,000,000 12.5
7,500,000...................... 120,000,000 6.3
20,000,000..................... 240,000,000 8.3
25,000,000..................... 300,000,000 8.3
------------------------------------------------------------------------
The equivalent shares represented by the proposed position and
exercise limits for each Bitcoin Fund as a percentage of outstanding
shares of the underlying Bitcoin Fund is significantly lower than the
percentage for the lowest possible position limit for equity options of
25,000 (under 6% compared to 40%) and is lower than that percentage for
each current position limit bucket.\26\
---------------------------------------------------------------------------
\26\ As these percentages are based on the minimum number of
outstanding shares an underlying security must have to qualify for
the applicable position limit, these are the highest possible
percentages that would apply to any option subject to that position
and exercise limit.
---------------------------------------------------------------------------
Further, the proposed position and exercise limits for each Bitcoin
Fund option are significantly below the limits that would otherwise
apply pursuant to current Rules 18.7 and 18.9 (by reference to Cboe
Rules 8.30 and 8.42). These position and exercise limits are the lowest
position and exercise limits available in the options industry, are
extremely conservative and more than appropriate given the market
capitalization, average daily volume, and high number of outstanding
shares of the Bitcoin Funds.
All of the above information demonstrates that the proposed
position and exercise limits for the Bitcoin Fund options are more than
reasonable and appropriate. The trading volume, ADV, and outstanding
shares of each Bitcoin Fund demonstrate that these funds are actively
traded and widely held, and proposed position and exercise limits are
well below those of other ETFs with similar market characteristics. The
proposed position and exercise limits are the lowest position and
exercise limits available for equity options in the industry, are
extremely conservative, and are more than appropriate given each
Bitcoin Fund's market capitalization, ADV, and high number of
outstanding shares.
Today, the Exchange has an adequate surveillance program in place
for options. Cboe intends to apply those same program procedures to
options on the Bitcoin Funds that it applies to the Exchange's other
options products.\27\ The Exchange's market surveillance staff would
have access to the surveillances conducted by the Exchange with respect
to the Bitcoin Funds and would review activity in the underlying
Bitcoin Funds when conducting surveillances for market abuse or
manipulation in the options on the Bitcoin Funds. Additionally, the
Exchange is a member of the Intermarket Surveillance Group (``ISG'')
under the Intermarket Surveillance Group Agreement. ISG members work
together to coordinate surveillance and investigative information
sharing in the stock, options, and futures markets. In addition to
obtaining information from its affiliated markets, the Exchange would
be able to obtain information regarding trading in shares of the
Bitcoin Funds from their primary listing markets and from other markets
that trades shares of the Bitcoin Funds through ISG. In addition, the
Exchange has a Regulatory Services Agreement with the Financial
Industry Regulatory Authority (``FINRA'') for certain market
surveillance, investigation and examinations functions. Pursuant to a
[[Page 94823]]
multi-party 17d-2 joint plan, all options exchanges allocate amongst
themselves and FINRA responsibilities to conduct certain options-
related market surveillance that are common to rules of all options
exchanges.\28\
---------------------------------------------------------------------------
\27\ The surveillance program includes surveillance patterns for
price and volume movements as well as patterns for potential
manipulation (e.g., spoofing and marking the close).
\28\ Section 19(g)(1) of the Act, among other things, requires
every self-regulatory organization (``SRO'') registered as a
national securities exchange or national securities association to
comply with the Act, the rules and regulations thereunder, and the
SRO's own rules, and, absent reasonable justification or excuse,
enforce compliance by its members and persons associated with its
members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section
17(d)(1) of the Act allows the Commission to relieve an SRO of
certain responsibilities with respect to members of the SRO who are
also members of another SRO (``common members''). Specifically,
Section 17(d)(1) allows the Commission to relieve an SRO of its
responsibilities to: (i) receive regulatory reports from such
members; (ii) examine such members for compliance with the Act and
the rules and regulations thereunder, and the rules of the SRO; or
(iii) carry out other specified regulatory responsibilities with
respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot bitcoin exchange-traded products
(``ETPs''), including the Bitcoin Funds, are also subject to safeguards
related to addressing market abuse and manipulation. As the Commission
stated in 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.\29\ The Exchange states that, given the
consistently high correlation between the CME Bitcoin futures market
and the spot bitcoin market, as confirmed by the Commission through
robust correlation analysis, the Commission was able to conclude that
such surveillance sharing agreements could reasonably be ``expected to
assist in surveilling for fraudulent and manipulative acts and
practices in the specific context of the [Bitcoin ETPs].'' \30\ In
light of surveillance measures related to both options and futures as
well as the underlying Bitcoin Funds,\31\ the Exchange believes that
existing surveillance procedures are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading the proposed options on the Bitcoin Funds. Further,
the Exchange will implement any new surveillance procedures it deems
necessary to effectively monitor the trading of options on Bitcoin
ETPs.
---------------------------------------------------------------------------
\29\ See Bitcoin ETP Approval Order.
\30\ See Bitcoin ETP Approval Order, 89 FR 3010-11.
\31\ See Securities Exchange Act Release Nos. 99290 (January 8,
2024), 89 FR 2338, 2343, 2347--2348 (January 12, 2024) (SR-CboeBZX-
2023-044) Notice of Filing of Amendment No. 3 to a Proposed Rule
Change to List and Trade Shares of the Fidelity Wise Origin Bitcoin
Fund Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares); and
99288 (January 8, 2024), 89 FR 2387, 2392, 2399-2400 (January 12,
2024) (SR-CboeBZX-2023-028) (Notice of Filing of Amendment No. 5 to
a Proposed Rule Change To List and Trade Shares of the ARK 21Shares
Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares). See also Securities Exchange Act Release No. 99306 (January
10, 2024), 89 FR 3008, 3009 (January 17, 2024) (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 Approval Order'').
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and OPRA have the necessary systems capacity to
handle the additional traffic associated with the listing of new series
that may result from the introduction of options on Bitcoin Funds up to
the number of expirations currently permissible under the Rules.
Because the proposal is limited to two classes, the Exchange believes
any additional traffic that may be generated from the introduction of
Bitcoin Fund options will be manageable.
The Exchange believes that offering options on Bitcoin Funds will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Bitcoin and
hedging vehicle to meet their investment needs in connection with
Bitcoin-related products and positions. The Exchange expects investors
will transact in options on Bitcoin Funds in the unregulated over-the-
counter (``OTC'') options market,\32\ but may prefer to trade such
options in a listed environment to receive the benefits of trading
listing options, including (1) enhanced efficiency in initiating and
closing out positions; (2) increased market transparency; and (3)
heightened contra-party creditworthiness due to the role of OCC as
issuer and guarantor of all listed options. The Exchange believes that
listing Bitcoin Fund options may cause investors to bring this
liquidity to the Exchange, would increase market transparency and
enhance the process of price discovery conducted on the Exchange
through increased order flow. The Fund Shares that hold financial
instruments, money market instruments, or precious metal commodities on
which the Exchange may already list and trade options are trusts
structured in substantially the same manner as Bitcoin Funds and
essentially offer the same objectives and benefits to investors, just
with respect to different assets. The Exchange notes that it has not
identified any issues with the continued listing and trading of any
Fund Share options, including Fund Shares that hold commodities (i.e.,
precious metals) that it currently lists and trades on the Exchange.
---------------------------------------------------------------------------
\32\ The Exchange understands from customers that investors have
historically transacted in options on Fund Shares in the OTC options
market if such options were not available for trading in a listed
environment.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\33\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \34\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \35\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(5).
\35\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Bitcoin Funds will remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, protect investors because offering options on
the Bitcoin Funds will provide investors with 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
[[Page 94824]]
allow them to manage their positions and associated risk in their
portfolios more easily in connection with exposure to the price of
Bitcoin and with Bitcoin-related products and positions. Additionally,
the Exchange's offering of Bitcoin Fund options will provide investors
with the ability to transact in such options in a listed market
environment as opposed to in the unregulated OTC options market, which
would increase market transparency and enhance the process of price
discovery conducted on the Exchange through increased order flow to the
benefit of all investors. The Exchange also notes that it already lists
options on other commodity-based Fund Shares,\36\ which, as described
above, are trusts structured in substantially the same manner as
Bitcoin Funds and essentially offer the same objectives and benefits to
investors, just with respect to a different commodity (i.e., Bitcoin
rather than precious metals) and for which the Exchange has not
identified any issues with the continued listing and trading of
commodity-backed Fund Share options it currently lists for trading.
---------------------------------------------------------------------------
\36\ See Rule 19.3(i)(4).
---------------------------------------------------------------------------
The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules previously filed with the Commission. Options on the
Bitcoin Funds satisfy the initial listing standards and continued
listing standards currently in the Exchange Rules applicable to options
on all Fund Shares, including Fund Shares 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
Fund Share options--the same Exchange Rules that currently govern the
listing and trading of all Fund Share options, including permissible
expirations, strike prices and minimum increments, and applicable
margin requirements, will govern the listing and trading of options on
Bitcoin Funds in the same manner.
The Exchange believes the proposed position and exercise limits are
designed to prevent fraudulent and manipulative acts and practices and
promote just and equitable principles of trade, as they are designed to
address potential manipulative schemes and adverse market impacts
surrounding the use of options, such as disrupting the market in the
security underlying the options. The proposed position and exercise
limits are 25,000 contracts, which is the lowest limit applicable to
any equity options (including ETF and options on other Bitcoin
ETFs).\37\ The Exchange believes the proposed position and exercise
limits are extremely conservative for each Bitcoin Fund option given
the trading volume and outstanding shares for each. The information
above demonstrates that the average position and exercise limits of
options on ETFs with comparable outstanding shares and trading volume
to those of the Bitcoin Funds are significantly higher than the
proposed position and exercise limits for Bitcoin Fund options.
Therefore, the proposed position and exercise limits for the Bitcoin
Fund options are conservative relative to options on ETFs with
comparable market characteristics.
---------------------------------------------------------------------------
\37\ See Cboe Options Rule 8.30.
---------------------------------------------------------------------------
Further, given that the issuer of each Bitcoin Fund may create and
redeem shares that represent an interest in Bitcoin, the Exchange
believes it is relevant to compare the size of a position limit to the
market capitalization of the Bitcoin market. As of August 27, 2024, the
global supply of Bitcoin was 19,745,940, and the price of one Bitcoin
was approximately $59,466.82,\38\ which equates to a market
capitalization of approximately $1.165 trillion. Consider the proposed
position and exercise limit of 25,000 option contracts for each Bitcoin
Fund option. A position and exercise limit of 25,000 same side
contracts effectively restricts a market participant from holding
positions that could result in the receipt of no more than 2,500,000 of
Fidelity Fund shares or ARK 21 Fund shares, as applicable (if that
market participant exercised all its options. The following table shows
the share price of each Bitcoin Fund on August 27, 2024, the value of
2,500,000 shares of the Bitcoin Fund at that price, and the approximate
percentage of that value of the size of the Bitcoin market:
---------------------------------------------------------------------------
\38\ See Blockchain.com [bond] Charts--Total Circulating
Bitcoin.
----------------------------------------------------------------------------------------------------------------
Value of
August 27, 2,500,000 shares Percentage of
Bitcoin Fund 2024 share of Bitcoin fund bitcoin market
price ($) ($)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund................................................ 54.33 135,825,000 0.01
ARK 21 Fund.................................................. 62.08 155,200,000 0.01
----------------------------------------------------------------------------------------------------------------
Therefore, if a market participant with the maximum 25,000 same
side contracts in either Fidelity Fund options or ARK 21 Fund options
exercised all positions at one time, such an event would have no
practical impact on the Bitcoin market.
The Exchange also believes the proposed limits are appropriate
given position limits for Bitcoin futures. For example, the Chicago
Mercantile Exchange (``CME'') imposes a position limit of 2,000 futures
(for the initial spot month) on its Bitcoin futures contract.\39\ On
August 28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. A
position of 2,000 CME Bitcoin futures, therefore, would have a notional
value of $589,500,000. The following table shows the share price of
each Bitcoin Fund on August 28, 2024 and the approximate number of
option contracts that equates to that notional value:
---------------------------------------------------------------------------
\39\ See CME Rulebook Chapter 350 (description of CME Bitcoin
Futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME Bitcoin futures contract is valued at five Bitcoins as
defined by the CME CF Bitcoin Reference Rate (``BRR''). See CME Rule
35001.
------------------------------------------------------------------------
August 28, 2024 Number of option
Bitcoin Fund share price ($) contracts
------------------------------------------------------------------------
Fidelity Fund..................... 51.47 114,532
[[Page 94825]]
ARK 21 Fund....................... 58.83 100,203
------------------------------------------------------------------------
The approximate number of option contracts for each Bitcoin Fund
that equate to the notional value of CME Bitcoin futures is
significantly higher than the proposed limit of 25,000 options contract
for each Bitcoin Fund option. The fact that many options ultimately
expire out-of-the-money and thus are not exercised for shares of the
underlying, while the delta of a Bitcoin Future is 1, further
demonstrates how conservative the proposed limits of 25,000 options
contracts are for the Bitcoin Fund options.
The Exchange notes, unlike options contracts, CME position limits
are calculated on a net futures-equivalent basis by contract and
include contracts that aggregate into one or more base contracts
according to an aggregation ratio(s).\40\ Therefore, if a portfolio
includes positions in options on futures, CME would aggregate those
positions into the underlying futures contracts in accordance with a
table published by CME on a delta equivalent value for the relevant
spot month, subsequent spot month, single month and all month position
limits.\41\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position shall not constitute a position limit
violation. Considering CME's position limits on futures for Bitcoin,
the Exchange believes that that the proposed same side position limits
are more than appropriate for the Bitcoin Fund options.
---------------------------------------------------------------------------
\40\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\41\ Id.
---------------------------------------------------------------------------
The Exchange believes the proposed position and exercise limits
will have no material impact to the supply of Bitcoin. For example,
consider again the proposed position limit of 25,000 option contracts
for each Bitcoin Fund option. As noted above, a position limit of
25,000 same side contracts effectively restricts a market participant
from holding positions that could result in the receipt of no more than
2,500,000 shares of the applicable Bitcoin Fund (if that market
participant exercised all its options). As of August 7, 2024, the
Bitcoin Funds had the number of shares outstanding set forth in the
table below. The table below also sets forth the approximate number of
market participants that could hold the maximum of 25,000 same side
positions in each Bitcoin Fund that would equate to the number of
shares outstanding of that Bitcoin Fund:
------------------------------------------------------------------------
Number of market
Shares participants with
Bitcoin Fund outstanding 25,000 same side
positions
------------------------------------------------------------------------
Fidelity Fund..................... 201,100,100 80
ARK 21 Fund....................... 45,495,000 18
------------------------------------------------------------------------
This means if 80 market participants had 25,000 same side positions
in Fidelity Fund options, each of them would have to simultaneously
exercise all of those options to create a scenario that may put the
underlying security under stress. Similarly, this means if 18 market
participants had 25,000 same side positions in ARK 21 Fund options,
each of them would have to simultaneously exercise all of those options
to create a scenario that may put the underlying security under stress.
The Exchange believes it is highly unlikely for either such event to
occur; however, even if either such event did occur, the Exchange would
not expect either Bitcoin Fund to be under stress because such an event
would merely induce the creation of more shares through the trust's
creation and redemption process.
As of August 7, 2024, the global supply of Bitcoin was
approximately 19,736,528.\42\ Based on the $47.88 price of a Fidelity
Fund share on August 7, 2024, a market participant could have redeemed
one Bitcoin for approximately 1,149 Fidelity Fund shares. Another
22,677,270,672 Fidelity Fund shares could be created before the supply
of Bitcoin was exhausted. As a result, 9,070 market participants would
have to simultaneously exercise 25,000 same side positions in Fidelity
Fund options to receive shares of the Fidelity Fund holding the entire
global supply of Bitcoin. Similarly, based on the $54.68 price of an
ARK 21 Fund share on August 7, 2024, a market participant could have
redeemed one Bitcoin for approximately 1,006 ARK 21 Fund Shares.
Another 19,855 ARK 21 Fund shares could be created before the supply of
Bitcoin were exhausted. As a result, 7,941 market participants would
have to simultaneously exercise 25,000 same side positions in ARK 21
Fund options to receive shares of the ARK 21 Fund holding the entire
global supply of Bitcoin. Unlike the Bitcoin Funds, the number of
shares that corporations may issue is limited. However, like
corporations, which authorize additional shares, repurchase shares, or
split their shares, the Bitcoin Funds may create, redeem, or split
shares in response to demand. While the supply of Bitcoin is limited to
21,000,000, it is believed that it will take more than 100 years to
fully mine the remaining Bitcoin.\43\ The supply of Bitcoin is larger
than the available supply of most
[[Page 94826]]
securities.\44\ Given the significant unlikelihood of any of these
events ever occurring, the Exchange does not believe options on the
Bitcoin Funds should be subject to position and exercise limits even
lower than those proposed (which are already equal to the lowest
available limit for equity options in the industry) to protect the
supply of Bitcoin.\45\
---------------------------------------------------------------------------
\42\ See Blockchain.com [bond] Charts--Total Circulating Bitcoin
(which also shows the price of one Bitcoin equal to $55,033.47).
\43\ See Pre-Effective Amendment No. 5 to Form S-1 Registration
Statement No. 333-254652, Fidelity Fund, filed January 9, 2024, at
53--54; and Amendment No. 8 to Form S-1 Registration Statement No.
333-257474, ARK 21 Fund, filed January 9, 2024, at 15.
\44\ The market capitalization of Bitcoin would rank in the top
10 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
\45\ This would be even more unlikely with respect to the
Bitcoin Funds for which the Exchange proposes lower position limits.
---------------------------------------------------------------------------
The Exchange believes the available supply of Bitcoin is not
relevant to the determination of position and exercise limits for
options overlying the Bitcoin Funds.\46\ Position and exercise limits
are not a tool that should be used to address a potential limited
supply of the underlying of an underlying. Position and exercise limits
do not limit the total number of options that may be held, but rather
they limit the number of positions a single customer may hold or
exercise at one time.\47\ ``Since the inception of standardized options
trading, the options exchanges have had rules imposing limits on the
aggregate number of options contracts that a member or customer could
hold or exercise.'' \48\ Position and exercise limit rules are intended
``to prevent the establishment of options positions that can be used or
might create incentives to manipulate or disrupt the underlying market
so as to benefit the options position. In particular, position and
exercise limits are designed to minimize the potential for mini-
manipulations and for corners or squeezes of the underlying market. In
addition, such limits serve to reduce the possibility for disruption of
the options market itself, especially in illiquid options classes.''
\49\
---------------------------------------------------------------------------
\46\ Prior to Bitcoin ETFs, the Exchange is unaware of any
proposed rule change related to position and exercise limits for any
equity option (including commodity ETF options) for which the
Commission required consideration of whether the available supply of
an underlying (whether it be a corporate stock or an ETF) or the
contents of an ETF (commodity or otherwise) should be considered
when an exchange proposed to establish those limits. See, e.g.,
Securities Exchange Act Release No. 57894 (May 30, 2008), 73 FR
32061 (June 5, 2008) (SR-CBOE-2005-11) (approval order in which the
Commission stated that the ``listing and trading of Gold Trust
Options will be subject to the exchanges' rules pertaining to
position and exercise limits and margin''). The Exchange notes when
the Commission approved this filing, the position limits in Rule
8.30 were the same as they are today. For reference, the current
position and exercise limits for options on SPDR Gold Shares ETF
(``GLD'') and options on iShares Silver Trust (``SLV'') are 250,000
contracts, or 10 times that proposed position and exercise limit for
the Bitcoin Fund options.
\47\ For example, suppose an option has a position limit of
25,000 option contracts and there are a total of 10 investors
trading that option. If all 10 investors max out their positions,
that would result in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide to begin trading
that option and also max out their positions. This would result in
500,000 option contracts outstanding at that time. An increase in
the number of investors could cause an increase in outstanding
options even if position limits remain unchanged.
\48\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\49\ See id.
---------------------------------------------------------------------------
The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each Bitcoin Fund, each of which
described the supply of Bitcoin as being limited to 21,000,000 (of
which approximately 90% had already been mined), and that the limit
would be reached around the year 2140.\50\ Each Registration Statement
permits an unlimited number of shares of the applicable Bitcoin ETF to
be created. Further, the Commission approved proposed rule changes that
permitted the listing and trading of shares of each Bitcoin Fund, which
approval did not comment on the sufficient supply of Bitcoin or address
whether there was a risk that permitting an unlimited number of shares
for a Bitcoin Fund would impact the supply of Bitcoin.\51\ Therefore,
the Exchange believes the Commission had ample time and opportunity to
consider whether the supply of Bitcoin was sufficient to permit the
creation of unlimited Bitcoin Fund shares, and does not believe
considering this supply with respect to the establishment of position
and exercise limits is appropriate given its lack of relevance to the
purpose of position and exercise limits. However, given the significant
size of the Bitcoin supply, the proposed positions limits are more than
sufficient to protect investors and the market.
---------------------------------------------------------------------------
\50\ See Pre-Effective Amendment No. 5 to Form S-1 Registration
Statement No. 333-254652, Fidelity Fund, filed January 9, 2024, at
53--54; and Amendment No. 8 to Form S-1 Registration Statement No.
333-257474, ARK 21 Fund, filed January 9, 2024, at 15.
\51\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------
Based on the above information demonstrating, among other things,
that each Bitcoin Fund is characterized by a substantial number of
outstanding shares that are actively traded and widely held, the
Exchange believes the proposed position and exercise limits are
extremely conservative compared to those of ETF options with similar
market characteristics. The proposed position and exercise limits
reasonably and appropriately balance the liquidity provisioning in the
market against the prevention of manipulation. The Exchange believes
these proposed limits are effectively designed to prevent an individual
customer or entity from establishing options positions that could be
used to manipulate the market of the underlying as well as the Bitcoin
market.\52\
---------------------------------------------------------------------------
\52\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------
The Exchange represents that it has the necessary systems capacity
to support the new Bitcoin Fund options. As discussed above, the
Exchange believes that its existing surveillance and reporting
safeguards are designed to deter and detect possible manipulative
behavior which might arise from listing and trading Fund Share options,
including Bitcoin Fund options.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. 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 the Bitcoin Fund options will
be equally available to all market participants who wish to trade such
options and will trade generally in the same manner as other options.
The Exchange Rules that currently apply to the listing and trading of
all Fund Share options on the Exchange, including, for example, Rules
that govern listing criteria, expirations, exercise prices, minimum
increments, margin requirements, customer accounts, and trading halt
procedures will apply to the listing and trading of Bitcoin Funds
options on the Exchange in the same manner as they apply to other
options on all other Fund Shares that are listed and traded on the
Exchange. Also, and as stated above, the Exchange already lists options
on other commodity-based Fund Share.\53\ Further, the Bitcoin Funds
would need to satisfy the maintenance listing standards set forth in
the Exchange Rules in the same manner as any other Fund Share for the
Exchange to continue listing options on them.
---------------------------------------------------------------------------
\53\ See Rule 19.3(i)(4)
---------------------------------------------------------------------------
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
[[Page 94827]]
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. The Commission a rule filing of another exchange to permit
the listing and trading of options on the Bitcoin Funds.\54\ 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.
---------------------------------------------------------------------------
\54\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 8498 (October 24, 2024) (SR-CBOE-2024-035). The
Exchange notes the Commission recently approved a rule filing of
another exchange to permit the listing and trading of options on the
iShares Bitcoin Trust. See Securities Exchange Act Release No.
101128 (September 20, 2024), 89 FR 78942 (September 26, 2024) (SR-
ISE-2024-03).
---------------------------------------------------------------------------
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
The Exchange neither solicited nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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) of the Act \55\ and Rule 19b-
4(f)(6) thereunder.\56\
---------------------------------------------------------------------------
\55\ 15 U.S.C. 78s(b)(3)(A).
\56\ 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 pursuant to Rule 19b-4(f)(6) under the
Act normally does not become operative for 30 days after the date of
its filing. However, Rule 19b-4(f)(6)(iii) \57\ permits the Commission
to designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has
requested that the Commission waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The
Commission previously approved the listing of options on the Bitcoin
Funds.\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 options on the Bitcoin Funds. 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 operative upon
filing.
---------------------------------------------------------------------------
\57\ 17 CFR 240.19b-4(f)(6)(iii).
\58\ See Securities Exchange Act Release No. 101387 (Oct. 18,
2024), 89 FR 84948 (Oct. 24, 2024).
---------------------------------------------------------------------------
Thus, 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 operative upon
filing.\59\
---------------------------------------------------------------------------
\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 such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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-CboeBZX-2024-118 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-CboeBZX-2024-118. 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-CboeBZX-2024-118 and should
be submitted on or before December 20, 2024.
[[Page 94828]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
---------------------------------------------------------------------------
\60\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27997 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P
