Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules 3120 (Position Limits) and 5020 (Criteria for Underlying Securities) To Permit Options Trading on Bitcoin Funds, 95339-95344 [2024-28109]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 231 (Monday, December 2, 2024)]
[Notices]
[Pages 95339-95344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28109]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101739; File No. SR-BOX-2024-28]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rules 
3120 (Position Limits) and 5020 (Criteria for Underlying Securities) To 
Permit Options Trading on Bitcoin Funds

November 25, 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, BOX Exchange LLC (``Exchange'' or ``BOX 
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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rules 3120 (Position Limits), 5020 
(Criteria for Underlying Securities) to permit options trading on 
Bitcoin Funds. Additionally, the Exchange proposes to amend Rule 5055 
(FLEX Equity Options). The text of the proposed rule change is 
available from the principal office of the Exchange, at the 
Commission's Public Reference Room and also on the Exchange's internet 
website at https://rules.boxexchange.com/rulefilings.

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 Rules 3120 (Position Limits) and 
5020 (Criteria for Underlying Securities) to permit options trading on 
Grayscale Bitcoin Trust (BTC) (the ``Grayscale Fund'' or ``GBTC''), the 
Grayscale Bitcoin Mini Trust BTC (the ``Grayscale Mini Fund'' or 
``BTC''), and the Bitwise Bitcoin ETF (the ``Bitwise Fund'' or ``BITB'' 
and, collectively, the ``Bitcoin Funds'' or ``Funds) on BOX. 
Additionally, the Exchange proposes to amend Rule 5055 (FLEX Equity 
Options). Specifically, the Exchange proposes to amend Rule 5020(h) to 
allow the Exchange to list and trade options on the following exchange-
traded products: the Grayscale Fund, the Grayscale Mini Fund, and the 
Bitwise Fund.\3\ This is a competitive filing that is based on a 
proposal recently submitted by NYSE American LLC (``NYSE American'') 
and approved by the Commission.\4\
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    \3\ See proposed Rule 5020(h). On January 11, 2024, GBTC and 
BITB began trading on NYSE Arca, Inc. (``NYSE Arca''), after the 
Commission approved rule changes to list and trade shares of 
``Bitcoin-Based Commodity-Based Trust Shares'' pursuant to Rule 
8.201-E(c)(1) (Commodity-Based Trust Shares), including GBTC and 
BITB. See Securities Exchange Act Release No. 99306 (January 10, 
2024) (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), 89 FR 3008 (January 
17, 2024) (SR-NYSEARCA-2023-44; SR-NYSEARCA-2021-90). On July 13, 
2024, after receiving approval of the Commission, BTC began trading 
on NYSE Arca. See Securities Exchange Act Release No. 100610 (July 
26, 2024) (Order Granting Approval of Proposed Rule Changes, as 
Modified by Amendment No. 1, to List and Trade Share of BTC pursuant 
to NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares)), 89 FR 
62821 (August 1, 2024) (SR-NYSEARCA-2023-45).
    \4\ See Securities Exchange Act Release No. 101386 (October 18, 
2024), 89 FR 84960 (October 24, 2024) (Notice of Filing of Amendment 
No. 3 and Order Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment No. 3, to Permit the Listing and 
Trading of Options on Bitcoin Exchange-Traded Funds) (SR-NYSEAMER-
2024-49, as amended) (``NYSE American Approval Order'').
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    As discussed herein and as provided in the NYSE American Approval 
Order, the Exchange believes options on the Bitcoin Funds would permit 
hedging, and allow for more liquidity, better price efficiency, and 
less volatility with respect to the underlying Funds. Further, 
permitting the listing of such options would enhance the transparency 
and efficiency of markets in these and correlated products. Rule 
5020(h) provides that, subject to certain other criteria set forth in 
the Rule, securities deemed appropriate for options trading include 
Exchange-Traded Fund Shares (or ETFs), that represent certain types of 
interests \5\ and exchange-traded products (``ETPs'') structured as 
trusts that hold precious metals (which are deemed

[[Page 95340]]

commodities).\6\ Like ETPs backed by precious metals (i.e., 
commodities), the Exchange proposes to allow options trading on the 
Bitcoin Funds that hold Bitcoin--which is also deemed a commodity.\7\ 
The Bitcoin Funds are structured as trusts that hold Bitcoin. Like ETFs 
and ETPs currently deemed appropriate for options trading, the 
investment objective of each Bitcoin Fund trust is for its shares to 
reflect the performance of Bitcoin (less the expenses of the trust's 
operations), offering investors an opportunity to gain exposure to 
Bitcoin without the complexities of Bitcoin delivery. Each Bitcoin 
Fund's shares represent units of fractional undivided beneficial 
interest in the trust, the assets of which consist principally of 
Bitcoin and are designed to track Bitcoin or the performance of the 
price of Bitcoin and offer access to the Bitcoin market.\8\ The Bitcoin 
Funds provide investors with cost-efficient alternatives that allow a 
level of participation in the Bitcoin market through the securities 
market. The Exchange believes each Bitcoin Fund satisfies the 
Exchange's initial listing standards set forth in Rule 5020(a).\9\ The 
Exchange notes that the Bitcoin Funds also satisfy the listing standard 
applied to ETFs traded on the Exchange that they be available for 
creation and redemption each business day as set forth in Rule 
5020(h).\10\ First, each of the Bitcoin Funds satisfy the criteria and 
guidelines set forth in Rule 5020(a). Pursuant to Rule 5020(a), a 
security on which options may be listed and traded on the Exchange must 
be duly registered (with the Commission) and be an NMS stock (as 
defined in Rule 600 of Regulation NMS under the Act) and be 
characterized by a substantial number of outstanding shares that are 
widely held and actively traded.\11\ Each of the Bitcoin Funds is an 
NMS Stock as defined in Rule 600 of Regulation NMS under the Act.\12\
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    \5\ See Rule 5020(h), which permits options trading on ETFs that 
are traded on a national securities exchange and are defined as an 
``NMS stock'' in Rule 600 of Regulation NMS and that (i) represent 
interests in registered investment companies (or series thereof) 
organized as open-end management investment companies, unit 
investment trusts or similar entities that hold portfolios of 
securities and/or financial instruments, including, but not limited 
to, stock index futures contracts, options on futures, options on 
securities and 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); or (ii) represent 
interests in a trust that holds a specified non-U.S. currency 
deposited with the trust or similar entity when aggregated in some 
specified minimum number may be surrendered to the trust by the 
beneficial owner to receive the specified non-U.S. currency 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 
(iii) 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'') or (iv) represent interests in the SPDR[supreg] Gold Trust, 
the iShares COMEX Gold Trust, the iShares Silver Trust, the abrdn 
Gold ETF Trust, the abrdn Silver ETF Trust, the abrdn Palladium ETF 
Trust, the abrdn Platinum ETF Trust, the Sprott Physical Gold Trust 
or the iShares Bitcoin Trust; provided that all of the conditions in 
Rules 5020(h)(1) and (2) are met.
    \6\ See Rule 5020(h) (permitting the listing and trading of 
options on certain ETPs backed by precious metals.)
    \7\ See proposed Rule 5020(h).
    \8\ The trust may include minimal cash.
    \9\ Rule 5020(a) provides for guidelines to be used by the 
Exchange when evaluating potential underlying securities for 
Exchange option transactions.
    \10\ Rule 5020(h)(1) requires that ETFs must be available for 
creation or redemption each business day from or through the issuer 
in cash or in kind at a price related to net asset value, and the 
issuer must be obligated to issue ETFs in a specified aggregate 
number even if some or all of the investment assets required to be 
deposited have not been received by the issuer, subject to the 
condition that the person obligated to deposit the investments has 
undertaken to deliver the investment assets as soon as possible and 
such undertaking is secured by the delivery and maintenance of 
collateral consisting of cash or cash equivalents satisfactory to 
the issuer, as provided in the respective prospectus.
    \11\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Rule 5020(b), 
subject to exceptions.
    \12\ 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 
transactions in listed options). See 17 CFR 242.600(b)(64) 
(definition of ``NMS security'') and (65) (definition of ``NMS 
stock'').
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    As provided in the NYSE American Approval Order, the Exchange 
believes each Bitcoin Fund is characterized by a substantial number of 
outstanding shares that are widely held and actively traded. 
Specifically, as shown in the NYSE American Approval Order, each of the 
Bitcoin Funds had significantly more than 7,000,000 shares outstanding, 
which is the minimum number of shares of a corporate stock that the 
Exchange generally requires to list options on that stock pursuant to 
Rule 5020(b). The Exchange believes this demonstrates that each Bitcoin 
Fund is characterized by a substantial number of outstanding shares.
    Further as provided in the NYSE American Approval, each Bitcoin 
Fund has significantly more than 2,000 beneficial holders 
(approximately 232, 7, and 38 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 
5020(b)(2). Therefore, the Exchange believes the shares of each Bitcoin 
Fund are widely held.
    In addition, as provided in the NYSE American Approval Order, the 
Exchange believes the shares of each Bitcoin Fund are actively traded. 
Specifically, even though these Bitcoin Funds have been trading for 
less than one year, the trading volume for each is substantially higher 
than 2,400,000 shares (between roughly 165 and 700 times that amount), 
which is the minimum 12-month volume the Exchange generally requires 
for a security in order to list options on that security as set forth 
in Rule 5020(b). The Exchange believes this data demonstrates each 
Bitcoin Fund is characterized by a substantial number of outstanding 
shares that are actively traded.
    In addition to satisfying the Exchange's initial listing standards, 
options on Bitcoin Funds will be subject to the Exchange's continued 
listing standards as set forth in Rule 5030(h). Pursuant to Rule 
5030(b), the Exchange will not open for trading any additional series 
of option contracts covering a fund traded on the Exchange if such fund 
ceases to be an ``NMS stock'' as provided for in Rule 5030(a) or the 
fund is halted from trading on its primary market.\13\ Additionally, 
options on funds traded on the Exchange may be subject to the 
suspension of opening transactions as follows: (1) the fund no longer 
meets the terms of Rule 5030(b); (2) following the initial twelve-month 
period beginning upon the commencement of trading of the fund, there 
are fewer than 50 record and/or beneficial holders of the fund for 30 
or more consecutive trading days; (3) the value of the underlying 
commodity is no longer calculated or available; or (4) such other event 
occurs or condition exists that in the opinion of the Exchange makes 
further dealing on BOX inadvisable. Options on each Bitcoin Fund will 
be physically settled contracts with American-style exercise.\14\ 
Consistent with Rule 5050, which governs the opening of options series 
on a specific underlying security (including ETFs and ETPs), BOX will 
open at least one expiration month for options on each Bitcoin Fund 
\15\ at the commencement of trading on the Exchange and may also list 
series of options on Bitcoin Funds for trading on

[[Page 95341]]

a weekly,\16\ monthly,\17\ or quarterly \18\ basis. BOX may also list 
long-term equity option series (``LEAPS'') that expire from twelve to 
one hundred eighty months from the time they are listed.\19\ Pursuant 
to IM-5050-1(b), which governs strike prices of series of options on 
ETFs, the interval between strike prices of series of options on 
Bitcoin Funds will be $1 or greater when the strike price is $200 or 
less and $5 or greater where the strike price is over $200.\20\ 
Additionally, BOX may list series of options pursuant to the $1 Strike 
Price Interval Program,\21\ the $0.50 Strike Program,\22\ and the $2.50 
Strike Price Program.\23\ Pursuant to Rule 7050, 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.\24\ Any and all new series of Bitcoin 
Fund options that BOX lists will be consistent and comply with the 
expirations, strike prices, and minimum increments set forth in Rules 
5050 and 7050, as applicable. Further, the Exchange notes that Rule 
Series 10100, which governs margin requirements applicable to the 
trading of all options on BOX, including options on ETFs and ETPs, will 
also apply to the trading of Bitcoin Fund options.
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    \13\ See Rule 5030(h).
    \14\ See Rule 5010 (Rights and Obligations of Holders and 
Writers), which provides that the rights and obligations of holders 
and writers of option contracts of any class of options dealt in on 
the Exchange shall be as set forth in the Rules of the Clearing 
Corporation. See also OCC Rules, Chapter VIII, which governs 
exercise and assignment, and Chapter IX, which governs the discharge 
of delivery and payment obligations arising out of the exercise of 
physically settled stock option contracts. OCC Rules can be located 
at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf.
    \15\ See Rule 5050(b). The standard expirations are subject to 
certain listing criteria for underlying securities described within 
Rule 5020. Standard 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 
5050(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.
    \16\ See IM-5050-6.
    \17\ See IM-5050-13.
    \18\ See IM-5050-4.
    \19\ See Rule 5070.
    \20\ 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, IM-5050-6, IM-
5050-13, and IM-5050-4, specifically set forth intervals between 
strike prices on Quarterly Options Series, Short Term Option Series, 
and Monthly Options Series, respectively.
    \21\ See BOX IM-5050-2.
    \22\ See BOX IM-5050-5.
    \23\ See BOX IM-5050-3.
    \24\ If options on a Bitcoin Fund are eligible to participate in 
the Penny Interval Program, the minimum increment of $0.01 below 
$3.00 and $0.05 above $3.00 would apply. See Rule 7050(a)(3). See 
also Rule 7260 (which describes the requirements for the Penny 
Interval Program).
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    Rule 5055(e)(2)(i) permits the Exchange to authorize for trading a 
FLEX Equity Option class on any equity security if it may authorize for 
trading a Non-FLEX Equity Option class on that equity security pursuant 
to Rule 5020.\25\ At this time, the Exchange is not proposing to permit 
Bitcoin Fund options to trade as FLEX Equity Options.\26\ The Exchange 
therefore proposes to modify Rule 5055(e)(2)(i) to specify this 
exception, which will add clarity and transparency to Exchange 
Rules.\27\
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    \25\ See Rule 5055(e)(2)(i).
    \26\ The Exchange would be required to submit a separate rule 
filing to permit the Exchange to authorize for trading FLEX Equity 
Options on the Bitcoin Funds (which filing may propose changes to 
existing FLEX Equity Option position limits for such options if 
appropriate).
    \27\ See proposed Rule 5055(e)(2)(i).
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Position and Exercise Limits
    NYSE American's Approval Order stated that the position and 
exercise limits for Bitcoin Funds shall be 25,000 contracts. At this 
time, the Exchange proposes to amend IM-3120-2 to similarly note that 
Bitcoin Fund options position limits shall be 25,000 contracts to 
mirror NYSE American's Approval Order. Rule 3140 provides that the 
exercise limits shall be determined in the manner described in Rule 
3120, therefore the exercise limits would also be 25,000 contracts.
    The Exchange has also analyzed its capacity and represents that it 
and The Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to handle the additional traffic associated with the 
listing of options on Bitcoin Funds. The Exchange believes any 
additional traffic that would be generated from the trading of options 
on Bitcoin Funds would be manageable. The Exchange represents that 
Participants will not have a capacity issue as a result of this 
proposed rule change.
    The Exchange represents that the same surveillance procedures 
applicable to all other options currently listed and traded on BOX will 
apply to options on Bitcoin Funds, and that BOX has the necessary 
systems capacity to support the new option series. The Exchange's 
existing surveillance and reporting safeguards are designed to deter 
and detect possible manipulative behavior which might arise from 
listing and trading options on ETFs and ETPs, such as (existing) 
precious metal-commodity backed ETP options as well as the proposed 
options on Bitcoin Funds. The Exchange believes that its surveillance 
procedures are adequate to properly monitor the trading of options on 
Bitcoin Funds and to deter and detect violations of Exchange rules. 
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. The 
Exchange would be able to obtain information regarding trading in 
shares of the Bitcoin Funds from NYSE Arca, Inc. (``Arca'') and other 
markets that trade shares of the Bitcoin Funds through ISG. In 
addition, the Exchange has a Regulatory Services Agreement with the 
Financial Industry Regulatory Authority (``FINRA''). Pursuant to a 
multi-party 17d-2 joint plan, all options exchanges allocate regulatory 
responsibilities to FINRA to conduct certain options-related market 
surveillances.\28\ Further, the Exchange will implement any new 
surveillance procedures it deems necessary to effectively monitor the 
trading of options on the Bitcoin Funds.
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    \28\ Section 19(g)(1) of the Act, among other things, requires 
every SRO registered as a national securities exchange or national 
securities association to comply with the Act, the rules and 
regulations thereunder, and the SRO's own rules, and, absent 
reasonable justification or excuse, enforce compliance by its 
members and persons associated with its members. See 15 U.S.C. 
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows 
the Commission to relieve an SRO of certain responsibilities with 
respect to members of the SRO who are also members of another SRO. 
Specifically, Section 17(d)(1) allows the Commission to relieve an 
SRO of its responsibilities to: (i) receive regulatory reports from 
such members; (ii) examine such members for compliance with the Act 
and the rules and regulations thereunder, and the rules of the SRO; 
or (iii) carry out other specified regulatory responsibilities with 
respect to such members.
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    The underlying shares of spot bitcoin ETPs, including the Bitcoin 
Funds, are also subject to safeguards related to addressing market 
abuse and manipulation. As the Commission stated in its order approving 
proposals of several exchanges to list and trade shares of spot 
bitcoin-based exchange-traded products (``Bitcoin ETP Order''): Each 
Exchange has a comprehensive surveillance-sharing agreement with the 
CME via their common membership in the Intermarket Surveillance Group. 
This facilitates the sharing of information that is available to the 
CME through its surveillance of its markets, including its surveillance 
of the CME bitcoin futures market.\29\ 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

[[Page 95342]]

[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.
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    \29\ See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008, 3009 (January 17, 2024) (File Nos. SR-NYSEArca-
2021-90; SR-NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ-2023-
016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; 
SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; 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).
    \30\ See Bitcoin ETP Order, 89 FR at 3010-11.
    \31\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf; Amendment No. 2 
to Proposed Rule Change to List and Trade Shares of the Bitwise 
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 2024, available at 
https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf; and Notice of Filing of Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Shares of the 
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E, 
Commodity-Based Trust Shares, Securities Exchange Act Release No. 
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
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    The Exchange notes quotation and last sale information for ETFs is 
available via the Consolidated Tape Association (``CTA'') high speed 
line. Quotation and last sale information for such securities is also 
available from the exchange on which such securities are listed. 
Quotation and last sale information for options on Bitcoin Funds will 
be available via OPRA and major market data vendors. The Exchange 
believes that offering options on Bitcoin Funds will benefit investors 
by providing them with an additional, relatively lower cost investing 
tool to gain exposure to the price of Bitcoin and hedging vehicle to 
meet their investment needs in connection with Bitcoin-related products 
and positions. The Exchange believes that listing Bitcoin Fund options 
may cause investors to bring this liquidity to BOX, which would 
increase market transparency and enhance the process of price discovery 
conducted on BOX through increased order flow.
    Finally, the Exchange notes that applicable Exchange rules will 
require that customers receive appropriate disclosure before trading 
options in Bitcoin Funds.\32\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\33\
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    \32\ See Rules 4020(b), (e) and 4100.
    \33\ See Rule 4040.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act''),\34\ in general, and Section 6(b)(5) of the Act,\35\ in 
particular, in that it is 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 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.
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    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposal to list and 
trade options on Bitcoin Funds will remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, protect investors because offering options on Bitcoin 
Funds will provide investors with an opportunity to realize the 
benefits of utilizing options on a Bitcoin Fund, including cost 
efficiencies and increased hedging strategies. The Exchange believes 
that offering Bitcoin Fund options will benefit investors by providing 
them with a relatively lower-cost risk management tool, which will 
allow them to manage their positions and associated risk in their 
portfolios more easily in connection with exposure to the price of 
Bitcoin and with Bitcoin-related products and positions. Additionally, 
the Exchange's offering of Bitcoin Fund options will provide investors 
with the ability to transact in such options in a listed market 
environment as opposed to in the unregulated OTC options market, which 
would increase market transparency and enhance the process of price 
discovery conducted on BOX through increased order flow to the benefit 
of all investors. The Exchange also notes that BOX already lists 
options on other commodity-based ETPs,\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 ETP 
options it currently lists for trading. The Exchange also believes the 
proposed rule change will remove impediments to and perfect the 
mechanism of a free and open market and a national market system, 
because it is consistent with current Exchange Rules previously filed 
with the Commission. Options on Bitcoin Funds satisfy the initial 
listing standards and continued listing standards currently in the 
Exchange Rules applicable to options on all ETFs and ETPs, including 
ETPs that hold other commodities already deemed appropriate for options 
trading on BOX. Additionally, as demonstrated above, each Bitcoin Fund 
is characterized by a substantial number of shares that are widely held 
and actively traded. Bitcoin Fund options will trade in the same manner 
as any other ETF or ETP options--the same Exchange Rules that currently 
govern the listing and trading of options, including permissible 
expirations, strike prices, minimum increments, and margin 
requirements, will govern the listing and trading of options on Bitcoin 
Funds in the same manner.
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    \36\ See Rule 5020(h).
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    The Exchange believes the proposed rule change to exclude the 
Bitcoin Funds from being eligible for trading as FLEX Equity Options is 
consistent with the Act, because without this prohibition, trading a 
FLEX Equity Option in the Bitcoin Funds would otherwise establish 
different position and exercise limits than those proposed herein.\37\ 
The proposed position and exercise limit for options on the Bitcoin 
Funds is 25,000 contracts. These position and exercise limits are the 
lowest position and exercise limits available in the options industry, 
are extremely conservative and more than appropriate given the Bitcoin 
Funds' market capitalization, average daily volume, number of 
beneficial holders, and high number of outstanding shares. The proposed 
position and exercise limits are consistent with the Act as they 
address concerns related to manipulation and protection of investors 
because the position and exercise limits are extremely conservative and 
more than appropriate given the Bitcoin Funds are actively traded.
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    \37\ The Exchange would be required to submit a separate rule 
filing to permit the Exchange to authorize for trading FLEX Equity 
Options on the Bitcoin Funds (which filing may propose changes to 
existing FLEX Equity Option position limits for such options if 
appropriate).
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    The Exchange also believes the proposed rule change to Rule 
5055(e), to make clear that options on the Bitcoin Funds are not 
eligible for FLEX trading, will remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it adds clarity and transparency to Exchange Rules making them 
easier to navigate and understand to the

[[Page 95343]]

benefit of investors and the public interest. The Exchange represents 
that BOX has the necessary systems capacity to support the new Bitcoin 
Fund options. The Exchange believes that its existing surveillance and 
reporting safeguards are designed to deter and detect possible 
manipulative behavior which might arise from listing and trading 
options, including Bitcoin Fund options. The Exchange's existing 
surveillance and reporting safeguards are designed to deter and detect 
possible manipulative behavior which might arise from listing and 
trading options on ETFs and ETPs, such as (existing) precious metal-
commodity backed ETP options as well as the proposed options on Bitcoin 
Funds.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of options on Bitcoin Funds and to 
deter and detect violations of Exchange rules. Additionally, the 
Exchange is a member of the ISG under the Intermarket Surveillance 
Group Agreement. ISG members work together to coordinate surveillance 
and investigative information sharing in the stock, options, and 
futures markets. The Exchange would be able to obtain information 
regarding trading in shares of the Bitcoin Funds from Arca and other 
markets that trade shares of the Bitcoin Funds through ISG. In 
addition, the Exchange has a Regulatory Services Agreement with FINRA 
and, as noted herein, pursuant to a multi-party 17d-2 joint plan, all 
options exchanges allocate regulatory responsibilities to FINRA to 
conduct certain options-related market surveillances. Further, the 
Exchange will implement any new surveillance procedures it deems 
necessary to effectively monitor the trading of options on the Bitcoin 
Funds. The underlying shares of spot bitcoin ETPs, including the 
Bitcoin Funds, are also subject to safeguards related to addressing 
market abuse and manipulation. As the Commission stated in its order 
approving proposals of several exchanges to list and trade shares of 
spot bitcoin-based ETPs, ``[e]ach Exchange has a comprehensive 
surveillance-sharing agreement with the CME via their common membership 
in the Intermarket Surveillance Group. This facilitates the sharing of 
information that is available to the CME through its surveillance of 
its markets, including its surveillance of the CME bitcoin futures 
market.\38\ 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].'' 
\39\ In light of surveillance measures related to both options and 
futures as well as the underlying Bitcoin Funds,\40\ 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.
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    \38\ See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008, 3009 (January 17, 2024) (File Nos. SR-NYSEArca-
2021-90; SR-NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ-2023-
016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; 
SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; 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).
    \39\ See Bitcoin ETP Order, 89 FR at 3010-11.
    \40\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf; Amendment No. 2 
to Proposed Rule Change to List and Trade Shares of the Bitwise 
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 2024, available at 
https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf; and Notice of Filing of Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Shares of the 
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E, 
Commodity-Based Trust Shares, Securities Exchange Act Release No. 
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
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    Finally, the Exchange notes that this proposal 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 
applicable Exchange rules will require that customers receive 
appropriate disclosure before trading options in Bitcoin Funds \41\ and 
will require that brokers opening accounts and recommending options 
transactions comply with relevant customer suitability standards.\42\ 
The Exchange notes the proposed rule change is substantively the same 
as a rule change proposed by NYSE American which the Commission 
recently approved.\43\
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    \41\ See Rules 4020(b), (e) and 4100.
    \42\ See Rule 4040.
    \43\ See supra note 4.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to a filing submitted by NYSE American that was 
recently approved by the Commission.\44\
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    \44\ See supra note 4.
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    Intramarket Competition: The Exchange does not believe that the 
proposed rule change will impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act as Bitcoin Funds would need to satisfy the initial listing 
standards set forth in the Exchange Rules in the same manner as any 
other ETF before the Exchange could list options on them. Additionally, 
Bitcoin Fund options will be equally available to all market 
participants who wish to trade such options. The Exchange Rules 
currently applicable to the listing and trading of options on ETFs on 
BOX will apply in the same manner to the listing and trading of all 
options on Bitcoin Funds. Also, and as stated above, the Exchange 
already lists options on other commodity-based ETPs.\45\
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    \45\ See Rule 5020(h).
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    Intermarket Competition: The Exchange does not believe that the 
proposal to list and trade options on Bitcoin Funds will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the extent that the 
advent of Bitcoin Fund options trading on BOX may make BOX a more 
attractive marketplace to market participants at other exchanges, such 
market participants are free to elect to become market participants on 
BOX. As noted herein, this is a competitive filing as the Commission 
recently approved the listing and trading of the Bitcoin Funds on 
another options exchange.\46\ Additionally, other options exchanges are 
free to amend their listing rules, as applicable, to permit them to 
list and trade options on Bitcoin Funds. The Exchange notes that 
listing and trading Bitcoin Fund options on BOX 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,

[[Page 95344]]

competition as it is designed to increase competition for order flow on 
BOX 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 BOX 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 BOX 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.
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    \46\ See supra note 4.
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    Finally, the proposed rule change to exclude Bitcoin Fund options 
from being eligible for trading as FLEX Equity Options does not impose 
an undue burden on competition as no BOX Participant will be able to 
transact a FLEX Equity Option on the Bitcoin Funds.

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 \47\ and Rule 19b-
4(f)(6) thereunder.\48\
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    \47\ 15 U.S.C. 78s(b)(3)(A).
    \48\ 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.
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    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) \49\ 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 shares of 
the Bitcoin Funds.\50\ 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.\51\
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    \49\ 17 CFR 240.19b-4(f)(6)(iii).
    \50\ See supra note 4.
    \51\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of 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-BOX-2024-28 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-BOX-2024-28. 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-BOX-2024-28 and should be 
submitted on or before December 23, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
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    \52\ 17 CFR 200.30-3(a)(12), (59).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28109 Filed 11-29-24; 8:45 am]
BILLING CODE 8011-01-P