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, 95273-95283 [2024-28110]
Download as PDF
<![CDATA[
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
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–2024–27 and should be
submitted on or before December 23,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.80
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–28105 Filed 11–29–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101740; File No. SR–
CboeBZX–2024–121]
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
ddrumheller on DSK120RN23PROD with NOTICES1
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, Cboe BZX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BZX Options’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
CFR 200.30–3(a)(12), (59).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
18:25 Nov 29, 2024
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 the iShares Bitcoin Trust (the
‘‘iShares Fund’’), the Grayscale Bitcoin
Trust (the ‘‘Grayscale Fund’’), the
Grayscale Bitcoin Mini Trust (the
‘‘Grayscale Mini Fund’’), or the Bitwise
Bitcoin ETF (the ‘‘Bitwise Fund’’ and,
together with the iShares Fund, the
Grayscale Fund, and the Grayscale Mini
Fund, the ‘‘Bitcoin Funds’’).3 This is a
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–
80 17
VerDate Sep<11>2014
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.
Jkt 265001
PO 00000
Frm 00106
Fmt 4703
Sfmt 4703
95273
competitive filing based on similar
proposals submitted by Nasdaq ISE, LLC
(‘‘ISE’’) (with respect to the iShares
Fund) and NYSE American, LLC
(‘‘NYSE American’’) (with respect to the
Grayscale Fund, the Grayscale Mini
Fund, and the Bitwise Fund), which
were recently approved by the
Securities and Exchange Commission
(the ‘‘Commission’’).4 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,5
including interests in certain specific
trusts that hold financial instruments,
money market instruments, precious
metals (which are deemed
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 Securities Exchange Act Release Nos.
101128 (September 20, 2024), 89 FR 78942
(September 26, 2024) (SR–ISE–2024–03) (‘‘ISE
Approval’’); and 101386 (October 18, 2024), 89 FR
84960 (October 24, 2024) (SR–NYSEAMER–2024–
49) (‘‘NYSE American Approval’’).
5 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, iShares Silver
Trust, the Fidelity Wise Origin Bitcoin Fund (the
‘‘Fidelity Fund’’), or the ARK 21Shares Bitcoin ETF
(the ‘‘Ark 21 Fund’’).
E:\FR\FM\02DEN1.SGM
02DEN1
ddrumheller on DSK120RN23PROD with NOTICES1
95274
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
commodities), or Bitcoin (which is
deemed a commodity. In addition, Rule
19.3(i)(1) requires that Fund Shares
meet the criteria and standards set forth
in Rule 19.3(a) and (b) 6 or (2) be
available for creation or redemption
each business day from or through the
issuer in cash or in kind at a price
related to net asset value, and the issuer
must be obligated to issue Fund Shares
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.
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.7 The
Bitcoin Funds provide investors with
cost-efficient alternatives that allow a
level of participation in the Bitcoin
market through the securities market.
The primary substantive difference
between Bitcoin Funds and 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 Bitcoin Funds are
similar to the Fidelity Fund and the Ark
21 Fund, which are already eligible for
options trading on the Exchange.8
6 Rule 19.3(a) and (b) sets forth the criteria that
underlying securities must satisfy for option
contracts on those underlying securities to be
eligible for listing and trading on the Exchange.
7 The trust may include minimal cash.
8 See Rule 19.3(i); and SR–CboeBZX–2024–118
(filed November 21, 2024).
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
The Exchange’s initial listing
standards for Fund Shares on which
options may be listed and traded on the
Exchange will apply to the Bitcoin
Funds. 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 (the
‘‘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
the security shall be characterized by a
substantial number of outstanding
shares that are widely held and actively
traded. 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),9 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.
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
9 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.
PO 00000
Frm 00107
Fmt 4703
Sfmt 4703
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.10 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 11 at the
10 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).
11 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.
E:\FR\FM\02DEN1.SGM
02DEN1
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
commencement of trading on the
Exchange and may also list series of
options on a Bitcoin Fund for trading on
a weekly,12 monthly,13 or quarterly 14
basis. The Exchange may also list longterm equity option series (‘‘LEAPS’’)
that expire from 12 to 39 months from
the time they are listed.15
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 $200.16 Additionally,
the Exchange may list series of options
pursuant to the $1 Strike Price Interval
Program,17 the $0.50 Strike Program,18
the $2.50 Strike Price Program,19 and
the $5 Strike Program.20 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 $0.10.21
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
12 See
Rule 19.6, Interpretation and Policy .05.
Rule 19.6, Interpretation and Policy .08.
14 See Rule 19.6, Interpretation and Policy .04.
15 See Rule 19.8.
16 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.
17 See Rule 19.6, Interpretation and Policy .02.
18 See Rule 19.6, Interpretation and Policy .06.
19 See Rule 19.6, Interpretation and Policy .03.
20 See Rule 19.6(d)(5).
21 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).
ddrumheller on DSK120RN23PROD with NOTICES1
13 See
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
backed commodity Fund Shares and the
Fidelity and Ark 21 Funds already
deemed appropriate for options trading
on the Exchange pursuant to current
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.22 In considering the
appropriate position and exercise limits
for the Bitcoin Funds, the Exchange
reviewed the data presented by ISE in
its filing (specifically in Exhibit 3 of the
filing) with respect to the iShares
Fund 23 and by NYSE American in its
filing with respect to the Grayscale
Fund, the Grayscale Mini Fund, and the
Bitwise Fund.24
With respect to the iShares Fund, in
its filing, ISE considered the iShares
Fund market capitalization and average
daily volume (‘‘ADV’’) against those of
other underlying securities, as well as
the proposed position limit in relation
to other options. In measuring the
iShares Fund against other securities,
ISE aggregated market capitalization and
volume data for securities that have
defined position limits utilizing data
from The Options Clearing Corporations
(‘‘OCC’’).25 This pool of data took into
consideration 3,984 options on single
stock securities, excluding broad based
ETFs.26 Next, ISE aggregated the data
based on market capitalization and ADV
and grouped option symbols by position
limit utilizing statistical thresholds for
ADV and market capitalization that
were one standard deviation above the
mean for each position limit category
(i.e., 25,000, 50,000 to 65,000, 75,000,
100,000 to less than 250,000, 250,000 to
400,000, 450,000 to 1,000,000, and
greater than or equal to 1,000,000)
22 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. See SR–CBOE–
2024–051.
23 See ISE Approval; and Letter from Angela
Dunn, Nasdaq ISE, LLC, to Vanessa Countryman,
Secretary, Commission, dated August 21, 2024)
(‘‘ISE Letter’’).
24 See NYSE American Approval.
25 The computations are based on OCC data from
August 6, 2024. Data displaying zero values in
market capitalization or ADV were removed.
26 The iShares Fund has one asset and therefore
is not comparable to a broad based ETF where there
are typically multiple components.
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
95275
(sic).27 Rule 8.30 sets out position limits
for various contracts. For example, on
the Exchange, like ISE, a 25,000 contract
position limit applies to options with an
underlying security that does not meet
the requirements for a higher options
contract position limit. ISE performed
an exercise to demonstrate the iShares
Fund position limit relative to other
options symbols in terms of market
capitalization and ADV. For reference
the market capitalization for the iShares
Fund was 19,789,068 billion 28 with an
ADV, for the preceding three months
prior to August 7, 2024, of greater than
26 million shares.29 By comparison,
other options symbols with similar
market capitalization and ADV have a
position limit in excess of 400,000.30
Therefore, the proposed 25,000 same
side position limit for options on the
iShares Fund is extremely conservative
relative to these options symbols which
are a full standard deviation above the
mean in comparison.
Second, ISE reviewed the iShares
Fund’s data relative to the market
capitalization of the entire Bitcoin
market in terms of exercise risk and
availability of deliverables. Utilizing
data as of August 3, 2024, there were
19,737,193 Bitcoins in circulation.31 ISE
took a price of $57,000 that equates to
a market capitalization of greater than
1.125 trillion U.S. dollars, and applied
that to a position limit of 400,000 for
options on the iShares Fund.32 If a
position limit of 400,000 options were
considered (the position limit that
would be typically assigned based upon
data) the exercisable risk would
represent only 6.6% of the outstanding
shares of the iShares Fund. The 25,000
position limit being sought only
represents 0.4% of the outstanding
shares of the iShares Fund. Since the
iShares Fund has a creation and
redemption process managed through
the issuer, additionally it can be
compared the position limit sought to
the total market capitalization of the
entire Bitcoin market. In this case, the
exercisable risk for options on the
iShares Fund would be less than 0.01%
of the market capitalization of all
27 See
ISE Letter at 10.
acquired this figure as of August 13, 2024.
See https://www.ishares.com/us/products/333011/
ishares-bitcoin-trust. The global supply of Bitcoin
grows each day Bitcoin are minted.
29 See ISE Letter at 10.
30 See, e.g., iShares® iBoxx® $ High Yield
Corporate Bond ETF (‘‘HYG’’) with a market
capitalization of 13,859,235,000 billion as of
November 4, 2024. See https://www.ishares.com/
us/products/239565/ishares-iboxx-high-yieldcorporate-bond-etf. The Exchange notes that HYG
has a position limit of 500,000 contracts.
31 See ISE Letter at 10.
32 Id.
28 ISE
E:\FR\FM\02DEN1.SGM
02DEN1
95276
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
outstanding Bitcoin. Assuming a
scenario where all options on the
iShares Fund’s shares were exercised
given the proposed 25,000 per same side
position limit, this would have a
virtually unnoticed impact on the entire
Bitcoin market. This analysis
demonstrates that the proposed 25,000
per same side position limit is also
extremely conservative and more than
appropriate for options on the iShares
Fund.
Third, ISE reviewed the proposed
position limit by comparing it to
position limits for derivative products
regulated by the Commodity Futures
Trading Commission (‘‘CFTC’’). While
the CFTC, through the relevant
Designated Contract Markets, only
regulates options positions based upon
delta equivalents (creating a less
stringent standard), ISE examined
equivalent bitcoin futures position
limits. In particular, ISE looked at the
CME Bitcoin futures contract that has a
position limit of 2,000 futures.33 On
August 7, 2024, CME Bitcoin futures
settled at $55,000.34 Taking the position
limit of 2,000 futures at a $5 multiplier
equates to $550 million of notional
value for Bitcoin futures. By way of
comparison, on August 7, 2024, the
iShares Fund settled at $31.19 per share,
which would equate to 17,633,857
shares of the iShares Fund 35 if the CME
notional position limit were utilized.
Since substantial portions of any
distributed options portfolio are likely
to be out of the money on expiration, an
options position limit equivalent to the
CME position limit for Bitcoin futures
(considering that all options deltas are
<=1.00) should be a bit higher than the
CME implied 176,338 limit.
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).36 Therefore, if a portfolio
33 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.
34 See https://finance.yahoo.com/quote/
BTC%3DF/history/?guccounter=1&guce_
referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8
&guce_referrer_sig=AQAAAM7ngaS6ZQS
9c2Wzx7JW2IUe-_-_1FnLyr8TQw4jjkleHyCENfSMIE
pPPt2hCzPDEryTVyB78NIwxkwFB5Fuw-jAYiuSmYJHBriWbV6dYn91
VQfzQNt3p0I2RkYLD3HhzXPwu4AP5as_WzHNpEBon4sk5sUZXgkapMrZR--CS.
35 See ISE Letter at 11.
36 See CME Rulebook Chapter 5, Position Limit,
Position Accountability and Reportable Level Table
in the Interpretations & Special Notices.
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
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.37 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 iShares
Fund options.
In analyzing the proposed position
limit for options on the iShares Fund,
ISE also considered the supply of
Bitcoin. Specifically, ISE examined the
number of market participants with
position limits that would need to
exercise in unison to put the underlying
asset under stress. In the case of options
on the iShares Fund, the proposed
25,000 same side position limit
effectively restricts a market participant
from holding positions that could be
exercised in excess of 2,500,000 shares
of the iShares Fund. Utilizing data from
August 12, 2024, the iShares Fund had
611,040,000 shares outstanding,
therefore 244 market participants would
have to simultaneously exercise
position limits in order to create a
scenario that may put the underlying
asset (iShares Fund) under stress.38 The
Exchange notes that historically, from
observation only, it appears that no
more than five market participants
holding position limits in any security
have exercised in unison in any option.
As unlikely an occurrence as all market
participants exercising their position
limits in unison would be, if it were to
occur, it should be noted that even such
an occurrence would not likely put the
iShares Fund under stress as economic
incentives, would induce the creation of
more shares through the ETF creation
and redemption process.
By way of example, given that the
current global supply of Bitcoin, the
37 Id.
38 See https://www.ishares.com/us/products/
333011/ishares-bitcoin-trust.
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
underlying asset of the iShares Fund, is
19,789,068 39 and that each Bitcoin can
currently be redeemed for 1,755 shares
of the iShares Fund, another
34,729,814,340 shares of the iShares
Fund could be created. To exhaust this
supply of the iShares Fund, 13,891
market participants would have to
simultaneously exercise their position
limit. Comparing the iShares Fund to
the SPDR Gold Shares (‘‘GLD’’) ETF or
the iShares Silver Trust (‘‘SLV’’) ETF,
which have position limits of 250,000 or
ten times the proposed position limit for
the iShares Fund as well as lower shares
outstanding in both products,40 it is
unjustified to mandate a different level
of stringency with respect to a position
limit for options on the iShares Fund.
With respect to the Grayscale Fund,
the Grayscale Mini Fund, and the
Bitwise Fund, the Exchange reviewed
the data presented by NYSE American
in its filing. NYSE American aggregated
market capitalization, volume, and
shares outstanding data of the Bitcoin
Funds and compared that data to those
of other ETFs, and compared the
proposed position limit of the Bitcoin
Funds to the position limits of the
options overlying those other ETFs. The
Exchange reviewed NYSE American’s
data that demonstrated that each of
these three Bitcoin Funds would easily
qualify for the 250,000-contract position
limit available to other ETFs and ETPs
pursuant to the criterion in Rule 8.30,
Interpretation and Policy .02, which
requires the most recent six-month
trading volume of the underlying
security to be at least 100,000,000
shares.41
Bitcoin Fund
Grayscale Fund ....................
Grayscale Mini Fund ............
Bitwise Fund .........................
Total volume
(shares)
(as of
September 30,
2024)
723,758,100
335,492,930
263,965,870
39 This figure was acquired as of August 13, 2024.
See https://www.ishares.com/us/products/333011/
ishares-bitcoin-trust. The global supply of Bitcoin
grows each day Bitcoin are minted.
40 As of August 13, 2024, GLD had 294,000,000
shares outstanding and SLV had 510,200,000 shares
outstanding. See https://www.ssga.com/us/en/
intermediary/etfs/funds/spdr-gold-shares-gld and
https://www.ishares.com/us/products/239855/
ishares-silver-trust-fund.
41 Rule 8.30, Interpretation and Policy .02(e)
states that to be eligible for the 250,000 option
contract limit, either the most recent six-month
trading volume of the underlying security must
have totaled at least 100,000,000 shares; or the most
recent six-month trading volume of the underlying
security must have totaled at least 75,000,000
shares and the underlying security must have at
least 300,000,000 currently outstanding.
E:\FR\FM\02DEN1.SGM
02DEN1
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
Based on this trading volume,42 each
Bitcoin Fund exceeded the requisite
100,000,000 shares necessary to qualify
for the 250,000-contract position and
exercise limits. By comparison, the
underlying of other options with sixmonth trading volume less than the
volumes in the table above are eligible
for position and exercise limits of at
least 250,000.43
Second, with respect to the
outstanding shares of these three Bitcoin
Funds, the Exchange reviewed NYSE
American’s data regarding the
outstanding shares of each of these
Bitcoin Funds. NYSE American
performed an exercise to demonstrate
that if a market participant held the
Grayscale Fund ...........................................................................................................................
Grayscale Mini Fund ....................................................................................................................
Bitwise 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. For
maximum number of contracts possible
pursuant to the proposed position and
exercise limits (25,000 contracts), the
equivalent shares represented by the
proposed position and exercise limits
(2,500,000 shares) would represent the
following approximate percentage of
outstanding shares as of August 30,
2024:
Proposed
position/
exercise
limits in
equivalent
shares
Bitcoin Fund
example, 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). NYSE American used the
2,500,000
2,500,000
2,500,000
Outstanding
shares
Percentage of
outstanding
shares
284,570,100
366,950,100
68,690,000
0.9
0.7
3.6
number of shares outstanding for each
Bitcoin Fund as of August 30, 2024, and
calculated 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:
Outstanding
shares
Bitcoin Fund
Grayscale Fund .......................................................................................................................................................
Grayscale Mini Fund ................................................................................................................................................
Bitwise Fund ............................................................................................................................................................
ddrumheller on DSK120RN23PROD with NOTICES1
95277
Number of
market
participants
with 25,000
same side
positions
284,570,100
366,950,100
68,690,000
114
147
27
This means if 114 market participants
had 25,000 same side positions in
options on the Grayscale Fund, 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 147 market participants had
25,000 same side positions in options
on the Grayscale Mini Fund, each of
them would have to simultaneously
exercise all of those options to create a
scenario that may put the underlying
security under stress. Finally, this
means if 27 market participants had
25,000 same side positions in options
on the Bitwise Fund, 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 this to occur;
however, even if such event did occur,
the Exchange would not expect any of
the 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.
NYSE American also performed an
exercise to compare the size of the
proposed position limit to the market
capitalization of the Bitcoin market
given that the issuer of each of these
three Bitcoin Funds may create and
redeem shares that represent an interest
in Bitcoin. NYSE American took the
global supply of Bitcoin, which was
19,747,066, and the price of one Bitcoin,
which was approximately $59,108.23, as
of August 30, 2024, which equates to a
market capitalization of approximately
$1.167 trillion.44 Consider the proposed
position and exercise limit of 25,000
option contracts for each Bitcoin Fund
option. A position and exercise limit of
25,000 same side contracts effectively
restricts a market participant from
holding positions that could result in
the receipt of no more than 2,500,000
shares of the Grayscale Fund, the
Grayscale Mini Fund, or the Bitwise
Fund, as applicable (if that market
participant exercised all its options).
NYSE American considered the share
price of each Bitcoin Fund on August
30, 2024 and calculated the value of
2,500,000 shares of the Bitcoin Fund at
that price, and the approximate
percentage of that value of the size of
the Bitcoin market:
42 See FactSet, 9/30/2024, https://
www.factset.com/data-attribution. Bitwise Fund
shares began trading on July 31, 2024, and therefore
the data in the above table has only two months of
trading data available.
43 See https://www.theocc.com/Market-Data/
Market-Data-Reports/Series-and-Trading-Data/
Series-Search (including the following symbols that
have a position limit of 250,000: GLD, IAU, SLV,
SIVR, SGOL).
44 See https://www.blockchain.com/explorer/
charts/total-bitcoins.
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
E:\FR\FM\02DEN1.SGM
02DEN1
95278
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
Share price
($)
Bitcoin Fund
Grayscale Fund ...........................................................................................................................
Grayscale Mini Fund ....................................................................................................................
Bitwise Fund ................................................................................................................................
Therefore, if a market participant with
the maximum 25,000 same side
contracts in options on the Grayscale
Fund, the Grayscale Mini Fund, or the
Bitwise Fund exercised all positions at
one time, such an event would have no
practical impact on the Bitcoin market.
The Exchange also reviewed NYSE
American’s data regarding the market
Bitcoin/
shares
outstanding
Total Bitcoin Market .....................................................................
Grayscale Fund ...........................................................................
Grayscale Mini Fund ....................................................................
Bitwise Fund ................................................................................
As this data gathered by NYSE
American demonstrates, none of these
three Bitcoin Funds represent more than
1.2% of the global supply of Bitcoin
(19,747, 066). Based on the $46.75 price
of a Grayscale Fund share on August 30,
2024, a market participant could have
redeemed one Bitcoin for approximately
1,264 Grayscale Fund shares. Another
24,967,146,455 Grayscale Fund shares
could be created before the supply of
Bitcoin was exhausted. As a result,
9,987 market participants would have to
simultaneously exercise 25,000 same
side positions in Grayscale Fund
options receive shares of the Grayscale
Fund holding the entire global supply of
Bitcoin. Similarly, based on the $5.20
price of a Grayscale Mini Fund share on
August 30, 2024, a market participant
46.75
5.20
31.95
19,747,066
284,570,100
366,950,100
68,690,000
could have redeemed one Bitcoin for
approximately 11,367 Grayscale Mini
Fund shares. Another 224,464,249,382
Grayscale Mini Fund shares could be
created before the supply of Bitcoin was
exhausted. As a result, 89,786 market
participants would have to
simultaneously exercise 25,000 same
side positions in Grayscale Mini Fund
options to receive shares of Grayscale
Mini Fund holding the entire global
supply of Bitcoin. Similarly, based on
the $31.95 price of a Bitwise Fund share
on August 30, 2024, a market
participant could have redeemed one
Bitcoin for approximately 1,850 Bitwise
Fund shares. Another 36,532,522,591
Bitwise Fund shares could be created
before the supply of Bitcoin was
exhausted. As a result, 14,613 market
1,167,214,096,788
13,443,091,524
1,930,157,526
2,221,640,670
ddrumheller on DSK120RN23PROD with NOTICES1
id.
VerDate Sep<11>2014
46 See CME Rulebook Chapter 5, Position Limit,
Position Accountability and Reportable Level Table
in the Interpretations & Special Notices.
20:04 Nov 29, 2024
Jkt 265001
PO 00000
Frm 00111
100
1.15
0.17
0.19
participants would have to
simultaneously exercise 25,000 same
side positions in Bitwise Fund options
to receive shares of Bitwise Fund
holding the entire global supply of
Bitcoin.
As ISE did with respect to the iShares
Fund, NYSE American compared the
proposed position limits to the position
limit of CME Bitcoin futures, which as
noted above is 2,000 futures. 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 $589,500,000.
The following table shows the share
price of each Bitcoin Fund on August
28, 2024, and the approximate number
of option contracts that equates to that
notional value:
Share price
($)
demonstrates how conservative the
proposed limits of 25,000 options
contracts are for the Bitcoin Fund
options.
The Exchange notes, again, unlike
options contracts, CME position limits
are calculated on a net futuresequivalent basis by contract and include
contracts that aggregate into one or more
base contracts according to an
aggregation ratio(s).46 Therefore, if a
Fmt 4703
Sfmt 4703
0.010
0.001
0.007
Percentage of total
Bitcoin
market
Market value
($)
Grayscale Fund .......................................................................................................................................................
Grayscale Mini Fund ................................................................................................................................................
Bitwise Fund ............................................................................................................................................................
45 See
116,875,000
13,000,000
79,875,000
Percentage of
Bitcoin
market
capitalization of each of these three
Bitcoin Funds relative to the market
capitalization of the entire Bitcoin
market, as of August 30, 2024: 45
Bitcoin 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. As noted above, the fact that
many options ultimately expire out-ofthe-money and thus are not exercised
for shares of the underlying, while the
delta of a Bitcoin Future is 1, further
Value of
2,500,000
shares
46.94
5.23
32.08
Number of
option
contracts
125,585
1,127,151
183,759
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.47 If a
position exceeds position limits because
of an option assignment, CME permits
market participants to liquidate the
47 Id.
E:\FR\FM\02DEN1.SGM
02DEN1
ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
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 Grayscale
Fund, Grayscale Mini Fund, and Bitwise
Fund options.
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.48 The Exchange
notes that Bitcoin is a viable economic
alternative to traditional assets. The
price of goods denominated by Bitcoin
has actually declined. This dynamic not
only makes a fixed supply desirable, but
a necessary condition of the value
added by this asset in the broader
economy. 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. Given the
significant unlikelihood of any of events
described above 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.
Importantly, because the supply of
Bitcoin is much larger than the available
supply of most securities and the
proposed 25,000 contract position limit
is so conservative, the Exchange
believes that evaluating the available
supply of Bitcoin in establishing a
position limit for options on each of the
Bitcoin Funds would demonstrate that
the proposed limit is safe for investors
and the market.49 Each Bitcoin Fund
represents less than 2% of the entire
Bitcoin supply. When comparing the
market capitalization of bitcoin against
the largest securities, Bitcoin would
48 See https://www.blockchain.com/explorer/
assets/btc (citing 21 million as the ‘‘total supply’’
of bitcoin).
49 A supply consideration would likely be
valuable for an option symbol that had far less
liquidity than the Trust.
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
rank 7th among those securities.50
Further, the Exchange believes that its
proposal to list options on the Bitcoin
Funds each with a position limit of
25,000 on the same side is a
conservative position limit that does not
lend itself to manipulation in the market
given the ample market capitalization
and liquidity in each Bitcoin Fund. If
we look to the liquidity statistics of
similar instruments and their
concomitant position limits, we are able
to extrapolate a reasonable standard for
arriving at a position limit for a new
product. In this case we can look to
GLD, SLV, and the ProShares Bitcoin
Strategy ETF. These products have
volume statistics and ‘‘float’’ statistics,
which gauge liquidity, which are in
line, yet slightly lower than the Bitcoin
Funds. All three of these reference
products have position limits of 250,000
contracts. These reference products are
remarkably similar in nature to the
Bitcoin Funds; they are exchange-traded
products (‘‘ETPs’’) holding one asset in
a trust.
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.51 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.52 ‘‘Since the
50 See https://companiesmarketcap.com/usa/
largest-companies-in-the-usa-by-market-cap/.
51 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.
52 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
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
95279
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.’’ 53 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.’’ 54
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 2140.55 Each Registration
Statement permits an unlimited number
of shares of the applicable Bitcoin Fund
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.56 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
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.
53 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
54 See id.
55 See iShares Fund Form S–1 Registration
Statement, at p. 25, bit20230608_s1.htm; Grayscale
Fund Form S–1 Registration Statement, at p. 17,
https://www.sec.gov/Archives/edgar/data/1588489/
000119312517013693/d157414ds1.htm; Grayscale
Mini Fund, Form S–1 Registration Statement, at p.
21, https://www.sec.gov/Archives/edgar/data/
2015034/000119312524065444/d785023ds1.htm;
and Bitwise Amendment No 2. to S–1, at p. 47,
https://www.sec.gov/Archives/edgar/data/1763415/
000199937123000735/bitwise-s1a_120423.htm.
56 See Bitcoin ETP Approval Order.
E:\FR\FM\02DEN1.SGM
02DEN1
ddrumheller on DSK120RN23PROD with NOTICES1
95280
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
size of the Bitcoin supply, the proposed
positions limits are more than sufficient
to protect investors and the market. 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 and ADV.
Today, the Exchange has an adequate
surveillance program in place for
options. The Exchange intends to apply
those same program procedures to
options on the Bitcoin Funds that it
applies to the Exchange’s other options
products.57 The Exchange’s market
surveillance staff would have access to
the surveillances conducted by Cboe
BYX Exchange, Inc., Cboe EDGA
Exchange, Inc., and Cboe EDGX
Exchange, Inc., in addition to the
Exchange’s equity market,58 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
multi-party 17d–2 joint plan, all options
exchanges allocate amongst themselves
57 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).
58 Cboe BYX Exchange, Inc., Cboe EDGA
Exchange, Inc., and Cboe EDGX Exchange, Inc. are
affiliated markets of the Exchange.
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
and FINRA responsibilities to conduct
certain options-related market
surveillance that are common to rules of
all options exchanges.59
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.60 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].’’ 61 In light of
surveillance measures related to both
options and futures as well as the
underlying Bitcoin Funds,62 the
59 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.
60 See Bitcoin ETP Approval Order.
61 See Bitcoin ETP Approval Order, 89 FR at
3010–11.
62 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),
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
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,63 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
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’’).
63 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.
E:\FR\FM\02DEN1.SGM
02DEN1
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
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.64 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 65 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) 66 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 options
on a competitively priced ETF based on
spot Bitcoin will benefit investors by
providing them with an additional,
relatively lower-cost risk management
tool, allowing them to manage, more
easily, their positions and associated
64 15
65 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
66 Id.
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
risks in their portfolios in connection
with exposure to spot Bitcoin. Today,
the Exchange lists options on other
commodity (including Bitcoin) ETFs
structured as a trust, which essentially
offer the same objectives and benefits to
investors, and for which the Exchange
has not identified any issues with the
continued listing and trading of options
on those ETFs.
The Exchange also believes the
proposal to permit options on the
Bitcoin Funds will remove impediments
to and perfect the mechanism of a free
and open market and a national market
system, because options on the Bitcoin
Funds will comply with current
Exchange Rules. Options on the Bitcoin
Funds must satisfy the initial listing
standards and continued listing
standards currently in the Rules,
applicable to options on all ETFs,
including options on other commodity
ETFs already deemed appropriate for
options trading on the Exchange
pursuant to Rule 19.3(i). Additionally,
as demonstrated above, the Bitcoin
Funds are characterized by a substantial
number of shares that are widely held
and actively traded. Further, Rules that
currently govern the listing and trading
of options on ETFs, including
permissible expirations, strike prices,
minimum increments, position and
exercise limits (as proposed herein), and
margin requirements, will govern the
listing and trading of options on the
Bitcoin Funds.
The proposed position and exercise
limits for options on each of the Bitcoin
Funds is 25,000 contracts. These
position and exercise limits are the
lowest position and exercise limits
available in the options industry, are
extremely conservative and more than
appropriate given Bitcoin Fund’s market
capitalization, ADV, and high number of
outstanding shares. The proposed
position limit, and exercise limit, is
consistent with the Act as it addresses
concerns related to manipulation and
protection of investors because, as
demonstrated above, the position limit
(and exercise limit) is extremely
conservative and more than appropriate
given the Bitcoin Funds are actively
traded. In support of the proposed
position and exercise limits for options
on the Bitcoin Funds are 25,000
contracts, the Exchange is citing the in
depth analysis each of ISE and NYSE
American did in their respective filings.
As noted above, in the ISE and NYSE
American Approvals, each of ISE and
NYSE American considered the: (1)
applicable Bitcoin Fund’s market
capitalization and ADV, and proposed
position limit in relation to other
securities; (2) market capitalization of
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
95281
the entire Bitcoin market in terms of
exercise risk and availability of
deliverables; (3) proposed position limit
by comparing it to position limits for
derivative products regulated by the
CFTC; and (4) supply of Bitcoin. Based
on the Exchange’s review of these
analyses, the Exchange believes that the
setting position and exercise limits for
options on each of the Bitcoin Funds is
25,000 contracts is more than
appropriate. 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.67
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
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
67 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
E:\FR\FM\02DEN1.SGM
02DEN1
95282
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
commodity-based Fund Shares
(including Bitcoin-based).68 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
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 recently approved rule
filings of other exchanges to permit the
listing and trading of options on the
Bitcoin Funds.69 The Exchange notes
that listing and trading Bitcoin Fund
options on the Exchange will subject
such options to transparent exchangebased 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.
68 See
Rule 19.3(i)(4).
ISE Approval and NYSE American
Approval.
69 See
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
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 70 and Rule 19b–
4(f)(6) thereunder.71
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) 72 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.73 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.74
70 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.
72 17 CFR 240.19b–4(f)(6)(iii).
73 See supra note 4.
74 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).
71 17
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
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 rule-comments@
sec.gov. Please include file number SR–
CboeBZX–2024–121 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–2024–121. 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
E:\FR\FM\02DEN1.SGM
02DEN1
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
submissions should refer to file number
SR–CboeBZX–2024–121 and should be
submitted on or before December 23,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.75
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–28110 Filed 11–29–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101738; File No. SR–NYSE–
2024–44]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of a Longer Period for
Commission Action on a Proposed
Rule Change To Adopt a Provision
That the Exchange Will Not Review a
Compliance Plan Submitted by a
Listed Company That Is Below
Compliance With a Continued Listing
Standard if the Company Owes Any
Unpaid Fees to the Exchange and Will
Instead Immediately Commence
Suspension and Delisting Procedures
if Such Fees Are Not Paid in Full
ddrumheller on DSK120RN23PROD with NOTICES1
November 25, 2024.
On September 27, 2024, New York
Stock Exchange LLC (‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend Sections 802.02 and
802.03 of the NYSE Listed Company
Manual (‘‘Manual’’) to provide that the
Exchange will not review a compliance
plan submitted by a domestic or nonU.S. listed company that is determined
to be below compliance with a
continued listing standard unless the
company has paid in full all outstanding
listing or annual fees due to the
Exchange and will immediately
commence suspension and delisting
procedures in accordance with Section
804.00 of the Manual if such fees are not
paid in full by the plan submission
deadline or, with respect to any unpaid
fees that have become due and payable
since the commencement of its plan
period, if such fees are not paid in full
at the time of any required periodic
review of such plan. The proposed rule
change was published for comment in
the Federal Register on October 16,
75 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
18:25 Nov 29, 2024
Jkt 265001
2024.3 The Commission has received no
comment letters on the proposed rule
change.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
the Commission will either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is November 30,
2024. The Commission is extending this
45-day time period.
The Commission finds it appropriate
to designate a longer period within
which to take action on the proposed
rule change, so that it has sufficient time
to consider the proposed rule change.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,5
designates January 14, 2025, as the date
by which the Commission shall either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–NYSE–2024–44).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–28108 Filed 11–29–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
35401; 812–15649]
TCW Private Asset Income Fund and
TCW Asset Backed Finance
Management Company LLC
November 26, 2024.
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
ACTION: Notice.
AGENCY:
Notice of an application under section
6(c) of the Investment Company Act of
1940 (the ‘‘Act’’) for an exemption from
sections 18(a)(2), 18(c) and 18(i) of the
Act, under sections 6(c) and 23(c) of the
3 See Securities Exchange Act Release No. 101295
(Oct. 9, 2024), 89 FR 83527.
4 15 U.S.C. 78s(b)(2).
5 Id.
6 17 CFR 200.30–3(a)(31).
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
95283
Act for an exemption from rule 23c–3
under the Act, and for an order pursuant
to section 17(d) of the Act and rule 17d–
1 under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
registered closed-end investment
companies to issue multiple classes of
shares and to impose asset-based
distribution and/or service fees and
early withdrawal charges.
APPLICANTS: TCW Private Asset Income
Fund and TCW Asset Backed Finance
Management Company LLC.
FILING DATES: The application was filed
on October 24, 2024.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing on any application by
emailing the SEC’s Secretary at
Secretarys-Office@sec.gov and serving
the Applicants with a copy of the
request by email, if an email address is
listed for the relevant Applicant below,
or personally or by mail, if a physical
address is listed for the relevant
Applicant below. Hearing requests
should be received by the Commission
by 5:30 p.m. on December 20, 2024, and
should be accompanied by proof of
service on the Applicants, in the form
of an affidavit, or, for lawyers, a
certificate of service. Pursuant to rule 0–
5 under the Act, hearing requests should
state the nature of the writer’s interest,
any facts bearing upon the desirability
of a hearing on the matter, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
emailing the Commission’s Secretary.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicants:
Pamela Poland Chen, Esq., Kirkland &
Ellis LLP, pamela.chen@kirkland.com,
with a copy to Peter Davidson, Esq.,
TCW Asset Backed Finance
Management Company LLC,
peter.davidson@tcw.com.
FOR FURTHER INFORMATION CONTACT:
Trace W. Rakestraw, Senior Special
Counsel, at (202) 551–6825 (Division of
Investment Management, Chief
Counsel’s Office).
SUPPLEMENTARY INFORMATION: For
Applicants’ representations, legal
analysis, and conditions, please refer to
Applicants’ application, dated October
24, 2024, which may be obtained via the
Commission’s website by searching for
the file number at the top of this
document, or for an Applicant using the
Company name search field on the
SEC’s EDGAR system. The SEC’s
EDGAR system may be searched at
E:\FR\FM\02DEN1.SGM
02DEN1
]]>Agencies
[Federal Register Volume 89, Number 231 (Monday, December 2, 2024)]
[Notices]
[Pages 95273-95283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28110]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101740; File No. SR-CboeBZX-2024-121]
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 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, 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
the iShares Bitcoin Trust (the ``iShares Fund''), the Grayscale Bitcoin
Trust (the ``Grayscale Fund''), the Grayscale Bitcoin Mini Trust (the
``Grayscale Mini Fund''), or the Bitwise Bitcoin ETF (the ``Bitwise
Fund'' and, together with the iShares Fund, the Grayscale Fund, and the
Grayscale Mini Fund, the ``Bitcoin Funds'').\3\ This is a competitive
filing based on similar proposals submitted by Nasdaq ISE, LLC
(``ISE'') (with respect to the iShares Fund) and NYSE American, LLC
(``NYSE American'') (with respect to the Grayscale Fund, the Grayscale
Mini Fund, and the Bitwise Fund), which were recently approved by the
Securities and Exchange Commission (the ``Commission'').\4\ 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,\5\ including
interests in certain specific trusts that hold financial instruments,
money market instruments, precious metals (which are deemed
[[Page 95274]]
commodities), or Bitcoin (which is deemed a commodity. In addition,
Rule 19.3(i)(1) requires that Fund Shares meet the criteria and
standards set forth in Rule 19.3(a) and (b) \6\ or (2) be available for
creation or redemption each business day from or through the issuer in
cash or in kind at a price related to net asset value, and the issuer
must be obligated to issue Fund Shares 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.
---------------------------------------------------------------------------
\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 Securities Exchange Act Release Nos. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (``ISE
Approval''); and 101386 (October 18, 2024), 89 FR 84960 (October 24,
2024) (SR-NYSEAMER-2024-49) (``NYSE American Approval'').
\5\ 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, iShares
Silver Trust, the Fidelity Wise Origin Bitcoin Fund (the ``Fidelity
Fund''), or the ARK 21Shares Bitcoin ETF (the ``Ark 21 Fund'').
\6\ Rule 19.3(a) and (b) sets forth the criteria that underlying
securities must satisfy for option contracts on those underlying
securities to be eligible for listing and trading on the Exchange.
---------------------------------------------------------------------------
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.\7\ The Bitcoin Funds provide investors with cost-efficient
alternatives that allow a level of participation in the Bitcoin market
through the securities market. The primary substantive difference
between Bitcoin Funds and 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 Bitcoin Funds are similar to the Fidelity Fund and the
Ark 21 Fund, which are already eligible for options trading on the
Exchange.\8\
---------------------------------------------------------------------------
\7\ The trust may include minimal cash.
\8\ See Rule 19.3(i); and SR-CboeBZX-2024-118 (filed November
21, 2024).
---------------------------------------------------------------------------
The Exchange's initial listing standards for Fund Shares on which
options may be listed and traded on the Exchange will apply to the
Bitcoin Funds. 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 (the
``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 the security shall be characterized by a substantial
number of outstanding shares that are widely held and actively traded.
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),\9\ 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.
---------------------------------------------------------------------------
\9\ 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.
---------------------------------------------------------------------------
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.\10\ 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 \11\ at the
[[Page 95275]]
commencement of trading on the Exchange and may also list series of
options on a Bitcoin Fund for trading on a weekly,\12\ monthly,\13\ or
quarterly \14\ 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.\15\
---------------------------------------------------------------------------
\10\ 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).
\11\ 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.
\12\ See Rule 19.6, Interpretation and Policy .05.
\13\ See Rule 19.6, Interpretation and Policy .08.
\14\ See Rule 19.6, Interpretation and Policy .04.
\15\ 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.\16\ Additionally, the Exchange may list
series of options pursuant to the $1 Strike Price Interval Program,\17\
the $0.50 Strike Program,\18\ the $2.50 Strike Price Program,\19\ and
the $5 Strike Program.\20\ 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.\21\ 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.
---------------------------------------------------------------------------
\16\ 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.
\17\ See Rule 19.6, Interpretation and Policy .02.
\18\ See Rule 19.6, Interpretation and Policy .06.
\19\ See Rule 19.6, Interpretation and Policy .03.
\20\ See Rule 19.6(d)(5).
\21\ 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 and the Fidelity and Ark 21 Funds
already deemed appropriate for options trading on the Exchange pursuant
to current 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.\22\ In considering the appropriate position and
exercise limits for the Bitcoin Funds, the Exchange reviewed the data
presented by ISE in its filing (specifically in Exhibit 3 of the
filing) with respect to the iShares Fund \23\ and by NYSE American in
its filing with respect to the Grayscale Fund, the Grayscale Mini Fund,
and the Bitwise Fund.\24\
---------------------------------------------------------------------------
\22\ 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. See SR-CBOE-2024-051.
\23\ See ISE Approval; and Letter from Angela Dunn, Nasdaq ISE,
LLC, to Vanessa Countryman, Secretary, Commission, dated August 21,
2024) (``ISE Letter'').
\24\ See NYSE American Approval.
---------------------------------------------------------------------------
With respect to the iShares Fund, in its filing, ISE considered the
iShares Fund market capitalization and average daily volume (``ADV'')
against those of other underlying securities, as well as the proposed
position limit in relation to other options. In measuring the iShares
Fund against other securities, ISE aggregated market capitalization and
volume data for securities that have defined position limits utilizing
data from The Options Clearing Corporations (``OCC'').\25\ This pool of
data took into consideration 3,984 options on single stock securities,
excluding broad based ETFs.\26\ Next, ISE aggregated the data based on
market capitalization and ADV and grouped option symbols by position
limit utilizing statistical thresholds for ADV and market
capitalization that were one standard deviation above the mean for each
position limit category (i.e., 25,000, 50,000 to 65,000, 75,000,
100,000 to less than 250,000, 250,000 to 400,000, 450,000 to 1,000,000,
and greater than or equal to 1,000,000) (sic).\27\ Rule 8.30 sets out
position limits for various contracts. For example, on the Exchange,
like ISE, a 25,000 contract position limit applies to options with an
underlying security that does not meet the requirements for a higher
options contract position limit. ISE performed an exercise to
demonstrate the iShares Fund position limit relative to other options
symbols in terms of market capitalization and ADV. For reference the
market capitalization for the iShares Fund was 19,789,068 billion \28\
with an ADV, for the preceding three months prior to August 7, 2024, of
greater than 26 million shares.\29\ By comparison, other options
symbols with similar market capitalization and ADV have a position
limit in excess of 400,000.\30\ Therefore, the proposed 25,000 same
side position limit for options on the iShares Fund is extremely
conservative relative to these options symbols which are a full
standard deviation above the mean in comparison.
---------------------------------------------------------------------------
\25\ The computations are based on OCC data from August 6, 2024.
Data displaying zero values in market capitalization or ADV were
removed.
\26\ The iShares Fund has one asset and therefore is not
comparable to a broad based ETF where there are typically multiple
components.
\27\ See ISE Letter at 10.
\28\ ISE acquired this figure as of August 13, 2024. See https://www.ishares.com/us/products/333011/ishares-bitcoin-trust. The
global supply of Bitcoin grows each day Bitcoin are minted.
\29\ See ISE Letter at 10.
\30\ See, e.g., iShares[supreg] iBoxx[supreg] $ High Yield
Corporate Bond ETF (``HYG'') with a market capitalization of
13,859,235,000 billion as of November 4, 2024. See https://www.ishares.com/us/products/239565/ishares-iboxx-high-yield-corporate-bond-etf. The Exchange notes that HYG has a position limit
of 500,000 contracts.
---------------------------------------------------------------------------
Second, ISE reviewed the iShares Fund's data relative to the market
capitalization of the entire Bitcoin market in terms of exercise risk
and availability of deliverables. Utilizing data as of August 3, 2024,
there were 19,737,193 Bitcoins in circulation.\31\ ISE took a price of
$57,000 that equates to a market capitalization of greater than 1.125
trillion U.S. dollars, and applied that to a position limit of 400,000
for options on the iShares Fund.\32\ If a position limit of 400,000
options were considered (the position limit that would be typically
assigned based upon data) the exercisable risk would represent only
6.6% of the outstanding shares of the iShares Fund. The 25,000 position
limit being sought only represents 0.4% of the outstanding shares of
the iShares Fund. Since the iShares Fund has a creation and redemption
process managed through the issuer, additionally it can be compared the
position limit sought to the total market capitalization of the entire
Bitcoin market. In this case, the exercisable risk for options on the
iShares Fund would be less than 0.01% of the market capitalization of
all
[[Page 95276]]
outstanding Bitcoin. Assuming a scenario where all options on the
iShares Fund's shares were exercised given the proposed 25,000 per same
side position limit, this would have a virtually unnoticed impact on
the entire Bitcoin market. This analysis demonstrates that the proposed
25,000 per same side position limit is also extremely conservative and
more than appropriate for options on the iShares Fund.
---------------------------------------------------------------------------
\31\ See ISE Letter at 10.
\32\ Id.
---------------------------------------------------------------------------
Third, ISE reviewed the proposed position limit by comparing it to
position limits for derivative products regulated by the Commodity
Futures Trading Commission (``CFTC''). While the CFTC, through the
relevant Designated Contract Markets, only regulates options positions
based upon delta equivalents (creating a less stringent standard), ISE
examined equivalent bitcoin futures position limits. In particular, ISE
looked at the CME Bitcoin futures contract that has a position limit of
2,000 futures.\33\ On August 7, 2024, CME Bitcoin futures settled at
$55,000.\34\ Taking the position limit of 2,000 futures at a $5
multiplier equates to $550 million of notional value for Bitcoin
futures. By way of comparison, on August 7, 2024, the iShares Fund
settled at $31.19 per share, which would equate to 17,633,857 shares of
the iShares Fund \35\ if the CME notional position limit were utilized.
Since substantial portions of any distributed options portfolio are
likely to be out of the money on expiration, an options position limit
equivalent to the CME position limit for Bitcoin futures (considering
that all options deltas are <=1.00) should be a bit higher than the CME
implied 176,338 limit.
---------------------------------------------------------------------------
\33\ 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.
\34\ See https://finance.yahoo.com/quote/BTC%3DF/history/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAM7ngaS6ZQS9c2Wzx7JW2IUe-_-_1FnLyr8T-Qw4jjkleHyCENfSMIEpPPt2hCzPDEryTVyB78NIwxkwFB5Fuw-jA-YiuSmYJHBriWbV6dYn91VQfzQNt3p0I2RkYLD3HhzXPwu4AP5as-_WzHNpEBon4sk5sUZXgkapMrZR--CS.
\35\ See ISE Letter at 11.
---------------------------------------------------------------------------
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).\36\ 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.\37\ 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 iShares Fund options.
---------------------------------------------------------------------------
\36\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\37\ Id.
---------------------------------------------------------------------------
In analyzing the proposed position limit for options on the iShares
Fund, ISE also considered the supply of Bitcoin. Specifically, ISE
examined the number of market participants with position limits that
would need to exercise in unison to put the underlying asset under
stress. In the case of options on the iShares Fund, the proposed 25,000
same side position limit effectively restricts a market participant
from holding positions that could be exercised in excess of 2,500,000
shares of the iShares Fund. Utilizing data from August 12, 2024, the
iShares Fund had 611,040,000 shares outstanding, therefore 244 market
participants would have to simultaneously exercise position limits in
order to create a scenario that may put the underlying asset (iShares
Fund) under stress.\38\ The Exchange notes that historically, from
observation only, it appears that no more than five market participants
holding position limits in any security have exercised in unison in any
option. As unlikely an occurrence as all market participants exercising
their position limits in unison would be, if it were to occur, it
should be noted that even such an occurrence would not likely put the
iShares Fund under stress as economic incentives, would induce the
creation of more shares through the ETF creation and redemption
process.
---------------------------------------------------------------------------
\38\ See https://www.ishares.com/us/products/333011/ishares-bitcoin-trust.
---------------------------------------------------------------------------
By way of example, given that the current global supply of Bitcoin,
the underlying asset of the iShares Fund, is 19,789,068 \39\ and that
each Bitcoin can currently be redeemed for 1,755 shares of the iShares
Fund, another 34,729,814,340 shares of the iShares Fund could be
created. To exhaust this supply of the iShares Fund, 13,891 market
participants would have to simultaneously exercise their position
limit. Comparing the iShares Fund to the SPDR Gold Shares (``GLD'') ETF
or the iShares Silver Trust (``SLV'') ETF, which have position limits
of 250,000 or ten times the proposed position limit for the iShares
Fund as well as lower shares outstanding in both products,\40\ it is
unjustified to mandate a different level of stringency with respect to
a position limit for options on the iShares Fund.
---------------------------------------------------------------------------
\39\ This figure was acquired as of August 13, 2024. See https://www.ishares.com/us/products/333011/ishares-bitcoin-trust. The
global supply of Bitcoin grows each day Bitcoin are minted.
\40\ As of August 13, 2024, GLD had 294,000,000 shares
outstanding and SLV had 510,200,000 shares outstanding. See https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-gold-shares-gld and
https://www.ishares.com/us/products/239855/ishares-silver-trust-fund.
---------------------------------------------------------------------------
With respect to the Grayscale Fund, the Grayscale Mini Fund, and
the Bitwise Fund, the Exchange reviewed the data presented by NYSE
American in its filing. NYSE American aggregated market capitalization,
volume, and shares outstanding data of the Bitcoin Funds and compared
that data to those of other ETFs, and compared the proposed position
limit of the Bitcoin Funds to the position limits of the options
overlying those other ETFs. The Exchange reviewed NYSE American's data
that demonstrated that each of these three Bitcoin Funds would easily
qualify for the 250,000-contract position limit available to other ETFs
and ETPs pursuant to the criterion in Rule 8.30, Interpretation and
Policy .02, which requires the most recent six-month trading volume of
the underlying security to be at least 100,000,000 shares.\41\
---------------------------------------------------------------------------
\41\ Rule 8.30, Interpretation and Policy .02(e) states that to
be eligible for the 250,000 option contract limit, either the most
recent six-month trading volume of the underlying security must have
totaled at least 100,000,000 shares; or the most recent six-month
trading volume of the underlying security must have totaled at least
75,000,000 shares and the underlying security must have at least
300,000,000 currently outstanding.
------------------------------------------------------------------------
Total volume
(shares) (as
Bitcoin Fund of September
30, 2024)
------------------------------------------------------------------------
Grayscale Fund.......................................... 723,758,100
Grayscale Mini Fund..................................... 335,492,930
Bitwise Fund............................................ 263,965,870
------------------------------------------------------------------------
[[Page 95277]]
Based on this trading volume,\42\ each Bitcoin Fund exceeded the
requisite 100,000,000 shares necessary to qualify for the 250,000-
contract position and exercise limits. By comparison, the underlying of
other options with six-month trading volume less than the volumes in
the table above are eligible for position and exercise limits of at
least 250,000.\43\
---------------------------------------------------------------------------
\42\ See FactSet, 9/30/2024, https://www.factset.com/data-attribution. Bitwise Fund shares began trading on July 31, 2024, and
therefore the data in the above table has only two months of trading
data available.
\43\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search (including the following
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR,
SGOL).
---------------------------------------------------------------------------
Second, with respect to the outstanding shares of these three
Bitcoin Funds, the Exchange reviewed NYSE American's data regarding the
outstanding shares of each of these Bitcoin Funds. NYSE American
performed an exercise to demonstrate that if a market participant held
the maximum number of contracts possible pursuant to the proposed
position and exercise limits (25,000 contracts), the equivalent shares
represented by the proposed position and exercise limits (2,500,000
shares) would represent the following approximate percentage of
outstanding shares as of August 30, 2024:
----------------------------------------------------------------------------------------------------------------
Proposed
position/
exercise Outstanding Percentage of
Bitcoin Fund limits in shares outstanding
equivalent shares
shares
----------------------------------------------------------------------------------------------------------------
Grayscale Fund.................................................. 2,500,000 284,570,100 0.9
Grayscale Mini Fund............................................. 2,500,000 366,950,100 0.7
Bitwise Fund.................................................... 2,500,000 68,690,000 3.6
----------------------------------------------------------------------------------------------------------------
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. For example, 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). NYSE American used the
number of shares outstanding for each Bitcoin Fund as of August 30,
2024, and calculated 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
Outstanding participants
Bitcoin Fund shares with 25,000
same side
positions
------------------------------------------------------------------------
Grayscale Fund.......................... 284,570,100 114
Grayscale Mini Fund..................... 366,950,100 147
Bitwise Fund............................ 68,690,000 27
------------------------------------------------------------------------
This means if 114 market participants had 25,000 same side
positions in options on the Grayscale Fund, 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
147 market participants had 25,000 same side positions in options on
the Grayscale Mini Fund, each of them would have to simultaneously
exercise all of those options to create a scenario that may put the
underlying security under stress. Finally, this means if 27 market
participants had 25,000 same side positions in options on the Bitwise
Fund, 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 this to occur;
however, even if such event did occur, the Exchange would not expect
any of the 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.
NYSE American also performed an exercise to compare the size of the
proposed position limit to the market capitalization of the Bitcoin
market given that the issuer of each of these three Bitcoin Funds may
create and redeem shares that represent an interest in Bitcoin. NYSE
American took the global supply of Bitcoin, which was 19,747,066, and
the price of one Bitcoin, which was approximately $59,108.23, as of
August 30, 2024, which equates to a market capitalization of
approximately $1.167 trillion.\44\ Consider the proposed position and
exercise limit of 25,000 option contracts for each Bitcoin Fund option.
A position and exercise limit of 25,000 same side contracts effectively
restricts a market participant from holding positions that could result
in the receipt of no more than 2,500,000 shares of the Grayscale Fund,
the Grayscale Mini Fund, or the Bitwise Fund, as applicable (if that
market participant exercised all its options). NYSE American considered
the share price of each Bitcoin Fund on August 30, 2024 and calculated
the value of 2,500,000 shares of the Bitcoin Fund at that price, and
the approximate percentage of that value of the size of the Bitcoin
market:
---------------------------------------------------------------------------
\44\ See https://www.blockchain.com/explorer/charts/total-bitcoins.
[[Page 95278]]
----------------------------------------------------------------------------------------------------------------
Value of
Bitcoin Fund Share price 2,500,000 Percentage of
($) shares Bitcoin market
----------------------------------------------------------------------------------------------------------------
Grayscale Fund.................................................. 46.75 116,875,000 0.010
Grayscale Mini Fund............................................. 5.20 13,000,000 0.001
Bitwise Fund.................................................... 31.95 79,875,000 0.007
----------------------------------------------------------------------------------------------------------------
Therefore, if a market participant with the maximum 25,000 same
side contracts in options on the Grayscale Fund, the Grayscale Mini
Fund, or the Bitwise Fund exercised all positions at one time, such an
event would have no practical impact on the Bitcoin market.
The Exchange also reviewed NYSE American's data regarding the
market capitalization of each of these three Bitcoin Funds relative to
the market capitalization of the entire Bitcoin market, as of August
30, 2024: \45\
---------------------------------------------------------------------------
\45\ See id.
----------------------------------------------------------------------------------------------------------------
Bitcoin/ shares Percentage of total
outstanding Market value ($) Bitcoin market
----------------------------------------------------------------------------------------------------------------
Total Bitcoin Market................. 19,747,066 1,167,214,096,788 100
Grayscale Fund....................... 284,570,100 13,443,091,524 1.15
Grayscale Mini Fund.................. 366,950,100 1,930,157,526 0.17
Bitwise Fund......................... 68,690,000 2,221,640,670 0.19
----------------------------------------------------------------------------------------------------------------
As this data gathered by NYSE American demonstrates, none of these
three Bitcoin Funds represent more than 1.2% of the global supply of
Bitcoin (19,747, 066). Based on the $46.75 price of a Grayscale Fund
share on August 30, 2024, a market participant could have redeemed one
Bitcoin for approximately 1,264 Grayscale Fund shares. Another
24,967,146,455 Grayscale Fund shares could be created before the supply
of Bitcoin was exhausted. As a result, 9,987 market participants would
have to simultaneously exercise 25,000 same side positions in Grayscale
Fund options receive shares of the Grayscale Fund holding the entire
global supply of Bitcoin. Similarly, based on the $5.20 price of a
Grayscale Mini Fund share on August 30, 2024, a market participant
could have redeemed one Bitcoin for approximately 11,367 Grayscale Mini
Fund shares. Another 224,464,249,382 Grayscale Mini Fund shares could
be created before the supply of Bitcoin was exhausted. As a result,
89,786 market participants would have to simultaneously exercise 25,000
same side positions in Grayscale Mini Fund options to receive shares of
Grayscale Mini Fund holding the entire global supply of Bitcoin.
Similarly, based on the $31.95 price of a Bitwise Fund share on August
30, 2024, a market participant could have redeemed one Bitcoin for
approximately 1,850 Bitwise Fund shares. Another 36,532,522,591 Bitwise
Fund shares could be created before the supply of Bitcoin was
exhausted. As a result, 14,613 market participants would have to
simultaneously exercise 25,000 same side positions in Bitwise Fund
options to receive shares of Bitwise Fund holding the entire global
supply of Bitcoin.
As ISE did with respect to the iShares Fund, NYSE American compared
the proposed position limits to the position limit of CME Bitcoin
futures, which as noted above is 2,000 futures. 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
$589,500,000. The following table shows the share price of each Bitcoin
Fund on August 28, 2024, and the approximate number of option contracts
that equates to that notional value:
------------------------------------------------------------------------
Number of
Bitcoin Fund Share price option
($) contracts
------------------------------------------------------------------------
Grayscale Fund.......................... 46.94 125,585
Grayscale Mini Fund..................... 5.23 1,127,151
Bitwise Fund............................ 32.08 183,759
------------------------------------------------------------------------
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. As noted above, 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, again, 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).\46\ 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.\47\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the
[[Page 95279]]
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
Grayscale Fund, Grayscale Mini Fund, and Bitwise Fund options.
---------------------------------------------------------------------------
\46\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\47\ Id.
---------------------------------------------------------------------------
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.\48\ The Exchange notes that Bitcoin is a viable
economic alternative to traditional assets. The price of goods
denominated by Bitcoin has actually declined. This dynamic not only
makes a fixed supply desirable, but a necessary condition of the value
added by this asset in the broader economy. 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. Given the significant unlikelihood
of any of events described above 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.
---------------------------------------------------------------------------
\48\ See https://www.blockchain.com/explorer/assets/btc (citing
21 million as the ``total supply'' of bitcoin).
---------------------------------------------------------------------------
Importantly, because the supply of Bitcoin is much larger than the
available supply of most securities and the proposed 25,000 contract
position limit is so conservative, the Exchange believes that
evaluating the available supply of Bitcoin in establishing a position
limit for options on each of the Bitcoin Funds would demonstrate that
the proposed limit is safe for investors and the market.\49\ Each
Bitcoin Fund represents less than 2% of the entire Bitcoin supply. When
comparing the market capitalization of bitcoin against the largest
securities, Bitcoin would rank 7th among those securities.\50\ Further,
the Exchange believes that its proposal to list options on the Bitcoin
Funds each with a position limit of 25,000 on the same side is a
conservative position limit that does not lend itself to manipulation
in the market given the ample market capitalization and liquidity in
each Bitcoin Fund. If we look to the liquidity statistics of similar
instruments and their concomitant position limits, we are able to
extrapolate a reasonable standard for arriving at a position limit for
a new product. In this case we can look to GLD, SLV, and the ProShares
Bitcoin Strategy ETF. These products have volume statistics and
``float'' statistics, which gauge liquidity, which are in line, yet
slightly lower than the Bitcoin Funds. All three of these reference
products have position limits of 250,000 contracts. These reference
products are remarkably similar in nature to the Bitcoin Funds; they
are exchange-traded products (``ETPs'') holding one asset in a trust.
---------------------------------------------------------------------------
\49\ A supply consideration would likely be valuable for an
option symbol that had far less liquidity than the Trust.
\50\ See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
---------------------------------------------------------------------------
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.\51\ 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.\52\ ``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.'' \53\ 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.''
\54\
---------------------------------------------------------------------------
\51\ 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.
\52\ 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.
\53\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\54\ 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.\55\ Each Registration Statement
permits an unlimited number of shares of the applicable Bitcoin Fund 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.\56\ 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
[[Page 95280]]
size of the Bitcoin supply, the proposed positions limits are more than
sufficient to protect investors and the market. 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
and ADV.
---------------------------------------------------------------------------
\55\ See iShares Fund Form S-1 Registration Statement, at p. 25,
bit20230608_s1.htm; Grayscale Fund Form S-1 Registration Statement,
at p. 17, https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm; Grayscale Mini Fund, Form S-1
Registration Statement, at p. 21, https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm; and Bitwise
Amendment No 2. to S-1, at p. 47, https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm.
\56\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options on the Bitcoin Funds that it applies to the
Exchange's other options products.\57\ The Exchange's market
surveillance staff would have access to the surveillances conducted by
Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe EDGX
Exchange, Inc., in addition to the Exchange's equity market,\58\ 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
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.\59\
---------------------------------------------------------------------------
\57\ 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).
\58\ Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe
EDGX Exchange, Inc. are affiliated markets of the Exchange.
\59\ 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.\60\ 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].'' \61\ In
light of surveillance measures related to both options and futures as
well as the underlying Bitcoin Funds,\62\ 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.
---------------------------------------------------------------------------
\60\ See Bitcoin ETP Approval Order.
\61\ See Bitcoin ETP Approval Order, 89 FR at 3010-11.
\62\ 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; 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'').
---------------------------------------------------------------------------
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,\63\ 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
[[Page 95281]]
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.
---------------------------------------------------------------------------
\63\ 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.\64\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \65\ 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) \66\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\64\ 15 U.S.C. 78f(b).
\65\ 15 U.S.C. 78f(b)(5).
\66\ 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 options on a competitively priced ETF based on spot
Bitcoin will benefit investors by providing them with an additional,
relatively lower-cost risk management tool, allowing them to manage,
more easily, their positions and associated risks in their portfolios
in connection with exposure to spot Bitcoin. Today, the Exchange lists
options on other commodity (including Bitcoin) ETFs structured as a
trust, which essentially offer the same objectives and benefits to
investors, and for which the Exchange has not identified any issues
with the continued listing and trading of options on those ETFs.
The Exchange also believes the proposal to permit options on the
Bitcoin Funds will remove impediments to and perfect the mechanism of a
free and open market and a national market system, because options on
the Bitcoin Funds will comply with current Exchange Rules. Options on
the Bitcoin Funds must satisfy the initial listing standards and
continued listing standards currently in the Rules, applicable to
options on all ETFs, including options on other commodity ETFs already
deemed appropriate for options trading on the Exchange pursuant to Rule
19.3(i). Additionally, as demonstrated above, the Bitcoin Funds are
characterized by a substantial number of shares that are widely held
and actively traded. Further, Rules that currently govern the listing
and trading of options on ETFs, including permissible expirations,
strike prices, minimum increments, position and exercise limits (as
proposed herein), and margin requirements, will govern the listing and
trading of options on the Bitcoin Funds.
The proposed position and exercise limits for options on each of
the Bitcoin Funds is 25,000 contracts. These position and exercise
limits are the lowest position and exercise limits available in the
options industry, are extremely conservative and more than appropriate
given Bitcoin Fund's market capitalization, ADV, and high number of
outstanding shares. The proposed position limit, and exercise limit, is
consistent with the Act as it addresses concerns related to
manipulation and protection of investors because, as demonstrated
above, the position limit (and exercise limit) is extremely
conservative and more than appropriate given the Bitcoin Funds are
actively traded. In support of the proposed position and exercise
limits for options on the Bitcoin Funds are 25,000 contracts, the
Exchange is citing the in depth analysis each of ISE and NYSE American
did in their respective filings. As noted above, in the ISE and NYSE
American Approvals, each of ISE and NYSE American considered the: (1)
applicable Bitcoin Fund's market capitalization and ADV, and proposed
position limit in relation to other securities; (2) market
capitalization of the entire Bitcoin market in terms of exercise risk
and availability of deliverables; (3) proposed position limit by
comparing it to position limits for derivative products regulated by
the CFTC; and (4) supply of Bitcoin. Based on the Exchange's review of
these analyses, the Exchange believes that the setting position and
exercise limits for options on each of the Bitcoin Funds is 25,000
contracts is more than appropriate. 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.\67\
---------------------------------------------------------------------------
\67\ 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 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
[[Page 95282]]
commodity-based Fund Shares (including Bitcoin-based).\68\ 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.
---------------------------------------------------------------------------
\68\ 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 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 recently approved rule filings of other
exchanges to permit the listing and trading of options on the Bitcoin
Funds.\69\ 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.
---------------------------------------------------------------------------
\69\ See ISE Approval and NYSE American Approval.
---------------------------------------------------------------------------
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 \70\ and Rule 19b-
4(f)(6) thereunder.\71\
---------------------------------------------------------------------------
\70\ 15 U.S.C. 78s(b)(3)(A).
\71\ 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) \72\ 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.\73\ 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.\74\
---------------------------------------------------------------------------
\72\ 17 CFR 240.19b-4(f)(6)(iii).
\73\ See supra note 4.
\74\ 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-2024-121 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-2024-121. 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
[[Page 95283]]
submissions should refer to file number SR-CboeBZX-2024-121 and should
be submitted on or before December 23, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\75\
---------------------------------------------------------------------------
\75\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28110 Filed 11-29-24; 8:45 am]
BILLING CODE 8011-01-P
