Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To List and Trade Various Bitcoin Options, 95309-95321 [2024-28114]
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Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 10 and Rule
19b–4(f)(6) thereunder.11 Because the
foregoing proposed rule change does
not: (i) significantly affect the protection
of investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 12 and
subparagraph (f)(6) of Rule 19b–4
thereunder.13
A proposed rule change filed under
Rule 19b–4(f)(6) 14 under the Act does
not normally become operative prior to
30 days after the date of the filing.
However, pursuant to Rule 19b–
4(f)(6)(iii),15 the Commission may
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has requested that the
Commission waive the 30-day operative
delay so that the proposal may become
operative immediately upon filing. The
Commission previously approved the
listing of options on the Fidelity Wise
Origin Bitcoin Fund, the ARK21Shares
Bitcoin ETF, the Grayscale Bitcoin Trust
(BTC), the Grayscale Bitcoin Mini Trust
BTC, and the Bitwise Bitcoin ETF.16 As
noted above, Nasdaq’s Options 4 Rules
were amended by an ISE rule change 17
as those Rules are incorporated by
reference to ISE’s Options 4 Rules, so
10 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
12 15 U.S.C. 78s(b)(3)(A)(iii).
13 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.
14 17 CFR 240.19b–4(f)(6).
15 17 CFR 240.19b–4(f)(6)(iii).
16 See Securities Exchange Act Release No.
101387 (October 18, 2024), 89 FR 84948 (October
24, 2024) (SR–Cboe–2024–035) (Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 2 and 3, To Permit
the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds). See also Securities
Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR–
NYSEAMER–2024–49) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, To Permit the Listing and
Trading of Options on Bitcoin Exchange-Traded
Funds).
17 See SR–ISE–2024–54.
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11 17
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Nasdaq has the ability to list the options
on the Bitcoin Trusts. This proposal
establishes position and exercise limits
for options on the Bitcoin Trusts. The
Commission believes that waiver of the
operative delay could benefit investors
by assuring that trading in Bitcoin Trust
options are subject to the same position
and exercise limits in place on other
exchanges. Therefore, the Commission
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, the Commission
hereby waives the 30-day operative
delay and designates the proposed rule
change as operative upon filing.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
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–NASDAQ–2024–073 and should be
submitted on or before December 23,
2024.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Vanessa A. Countryman,
Secretary.
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–
NASDAQ–2024–073 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–NASDAQ–2024–073. 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
18 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).
PO 00000
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[FR Doc. 2024–28106 Filed 11–29–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101744; File No. SR–ISE–
2024–54]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To List and Trade Various
Bitcoin Options
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, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
19 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange to amend Options 4,
Section 3, Criteria for Underlying
Securities.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/ise/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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
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1. Purpose
The Exchange proposes to amend
Options 4, Section 3, Criteria for
Underlying Securities, to allow the
Exchange to list and trade options the
(1) Fidelity Wise Origin Bitcoin Fund
(‘‘Fidelity Fund’’); (2) ARK21Shares
Bitcoin ETF (‘‘ARK 21 Fund’’); (3)
Grayscale Bitcoin Trust (BTC) (the
‘‘Grayscale Fund’’ or ‘‘GBTC’’); (4)
Grayscale Bitcoin Mini Trust BTC (the
‘‘Grayscale Mini Fund’’ or ‘‘BTC’’); (5)
and Bitwise Bitcoin ETF (the ‘‘Bitwise
Fund’’ or ‘‘BITB’’), (collectively ‘‘Bitcoin
Trusts’’) as ‘‘Units’’ deemed appropriate
for options trading on the Exchange.
Options on each Bitcoin Trust were
approved for trading on other options
exchanges.3
3 See Securities Exchange Act Release No. 101387
(October 18, 2024), 89 FR 84948 (October 24, 2024)
(SR–Cboe–2024–035) (Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 2 and 3, To Permit
the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds) (‘‘CBOE–2024–035’’). See
also Securities Exchange Act Release No. 101386
(October 18, 2024), 89 FR 84960 (October 24, 2024)
(SR–NYSEAMER–2024–49) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, To Permit the Listing and
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Currently, Options 4, Section 3(h)
provides that securities deemed
appropriate for options trading shall
include shares or other securities
(‘‘Exchange-Traded Fund Shares’’ or
‘‘ETFs’’) that are traded on a national
securities exchange and are defined as
an ‘‘NMS’’ stock under Rule 600 of
Regulation NMS, and that meet certain
criteria specified in Options 4, Section
3(h), including that they:
(i) represent interests in registered
investment companies (or series thereof)
organized as open-end management
investment companies, unit investment trusts
or similar entities that hold portfolios of
securities and/or financial instruments,
including, but not limited to, stock index
futures contracts, options on futures, options
on securities and indices, equity caps, collars
and floors, swap agreements, forward
contracts, repurchase agreements and reverse
repurchase agreements (the ‘‘Financial
Instruments’’), and money market
instruments, including, but not limited to,
U.S. government securities and repurchase
agreements (the ‘‘Money Market
Instruments’’) comprising or otherwise based
on or representing investments in broadbased indexes or portfolios of securities and/
or Financial Instruments and Money Market
Instruments (or that hold securities in one or
more other registered investment companies
that themselves hold such portfolios of
securities and/or Financial Instruments and
Money Market Instruments) or
(ii) represent interests in a trust or similar
entity that holds a specified non-U.S.
currency or currencies deposited with the
trust when aggregated in some specified
minimum number may be surrendered to the
trust or similar entity by the beneficial owner
to receive the specified non-U.S. currency or
currencies and pays the beneficial owner
interest and other distributions on the
deposited non-U.S. currency or currencies, if
any, declared and paid by the trust
(‘‘Currency Trust Shares’’) or
(iii) represent commodity pool interests
principally engaged, directly or indirectly, in
holding and/or managing portfolios or
baskets of securities, commodity futures
contracts, options on commodity futures
contracts, swaps, forward contracts and/or
options on physical commodities and/or nonU.S. currency (‘‘Commodity Pool ETFs’’) or
(iv) represent interests in the SPDR® Gold
Trust, the iShares COMEX Gold Trust, the
iShares Silver Trust, the Aberdeen Standard
Physical Gold Trust, or the iShares Bitcoin
Trust or
(v) represents an interest in a registered
investment company (‘‘Investment
Company’’) organized as an open-end
management company or similar entity, that
invests in a portfolio of securities selected by
the Investment Company’s investment
adviser consistent with the Investment
Company’s investment objectives and
policies, which is issued in a specified
aggregate minimum number in return for a
deposit of a specified portfolio of securities
Trading of Options on Bitcoin Exchange-Traded
Funds) (‘‘NYSEAMER–2024–49’’).
PO 00000
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and/or a cash amount with a value equal to
the next determined net asset value (‘‘NAV’’),
and when aggregated in the same specified
minimum number, may be redeemed at a
holder’s request, which holder will be paid
a specified portfolio of securities and/or cash
with a value equal to the next determined
NAV (‘‘Managed Fund Share’’).
In addition to the aforementioned
requirements, Options 4, Section 3(h)(1)
and (2) must be met to list options on
ETFs.4
Proposal
The Exchange proposes to expand the
list of ETFs that are appropriate for
options trading on the Exchange in
Options 3, Section 4(h)(iv) to include
the Bitcoin Trusts.5
The Bitcoin Trusts are Bitcoin-backed
commodity ETFs structured as trusts.
Similar to any Unit currently deemed
appropriate for options trading under
Options 3, Section 4(h), the investment
objective of each Bitcoin Trust is for its
shares to reflect the performance of
Bitcoin (less the expenses of the trust’s
operations), offering investors an
opportunity to gain exposure to Bitcoin
without the complexities of Bitcoin
delivery. As is the case for Units
currently deemed appropriate for
options trading, a Bitcoin Trust’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.6 The
Bitcoin Trusts provide investors with
cost-efficient alternatives that allow a
level of participation in the Bitcoin
market through the securities market.
The primary substantive difference
4 Options 4, Section 3(h)(1) and (2) state that the
Exchange-Traded Fund Shares either (i) meet the
criteria and guidelines set forth in paragraphs (a)
and (b) described herein; or (ii) the ExchangeTraded Fund Shares are available for creation or
redemption each business day from or through the
issuing trust, investment company, commodity pool
or other entity in cash or in kind at a price related
to net asset value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in a specified
aggregate number even if some or all of the
investment assets and/or cash required to be
deposited have not been received by the issuer,
subject to the condition that the person obligated
to deposit the investment assets has undertaken to
deliver them 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 of the
Exchange-Traded Fund Shares, all as described in
the Exchange-Traded Fund Shares’ prospectus.
Also, the Exchange-Traded Fund Shares based on
international or global indexes, or portfolios that
include non-U.S. securities, shall meet the criteria
in Options 4, Section 3(h)(2)(A)–(F).
5 Specifically, the Exchange proposes to amend
Options 3, Section 4(h)(iv) to include the name of
each Bitcoin Trust to enable options to be listed on
the Bitcoin Trusts on the Exchange.
6 The trust may include minimal cash.
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Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
between Bitcoin Trusts and Units
currently deemed appropriate for
options trading are that Units may hold
securities, certain financial instruments,
and specified precious metals (which
are deemed commodities), while Bitcoin
Trusts hold Bitcoin (which is also
deemed a commodity).
The Exchange believes each Bitcoin
Trust satisfies the Exchange’s initial
listing standards for Units on which the
Exchange may list options. Specifically,
each Bitcoin Trust satisfies the initial
listing standards set forth in Options 3,
Section 4(h), as is the case for other
Units on which the Exchange lists
options (including trusts that hold
commodities). Currently, Options 4,
Section 3(h)(1) and (2) requires that
Units must either (i) meet the criteria
and guidelines set forth in paragraphs
(a) and (b) described herein; or (ii) be
available for creation or redemption
each business day from or through the
issuing trust, investment company,
commodity pool or other entity in cash
or in kind at a price related to net asset
value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in
a specified aggregate number even if
some or all of the investment assets and/
or cash required to be deposited have
not been received by the issuer, subject
to the condition that the person
obligated to deposit the investment
assets has undertaken to deliver them 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 of the Exchange-Traded Fund
Shares, all as described in the ExchangeTraded Fund Shares’ prospectus. Each
Bitcoin Trust Fund satisfies Options 4,
Section 3(h)(1) and (2), as each is
subject to this creation and redemption
process.
While not required by the Rules for
purposes of options listings, the
Exchange believes each Bitcoin Trust
satisfies the criteria and guidelines set
forth in Options 4, Section 3(b).7
Options 4, Section 3(a), a security
(which includes a Unit) on which
options may be listed and traded on the
Exchange must be duly registered (with
the Commission) and be an NMS stock
(as defined in Rule 600 of Regulation
NMS under the Securities Exchange Act
of 1934, as amended (the ‘‘Act’’)), and
be characterized by a substantial
number of outstanding shares that are
widely held and actively traded.8 Each
Bitcoin Trust is an NMS Stock as
defined in Rule 600 of Regulation NMS
under the Act.9 The Exchange believes
each Bitcoin Trust is characterized by a
substantial number of outstanding
shares that are widely held and actively
traded.
Fidelity Fund and ARK 21
Cboe Exchange, Inc. (‘‘Cboe’’) noted in
CBOE–2024–035 that, as of August 7,
2024, that the Fidelity Fund had
201,100,100 shares outstanding and the
ARK 21 Fund had 45,495,000 shares
outstanding. Further, each Bitcoin Trust
had significantly more than 7,000,000
shares outstanding (approximately 29
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Fidelity Fund ..........................................................................................................................
ARK 21 Fund .........................................................................................................................
7 ISE Options 4, Section 3(b) states that, in
addition, the Exchange shall from time to time
establish guidelines to be considered in evaluating
potential underlying securities for Exchange
options transactions. There are many relevant
factors which must be considered in arriving at
such a determination, and the fact that a particular
security may meet the guidelines established by the
Exchange does not necessarily mean that it will be
selected as an underlying security. Further, in
exceptional circumstances an underlying security
may be selected by the Exchange even though it
does not meet all of the guidelines. The Exchange
may also give consideration to maintaining
diversity among various industries and issuers in
selecting underlying securities. Notwithstanding
the forgoing, however, absent exceptional
circumstances, an underlying security will not be
selected unless: (1) There are a minimum of seven
(7) million shares of the underlying security which
are owned by persons other than those required to
report their stock holdings under Section 16(a) of
the Exchange Act; (2) There are a minimum of 2,000
holders of the underlying security; (3) The issuer is
in compliance with any applicable requirements of
the Exchange Act; (4) Trading volume (in all
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markets in which the underlying security is traded)
has been at least 2,400,000 shares in the preceding
twelve (12) months; (5) Either: (i) If the underlying
security is a ‘‘covered security’’ as defined under
Section 18(b)(1)(A) of the Securities Act of 1933: (A)
the market price per share of the underlying
security has been at least $3.00 for the previous
three consecutive business days preceding the date
on which the Exchange submits a certificate to the
Clearing Corporation for listing and trading, as
measured by the closing price reported in the
primary market in which the underlying security is
traded; however, (B) the requirements set forth in
(5)(i)(A) will be waived during the three days
following its initial public offering day for an
underlying security having a market capitalization
of at least $3 billion based upon the offering price
of its initial public offering, and may be listed and
traded starting on or after the second business day
following the initial public offering day; or (ii) If the
underlying security is not a ‘‘covered security,’’ the
market price per share of the underlying security
has been at least $7.50 for the majority of business
days during the three calendar months preceding
the date of selection, as measured by the lowest
closing price reported in any market in which the
PO 00000
and 6.5 times that amount,
respectively), which is the minimum
number of shares of a corporate stock
that the Exchange generally requires to
list options on that stock pursuant to
Options 4, Section 3(b).10 Cboe noted in
CBOE–2024–035 that this demonstrated
that the Fidelity Fund and the ARK 21
Fund were both characterized by a
substantial number of outstanding
shares. Further, in CBOE–2024–035,
Cboe noted that the Fidelity Fund, as of
June 27, 2024, had 279,656 beneficial
owners and the ARK 21 Fund, as of June
26, 2024, had 69,425 beneficial owners.
Cboe noted that the Fidelity Fund and
the ARK 21 Fund both had significantly
more than 2,000 beneficial holders
(approximately 140 and 35 times more,
respectively), which is the minimum
number of holders the Exchange
generally requires for corporate stock in
order to list options on that stock
pursuant to Options 4, Section 3(b).11
Therefore, Cboe noted in CBOE–2024–
035, that it believed the shares of the
Fidelity Fund and the ARK 21 Fund are
widely held. Cboe noted in CBOE–
2024–035 that it believed that the shares
of the Fidelity Fund and the ARK 21
Fund are both actively traded. Cboe
noted in CBOE–2024–035 that as of
August 7, 2024, the total trading volume
(by shares) for each fund for the sixmonth period of February 8 through
August 7, 2024, and the approximate
average daily volume (‘‘ADV’’) (in
shares and notional) over the 30-day
period of July 9 through August 7, 2024,
for each Bitcoin Trust was as follows:
6-Month trading
volume
(shares)
Bitcoin Trust
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95311
1,112,861,581
297,360,739
30-Day ADV
(shares)
6,014,335
1,893,335
30-Day ADV
(notional $)
250,354,755
90,484,307
underlying security traded on each of the subject
days. Notwithstanding the requirements set forth in
Paragraphs 1, 2, 4 and 5 above, the Exchange may
list and trade an options contract if (i) the
underlying security meets the guidelines for
continued approval in Options 4, Section 4; and (ii)
options on such underlying security are traded on
at least one other registered national securities
exchange.
8 The criteria and guidelines for a security to be
considered widely held and actively traded are set
forth in Options 4, Section 3(b), subject to
exceptions.
9 An ‘‘NMS stock’’ means any NMS security other
than an option, and an ‘‘NMS security’’ means any
security or class of securities for which transaction
reports are collected, processed, and made available
pursuant to an effective transaction reporting plan
(or an effective national market system plan for
reporting transaction in listed options). See 17 CFR
242.600(b)(64) (definition of ‘‘NMS security’’) and
(65) (definition of ‘‘NMS stock’’).
10 See supra note 7.
11 See supra note 7.
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Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
Cboe noted that as demonstrated
above, despite the fact that the Fidelity
Fund and the ARK 21 Fund had been
trading for approximately seven months
(as of January 10, 2024) only as of
August 7, 2024, the six-month trading
volume for each as of that date was
substantially higher than 2,400,000
shares (approximately 464 and 124
times that amount, respectively), which
is the minimum 12-month volume the
Exchange generally requires for a
corporate stock in order to list options
on that security as set forth in Options
4, Section 3(b). Additionally, Cboe
noted in in CBOE–2024–035 that as of
August 7, 2024, the trading volume for
the Fidelity Fund and the ARK 21 Fund
was in the top 5% of all ETFs that are
currently trading. Cboe noted in CBOE–
2024–035 that this data demonstrates
the Fidelity Fund and the ARK 21 Fund
are characterized as having shares that
are actively traded.
Cboe determined the proposed
position and exercise limits considering,
Six-month
ADV
(shares)
Underlying Bitcoin Trust
Fidelity Fund ................................................................................................................
ARK 21 Fund ...............................................................................................................
Cboe then compared the number of
outstanding shares of the Fidelity Fund
and the ARK 21 Fund to those of other
ETFs. The following table in CBOE–
188,11023
25,000
ARK 21 Fund ...................................
108,69624
25,000
ddrumheller on DSK120RN23PROD with NOTICES1
of a corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Options 4, Section
3(b); (2) the Fidelity Fund and the ARK
21 Fund (as of the dates listed above)
had significantly more than 2,000
beneficial holders, which is the
minimum number of holders the
Exchange generally requires for
corporate stock in order to list options
on that stock pursuant to Options 4,
Section 3(b)(2) and; (3) the Fidelity
Fund and the ARK 21 Fund had a sixmonth trading volume substantially
higher than 2,400,000 shares, which is
18:25 Nov 29, 2024
Jkt 265001
the maximum permissible options
positions in either the Fidelity Fund or
PO 00000
14,217,013,188
2,487,666,600
compared to the proposed position and
exercise limit for options on the Fidelity
Fund and the ARK 21 Fund:
Frm 00145
the minimum 12-month volume the
Exchange generally requires for a
security in order to list options on that
security as set forth in Options 4,
Section 3.
Cboe noted in in CBOE–2024–035 that
with respect to outstanding shares, if a
market participant held the maximum
number of positions possible pursuant
to the proposed position and exercise
limits, the equivalent shares represented
by the proposed position/exercise limit
would represent the following
approximate percentage of current
outstanding shares:
Proposed position
/exercise limit
(in equivalent
shares)
Fidelity Fund ..........................................................................................................................
ARK 21 Fund .........................................................................................................................
VerDate Sep<11>2014
201,100,100
45,495,000
Cboe noted in Cboe–2024–035 that over 80% of the ETFs used for
comparison had a limit of at least 200,000, and more than half had a
limit of 250,000. Additionally, the three-month ADV of the majority of
the ETFs used for comparison was lower than the Fidelity Fund
three-month ADV of 5,665,027 shares.
Cboe noted in Cboe–2024–035 that nearly 80% of the ETFs used for
comparison had a limit of at least 75,000 (and up to 250,000). Additionally, the three-month ADV of the majority of ETFs used for comparison was lower (many more than four times lower) than the ARK
21 Fund three-month ADV of 1,737,327 shares.
Underlying Bitcoin Trust
As this table demonstrated in CBOE–
2024–035, if a market participant held
Market
capitalization
($)
Proposed limit
(contracts)
Fidelity Fund ....................................
Cboe considered current position and
exercise limits of options on ETFs with
outstanding shares comparable to those
of each the Fidelity Fund and the ARK
21 Fund, with the proposed limit
significantly lower (between two and
ten times lower) than the average limits
of the options on the other ETFs. As
discussed above in in CBOE–2024–035,
the Fidelity Fund and the ARK 21 Fund
are actively held and widely traded: (1)
each of these Bitcoin Trusts (as of
August 7, 2024) had significantly more
than 7,000,000 shares outstanding,
which is the minimum number of shares
Outstanding
shares
8,902,893
2,378,886
2024–035 provided the approximate
average position (and exercise limit) of
ETF options with similar outstanding
shares (as of August 27, 2024),
Average limit
of other ETF
options
(contracts)
Underlying Bitcoin Trust
among other things, the approximate
six-month average daily volume
(‘‘ADV’’) and outstanding shares of the
Fidelity Fund and the ARK 21 Fund
noted in the filing (which as discussed
above demonstrate that these Bitcoin
Trusts are widely held and actively
traded and thus justify these
conservatively proposed position
limits), as set forth in in CBOE–2024–
035 and below, along with market
capitalization (as of August 7, 2024):
Fmt 4703
Sfmt 4703
2,500,000
2,500,000
Outstanding
shares
Percentage of
outstanding
shares
(%)
201,100,100
45,495,000
the ARK 21 Fund and exercised all of
them at the same time, that market
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participant would control a small
percentage of the outstanding shares of
the particular underlying Bitcoin Trust.
Cboe provided a table in in CBOE–
2024–035 noting the equivalent shares
of the position limits applicable to
equity options, including ETFs, further
represents the percentages of the
minimum number of outstanding shares
that an underlying stock or ETF must
have to qualify for that position limit
(under the second method described
above), all of which are higher than the
percentages for the Fidelity Fund and
the ARK 21 Fund.
Minimum
outstanding
shares
Position/exercise limit
(in equivalent shares)
2,500,000 .................................................................................................................................................................
5,000,000 .................................................................................................................................................................
7,500,000 .................................................................................................................................................................
20,000,000 ...............................................................................................................................................................
25,000,000 ...............................................................................................................................................................
6,300,000 is the minimum number of
outstanding shares an underlying
security must have for the Exchange to
continue to list options on that security,
so this would be the smallest number of
outstanding shares permissible for any
corporate option that would have a
position limit of 25,000 contract. See
Options 4, Section 3(b). This rule
applies to corporate stock options but
not ETF options, which currently have
no requirement regarding outstanding
shares of the underlying ETF for the
Exchange to continue listing options on
that ETF. Therefore, there may be ETF
options trading for which the 25,000
contract position limits represent an
even larger percentage of outstanding
shares of the underlying ETF than set
forth above.
CBOE–2024–035 provided that the
equivalent shares represented by the
proposed position and exercise limits
for the Fidelity Fund and the ARK 21
Fund as a percentage of outstanding
shares of the underlying Bitcoin Trust is
significantly lower than the percentage
ddrumheller on DSK120RN23PROD with NOTICES1
Jkt 265001
284,570,100
366,950,100
68,690,000
Market value
(08/30/2024)
($)
13,443,091,524
1,930,157,526
2,221,640,670
holders of GBTC, BTC and BITB as of
August 14, 2024.
Exchange generally requires for
corporate stock in order to list options
on that stock pursuant to pursuant to
Beneficial
Options 4, Section 3(b)(2).13 Therefore,
Bitcoin Trust
holders
NYSE American noted that the shares of
(8/14/24)
each GBTC, BTC and BITB are widely
GBTC ....................................
464,364 held. In addition, NYSE American noted
BTC .......................................
13,403 that the shares of each GBTC, BTC and
BITB ......................................
75,437 BITB are actively traded.
NYSEAmerican–2024–49 provided, as
As shown in NYSEAmerican–2024–
of September 30, 2024, that the total
49, the table showed that GBTC, BTC
trading volume (by shares and notional)
and BITB each had significantly more
for these funds since they began
than 2,000 beneficial holders
trading 14 and the average daily volume
(approximately 232, 7, and 38 times
(‘‘ADV’’) over the 30-day period of
more, respectively), which is the
September 1 through September 30,
minimum number of holders the
2024, was as follows:
Trading
volume
(shares)
GBTC .........................................................................................................................
18:25 Nov 29, 2024
40.0
12.5
6.3
8.3
8.3
NYSE American LLC (‘‘NYSE
American’’) noted in NYSEAmerican–
2024–49 that, as of August 30, 2024,
GBTC, BTC and BITB had the following
number of shares outstanding (and
corresponding market capitalization):
Shares
outstanding
Bitcoin Trust
VerDate Sep<11>2014
6,300,000
40,000,000
120,000,000
240,000,000
300,000,000
GBTC, BTC and BITB
GBTC .................................................................................................................................................................
BTC ....................................................................................................................................................................
BITB ...................................................................................................................................................................
12 As these percentages are based on the
minimum number of outstanding shares an
underlying security must have to qualify for the
applicable position limit, these are the highest
Percentage of
outstanding
shares
(%)
for the lowest possible position limit for
equity options of 25,000 (under 6%
compared to 40%) and is lower than
that percentage for each current position
limit bucket.12
Bitcoin Trust
NYSE American noted in
NYSEAmerican–2024–49 that, as
displayed in the above table, GBTC,
BTC and BITB had significantly more
than 7,000,000 shares outstanding,
which is the minimum number of shares
of a corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Options 4, Section
3(b). NYSE American noted in
NYSEAmerican–2024–49 that this
demonstrated that GBTC, BTC and BITB
are characterized by a substantial
number of outstanding shares. Further,
as provided in NYSEAmerican–2024–49
the below table contained information
regarding the number of beneficial
95313
1,803,567,700
possible percentages that would apply to any option
subject to that position and exercise limit.
13 See supra note 7.
14 GBTC and BITB began trading on January 11th
and BTC began trading on July 31st. Thus, the
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Trading volume
(notional $)
93,472,544,497
ADV
(shares)
3,266,138
measurement period for the trading volume (shares/
notional) was January 11 through September 20,
2024, for GBTC and BITB (i.e., nine months) and
July 31 through September 20, 2024, for BTC (i.e.,
two months).
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Trading
volume
(shares)
Bitcoin Trust
BTC ............................................................................................................................
BITB ...........................................................................................................................
As demonstrated above and in
NYSEAmerican–2024–49, even though
GBTC, BTC and BITB were trading for
less than one year (and in the case of the
BTC, less than two months), the trading
volume for each was substantially
higher than 2,400,000 shares (between
roughly 165 and 700 times that amount),
which is the minimum 12-month
volume the Exchange generally requires
for a security in order to list options on
that security as set forth in Options 4,
Section 3(b). NYSE American noted that
this data demonstrated that GBTC, BTC
and BITB are characterized by a
substantial number of outstanding
shares that are actively traded.
NYSE American noted in
NYSEAmerican–2024–49 that BTC
began trading on July 31, 2024, and
335,492,930
434,815,840
therefore had only two months of
trading data available at the time of
filing NYSEAmerican–2024–49. In
terms of total volume, NYSEAmerican–
2024–49 provided the below table.
Total volume
(9/30/2024)
Bitcoin Trust
GBTC ....................................
BTC .......................................
BITB ......................................
Trading volume
(notional $)
723,758,100
(6-months).
335,492,930
(2-months).
263,965,870
(6-months).
NYSE American noted in
NYSEAmerican–2024–49 that based on
the most-recent trading volume, GBTC,
BTC and BITB exceeded the requisite
minimum of 100,000,000 shares
BITB. 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 Trust (if that market participant
exercised all its options). Based on the
number of shares outstanding for each
2,500,000
2,500,000
2,500,000
Outstanding
shares
(8/30/24)
Percentage of
outstanding
shares
(%)
284,570,100
366,950,100
68,690,000
0.9
0.7
3.6
of GBTC, BTB or BITB as of August 30,
2024, NYSE American noted in
NYSEAmerican–2024–49 and the table
below, that the approximate number of
market participants that could hold the
maximum of 25,000 same side positions
in each of GBTC, BTB and BITB that
would equate to the number of shares
outstanding of that Bitcoin Trust:
Shares
outstanding
Bitcoin Trust
GBTC .......................................................................................................................................................
BTC ..........................................................................................................................................................
BITB .........................................................................................................................................................
ddrumheller on DSK120RN23PROD with NOTICES1
6,838,546
1,949,835
necessary to qualify for the 250,000contract position and exercise limits. By
comparison, NYSE American noted that
other options symbols with six-month
trading volume less than GBTC, BITB,
and BTC were eligible for position and
exercise limits of at least 250,000.15
NYSEAmerican–2024–49 provided,
with respect to the outstanding shares of
each Bitcoin Trust, 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/
exercise limit (2,500,000 shares) would
represent the following approximate
percentage of current outstanding
shares:
GBTC .....................................................................................................................................
BTC ........................................................................................................................................
BITB .......................................................................................................................................
As this table demonstrated in
NYSEAmerican–2024–49, if a market
participant held the maximum
permissible options positions in any one
of GBTC, BTB or BITB 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 GBTC, BTB or
1,792,866,521
14,433,361,384
Proposed
position/exercise
limit in
equivalent
shares
Bitcoin Trust
ADV
(shares)
284,570,100
366,950,100
68,690,000
Number of
market
participants with
25,000 same side
positions
114
147
27
NYSE American concluded in
NYSEAmerican–2024–49 that this
meant if 114 market participants had
25,000 same side positions in options
on GBTC, 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 BTC, 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 BITB, each of them would have to
simultaneously exercise all of those
options to create a scenario that may put
the underlying security under stress.
15 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).
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NYSE American noted in
NYSEAmerican–2024–49 that it
believed it was highly unlikely for this
to occur; however, even if such event
did occur, NYSE American would not
expect GBTC, BTB or BITC to be under
stress because such an event would
merely induce the creation of more
shares through the trust’s creation and
redemption process. Further, given that
the issuer of each of GBTC, BTB or BITC
may create and redeem shares that
represent an interest in Bitcoin, NYSE
American noted in NYSEAmerican–
2024–49 that it is relevant to compare
the size of a position limit to the market
capitalization of the Bitcoin market.
NYSE American noted in
NYSEAmerican–2024–49 that, as of
August 30, 2024, the global supply of
Bitcoin was 19,747, 066, and the price
of one Bitcoin was approximately
$59,108.23,39 which equates to a market
capitalization of approximately $1.167
trillion.16 NYSE American stated in
NYSEAmerican–2024–49 that 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 GBTC, BTC, or
BITB, as applicable (if that market
participant exercised all its options).
NYSE American presented the below
table with the share price of each of
GBTC, BTC and BITB on August 30,
2024, the value of 2,500,000 shares of
the particular Bitcoin Trust at that price,
and the approximate percentage of that
value of the size of the Bitcoin market:
GBTC ...........................................................................................................................................
BTC ..............................................................................................................................................
BITB .............................................................................................................................................
NYSE American concluded that, if a
market participant with the maximum
25,000 same side contracts in options on
GBTC, BTC, or BITB exercised all
positions at one time, such an event
would have no practical impact on the
Bitcoin market. NYSE American also
reviewed the market capitalization of
46.75
5.20
31.95
Total Bitcoin Market .....................................................................................................
GBTC ....................................................................................................................
BTC .......................................................................................................................
BITB ......................................................................................................................
116,875,000
13,000,000
79,875,000
Percentage of
Bitcoin market
(%)
0.010
0.001
0.007
each Bitcoin Trust relative to the market
capitalization of the entire bitcoin
market, as of August 30, 2024.
Bitcoin/shares
outstanding
ddrumheller on DSK120RN23PROD with NOTICES1
Value of
2,500,000
shares of
Bitcoin Trust
($)
Aug. 30th
share price
($)
Bitcoin Trust
95315
19,747,066
284,570,100
366,950,100
68,690,000
Market value
(8/30/2024)
($)
$1,167,214,096,788
$13,443,091,524
$1,930,157,526
$2,221,640,670
% of total
Bitcoin market
(%)
100.00
1.15
0.17
0.19
As shown above and in
NYSEAmerican–2024–49, GBTC, BTC
and BITB collectively represented
approximately 1.51% of the global
supply of Bitcoin (19,747,066). Based on
the $46.75 price of a GBTC share on
August 30, 2024, a market participant
could have redeemed one Bitcoin for
approximately 1,264 GBTC shares.
Further, NYSE American noted that
another 24,967,146,455 GBTC shares
could be created before the supply of
Bitcoin was exhausted. NYSEAmerican–
2024–49 provided that as a result, 9,987
market participants would have to
simultaneously exercise 25,000 same
side positions in GBTC options to
receive shares of the GBTC holding the
entire global supply of Bitcoin.
NYSEAmerican–2024–49 also provided
that based on the $5.20 price of a BTC
share on August 30, 2024, a market
participant could have redeemed one
Bitcoin for approximately 11,367 BTC
shares. Another 224,464,249,382 BTC
shares could be created before the
supply of Bitcoin was exhausted. NYSE
American stated that as a result, 89,786
market participants would have to
simultaneously exercise 25,000 same
side positions in BTC options to receive
shares of BTC holding the entire global
supply of Bitcoin. Similarly, NYSE
American noted that based on the
$31.95 price of a BITB share on August
30, 2024, a market participant could
have redeemed one Bitcoin for
approximately 1,850 BITB shares.
NYSEAmerican–2024–49 provided that
another 36,532,522,591 BITB shares
could be created before the supply of
Bitcoin was exhausted. NYSE American
concluded that as a result, 14,613
market participants would have to
simultaneously exercise 25,000 same
side positions in BITB options to receive
shares of BITB holding the entire global
supply of Bitcoin. NYSE American also
concluded that, unlike GBTC, BTB and
BITB, the number of shares that
corporations may issue is limited.
NYSEAmerican–2024–49 provided that,
however, like corporations, which
authorize additional shares, repurchase
shares, or split their shares, the Bitcoin
Trusts may create, redeem, or split
shares in response to demand and 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.17 NYSE
American noted that the supply of
Bitcoin is larger than the available
supply of most securities.18 NYSE
American concluded that given the
significant unlikelihood of any of these
events ever occurring, NYSE American
noted that it did not believe options on
GBTC, BTC and BITB 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. NYSE
American also noted in
16 See https://www.blockchain.com/explorer/
charts/total-bitcoins.
17 See https://www.blockchain.com/explorer/
assets/btc (citing 21 million as the ‘‘total supply’’
of bitcoin).
18 The market capitalization of Bitcoin would
rank in the top 10 among securities. See https://
companiesmarketcap.com/usa/largest-companiesin-the-usa-by-market-cap/.
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NYSEAmerican–2024–49 that it
believed the proposed limits are
appropriate given position limits for
Bitcoin futures. NYSE American noted
that the Chicago Mercantile Exchange
(‘‘CME’’) imposed a position limit of
2,000 futures (for the initial spot month)
on its Bitcoin futures contract.19
Further, NYSE American provided that
on August 28, 2024, CME Aug 24
Bitcoin Futures settled at $58,950.
NYSE American noted that a position of
2,000 CME Bitcoin futures, therefore,
would have a notional value of
$589,500,000. NYSEAmerican–2024–49
provided the following table with the
share price of each of GBTC, BTC and
BITB on August 28, 2024, and the
approximate number of option contracts
that equates to that notional value:
Aug. 28th
share price
Bitcoin Trust
ddrumheller on DSK120RN23PROD with NOTICES1
GBTC .................................................................................................................................................................
BTC ....................................................................................................................................................................
BITB ...................................................................................................................................................................
46.94
5.23
32.08
Number of
options
contracts
125,585
1,127,151
183,759
NYSE American stated that
approximate number of option contracts
for GBTC, BTC and BITB that equate to
the notional value of CME Bitcoin
futures was significantly higher than the
proposed limit of 25,000 options
contract for each option on GBTC, BTC
and BITB. Further, NYSE American
noted that 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 demonstrated how
conservative the proposed limits of
25,000 options contracts are for options
on GBTC, BTC and BITB.
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).20 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.21 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 options
on Bitcoin Trusts.
NYSE American noted in
NYSEAmerican–2024–049 that the
available supply of Bitcoin is not
relevant to the determination of position
and exercise limits for options overlying
the GBTC, BTC and BITB.22 NYSE
American noted stated that position and
exercise limits are not a tool that should
be used to address a potential limited
supply of the underlying of an
underlying. NYSE American noted that
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.23 ‘‘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.’’ 24 NYSE American noted that
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.’’ 25
The Exchange notes that a
Registration Statement on Form S–1 was
filed with the Commission for each of
GBTC, BTC and BITB, 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 2140.26 Each
Registration Statement permits an
unlimited number of shares of the
applicable Bitcoin Trust to be created.
19 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.
20 See CME Rulebook Chapter 5, Position Limit,
Position Accountability and Reportable Level Table
in the Interpretations & Special Notices.
21 Id.
22 NYSE American in NYSEAmerican–2024–49
stated that it 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–CBOE2005–
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 9054 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 Trust options.
23 NYSE American in NYSEAmerican–2024–49
provided an example that supposed an option had
a position limit of 25,000 option contracts and there
were a total of 10 investors trading that option. If
all 10 investors maxed out their positions, that
would result in 250,000 option contracts
outstanding at that time. However, if 10 more
investors decided to begin trading that option and
also maxed out their positions. This would result
in 500,000 option contracts outstanding at that
time. NYSE American concluded that an increase
in the number of investors could cause an increase
in outstanding options even if position limits
remain unchanged.
24 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SRCBOE–1997–11).
25 Id.
26 See, e.g., GBTC Form S–1 Registration
Statement, at p. 17, https://www.sec.gov/Archives/
edgar/data/1588489/000119312517013693/
d157414ds1.htm; BTC Form S–1 Registration
Statement, at p. 21, https://www.sec.gov/Archives/
edgar/data/2015034/000119312524065444/
d785023ds1.htm; and BITB Amendment No 2. to S–
1, at p. 47, https://www.sec.gov/Archives/edgar/
data/1763415/000199937123000735/bitwise-s1a_
120423.htm (‘‘Bitcoin Trusts Reg. Stmts.’’).
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Further, the Commission approved
proposed rule changes that permitted
the listing and trading of shares of each
of GBTC, BTC and BITB, 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 Trust would impact the supply
of Bitcoin.27 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 Trust shares, and
does not believe considering this supply
with respect to the establishment of
position and exercise limits is
appropriate given its lack of relevance to
the purpose of position and exercise
limits. However, given the significant
size of the Bitcoin supply, the proposed
positions limits are more than sufficient
to protect investors and the market.
Based on the foregoing and
notwithstanding the position limits in
Options 9, Section 13(d) and exercise
limits in Options 9, Section 15(c), ISE
proposes the position and exercise
limits for the options Fidelity Fund, the
ARK 21 Fund, GBTC, BTC and BITB to
be 25,000 contracts on the same side
pursuant to proposed Supplementary
Material .01 to Options 9, Section 13
and proposed Supplementary Material
.01 to Options 9, Section 15. Further,
Exchange Rules that currently govern
the listing and trading of options on
ETFs, including permissible expirations,
strike prices, minimum increments, and
margin requirements, will govern the
listing and trading of options on the
Bitcoin Trusts. The proposed position
limit, and exercise limit, is consistent
with the Act as it addresses concerns
related to manipulation and protection
of investors because the position limit
(and exercise limit) is conservative and
appropriate given the Bitcoin Trusts are
actively traded.
Options on the Bitcoin Trusts will be
subject to the Exchange’s continued
listing standards for options on ETFs set
forth in Options 4, Section 4(g).
Specifically, options approved for
trading pursuant to Options 4, Section
3(h) 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
ETFs if the ETFs are delisted from
trading as provided in subparagraph
(b)(5) of Options 4, Section 4 28 or the
27 See
NYSEAMER–2024–49.
4, Section 4(b)(5) provides, If an
underlying security is approved for options listing
and trading under the provisions of Options 4,
28 Options
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ETFs are halted or suspended from
trading on their primary market.29 In
addition, the Exchange shall consider
the suspension of opening transactions
in any series of options of the class
covering ETFs in any of the following
circumstances:
(1) in the case of options covering
Exchange-Traded Fund Shares approved
pursuant to Options 4, Section
3(h)(A)(i), in accordance with the terms
of subparagraphs (b)(1), (2), (3) and (4)
of Options 4, Section 4; 30
(2) in the case of options covering Fund
Shares approved pursuant to Options 4,
Section 3(h)(A)(ii),31 following the initial
twelve-month period beginning upon the
commencement of trading in the ExchangeTraded Fund Shares on a national securities
exchange and are defined as an ‘‘NMS stock’’
under Rule 600 of Regulation NMS, there
were fewer than 50 record and/or beneficial
holders of such Exchange-Traded Fund
Shares for 30 or more consecutive trading
days;
(3) the value of the index or portfolio of
securities or non-U.S. currency, portfolio of
commodities including commodity futures
contracts, options on commodity futures
contracts, swaps, forward contracts, options
on physical commodities and/or Financial
Instruments and Money Market Instruments,
on which the Exchange-Traded 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 the Bitcoin Trusts would
be physically settled contracts with
American-style exercise.32 Consistent
Section 3(c), the trading volume of the Original
Security (as therein defined) prior to but not after
the commencement of trading in the Restructure
Security (as therein defined), including ‘whenissued’ trading, may be taken into account in
determining whether the trading volume
requirement of (3) of this paragraph (b) is satisfied.
29 See Options 4, Section 4(g).
30 Options 4, Section 4(b)(5)(1) through (4)
provides, if: (1) there are fewer than 6,300,000
shares of the underlying security held by persons
other than those who are required to report their
security holdings under Section 16(a) of the Act, (2)
there are fewer than 1,600 holders of the underlying
security, (3) the trading volume (in all markets in
which the underlying security is traded) has been
less than 1,800,000 shares in the preceding twelve
(12) months, or (4) the underlying security ceases
to be an ‘NMS stock’ as defined in Rule 600 of
Regulation NMS under the Exchange Act. Options
4, Section 3(h)(i) refers to Financial Instruments
and Money Market Instruments. In addition, the
Exchange proposes to amend the citation to
‘‘Options 4, Section 3(h)(A)(i)’’ herein to ‘‘Options
4, Section 3(h)(i).’’
31 Options 4, Section 3(h)(ii) refers to Currency
Trust Shares. In addition, the Exchange proposes to
amend the citation to ‘‘Options 4, Section
3(h)(A)(ii)’’ herein to ‘‘Options 4, Section 3(h)(ii).’’
32 See Options 4, Section 2, Rights and
Obligations of Holders and Writers, which provides
that the rights and obligations of holders and
writers shall be as set forth in the Rules of the
Clearing Corporation. See also OCC Rules, Chapter
PO 00000
Frm 00150
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95317
with current Options 4, Section 5,
which governs the opening of options
series on a specific underlying security
(including ETFs), the Exchange will
open at least one expiration month for
options on the Bitcoin Trusts and may
also list series of options on the Bitcoin
Trusts for trading on a weekly 33 or
quarterly 34 basis. The Exchange may
also list long-term equity option series
(‘‘LEAPS’’) 35 that expire from twelve to
thirty-nine from the time they are listed.
Pursuant to Options 4, Section 5(d),
which governs strike prices of series of
options on ETFs, the interval between
strike prices of series of options on ETFs
approved for options trading pursuant
to Section 3(h) of Options 4 shall be
fixed at a price per share which is
reasonably close to the price per share
at which the underlying security is
traded in the primary market at or about
the same time such series of options is
first open for trading on the Exchange,
or at such intervals as may have been
established on another options exchange
prior to the initiation of trading on the
Exchange. With respect to the Short
Term Options Series or Weekly
Program, during the month prior to
expiration of an option class that is
selected for the Short Term Option
Series Program, the strike price intervals
for the related non-Short Term Option
(‘‘Related non-Short Term Option’’)
shall be the same as the strike price
intervals for the Short Term Option.36
Specifically, the Exchange may open for
trading Short Term Option Series at
strike price intervals of (i) $0.50 or
greater where the strike price is less
than $100, and $1 or greater where the
strike price is between $100 and $150
for all option classes that participate in
the Short Term Options Series Program;
(ii) $0.50 for option classes that trade in
one dollar increments and are in the
Short Term Option Series Program; or
(iii) $2.50 or greater where the strike
price is above $150.37 Additionally, the
Exchange may list series of options
pursuant to the $1 Strike Price Interval
VIII, which governs exercise and assignment, and
Chapter IX, which governs the discharge of delivery
and payment obligations arising out of the exercise
of physically settled stock option contracts. OCC
Rules can be located at: https://www.theocc.com/
getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/
occ_rules.pdf.
33 See Supplementary .03 to Options 4, Section 5.
34 See Supplementary .04 to Options 4, Section 5.
35 See Options 4, Section 8.
36 See Supplementary Material .03(e) to Options
4, Section 5.
37 Id.
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ddrumheller on DSK120RN23PROD with NOTICES1
Program,38 the $0.50 Strike Program,39
the $2.50 Strike Price Program,40 and
the $5 Strike Program.41 Options 3,
Section 3 governs the minimum
increment for bids and offers for both
equity and index options. Pursuant to
Options 3, Section 3, where the price of
a series of options for the Bitcoin Trusts
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 42 consistent
with the minimum increments for
options on other ETFs listed on the
Exchange. Any and all new series of
options on the Bitcoin Trusts that the
Exchange lists will be consistent and
comply with the expirations, strike
prices, and minimum increments set
forth in Options 4, Section 5 and
Options 3, Section 3, as applicable.
Today, the Exchange has an adequate
surveillance program in place for
options. The Exchange intends to apply
those same program procedures to
options the Bitcoin Trusts that it applies
to the Exchange’s other options
products.43 ISE’s market surveillance
staff would have access to the
surveillances conducted by Nasdaq 44
with respect to the Bitcoin Trusts and
would review activity in the underlying
Bitcoin Trusts when conducting
surveillances for market abuse or
manipulation in the options on the
Bitcoin Trusts. Additionally, ISE 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, ISE has a Regulatory Services
Agreement with the Financial Industry
Regulatory Authority (‘‘FINRA’’).
Pursuant to a multi-party 17d–2 joint
plan, all options exchanges allocate
regulatory responsibilities to FINRA to
conduct certain options-related market
38 See Supplementary Material .01 to Options 4,
Section 5.
39 See Supplementary Material .05 to Options 4,
Section 5.
40 See Supplementary Material .02 to Options 4,
Section 5.
41 See Supplementary Material .06 to Options 4,
Section 5.
42 Options that are eligible to participate in the
Penny Interval Program have a minimum increment
of $0.01 below $3.00 and $0.50 above $3.00. See
Supplementary Material .01 to Options 3, Section
3.
43 The surveillance program includes real-time
patterns for price and volume movements and posttrade surveillance patterns (e.g., spoofing, marking
the close, pinging, phishing).
44 The Nasdaq Stock Market LLC is an affiliated
market of ISE.
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surveillance that are common to rules of
all options exchanges.45
The Exchange represents that the
same surveillance procedures applicable
to all other options on other ETFs
currently listed and traded on the
Exchange will apply to options on the
Bitcoin Trusts. Also, the Exchange
represents that it has the necessary
systems capacity to support the new
option series. The Exchange believes
that its existing surveillance and
reporting safeguards are designed to
deter and detect possible manipulative
behavior which might potentially arise
from listing and trading options on
ETFs, including the proposed options
on the Bitcoin Trusts. The underlying
shares of spot bitcoin ETPs, including
the Bitcoin Trusts, are also subject to
safeguards related to addressing market
abuse and manipulation. As the
Commission stated in the orders
approving proposals of several
exchanges to list and trade shares of
spot bitcoin-based exchange-traded
products: 46
Each Exchange has a comprehensive
surveillance-sharing agreement with the CME
via their common membership in the
Intermarket Surveillance Group. This
facilitates the sharing of information that is
available to the CME through its surveillance
of its markets, including its surveillance of
the CME bitcoin futures market.47
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
45 Section 19(g)(1) of the Act, among other things,
requires every SRO registered as a national
securities exchange or national securities
association to comply with the Act, the rules, and
regulations thereunder, and the SRO’s own rules,
and, absent reasonable justification or excuse,
enforce compliance by its members and persons
associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d–2. Section 17(d)(1)
of the Act allows the Commission to relieve an SRO
of certain responsibilities with respect to members
of the SRO who are also members of another SRO
(‘‘common members’’). Specifically, Section
17(d)(1) allows the Commission to relieve an SRO
of its responsibilities to: (i) receive regulatory
reports from such members; (ii) examine such
members for compliance with the Act and the rules
and regulations thereunder, and the rules of the
SRO; or (iii) carry out other specified regulatory
responsibilities with respect to such members.
46 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; SRCboeBZX–
2023–044; and SR–CboeBZX–2023–072) (Order
Granting Accelerated Approval of Proposed Rule
Changes, as Modified by Amendments Thereto, to
List and Trade Bitcoin-Based Commodity-Based
Trust Shares and Trust Units) (‘‘Bitcoin ETP
Approval Order’’).
47 Id.
PO 00000
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Fmt 4703
Sfmt 4703
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].’’ 48 In light of
surveillance measures related to both
options and futures as well as the
underlying Bitcoin Trusts,49 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 Trusts.
The Exchange has also analyzed its
capacity and represents that it believes
the Exchange and the Options Price
Reporting Authority or ‘‘OPRA’’ have
the necessary systems capacity to
handle the additional traffic associated
with the listing of new series that may
result from the introduction of options
on the Bitcoin Trusts up to the number
of expirations currently permissible
under the Exchange Rules. Because the
proposal is limited to one class, the
Exchange believes any additional traffic
that may be generated from the
introduction of the options on the
Bitcoin Trust will be manageable.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,50 in general, and furthers the
objectives of Section 6(b)(5) of the Act,51
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in 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) 52 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 Trusts will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
48 Id.
49 Id.
50 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
52 15 U.S.C. 78(f)(b)(5).
51 15
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general, protect investors because
offering options on the Bitcoin Trusts
will provide investors with an
opportunity to realize the benefits of
utilizing options on a Bitcoin Trust,
including cost efficiencies and
increased hedging strategies. The
Exchange believes that offering options
on the Bitcoin Trusts will benefit
investors by providing them with a
relatively lower-cost risk management
tool, which will allow them to manage
their positions and associated risk in
their portfolios more easily in
connection with exposure to the price of
Bitcoin and with Bitcoin-related
products and positions. Additionally,
the Exchange’s offering of options on
the Bitcoin Trusts will provide investors
with the ability to transact in such
options in a listed market environment
as opposed to in the unregulated OTC
options market, which would increase
market transparency and enhance the
process of price discovery conducted on
the Exchange through increased order
flow to the benefit of all investors. The
Exchange also notes that it already lists
options on other commodity-based
Units,53 which, as described above, are
trusts structured in substantially the
same manner as Bitcoin Trusts and
essentially offer the same objectives and
benefits to investors, just with respect to
a different commodity (i.e., Bitcoin
rather than precious metals) and for
which the Exchange has not identified
any issues with the continued listing
and trading of commodity-backed Unit
options it currently lists for trading.
The Exchange also believes the
proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, because
it is consistent with current Exchange
Rules previously filed with the
Commission. Options on the Bitcoin
Trusts satisfy the initial listing
standards and continued listing
standards currently in the Exchange
Rules applicable to options on all Units,
including Units that hold other
commodities already deemed
appropriate for options trading on the
Exchange. Additionally, as
demonstrated above, each Bitcoin Trust
is characterized by a substantial number
of shares that are widely held and
actively traded. Options on the Bitcoin
Trusts will trade in the same manner as
any other Unit options—the same
Exchange Rules that currently govern
the listing and trading of all Unit
options, including permissible
expirations, strike prices and minimum
increments, and applicable margin
53 See
Options 4, Section 3(h)(iv).
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requirements, will govern the listing
and trading of options on Bitcoin Trusts
in the same manner.
The Exchange also believes the
proposed rule change will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, because
it is consistent with current Exchange
Rules previously filed with the
Commission. Options on Bitcoin Trusts
satisfy the initial listing standards and
continued listing standards currently in
the Exchange Rules applicable to
options on all ETFs and ETPs, including
ETPs that hold other commodities
already deemed appropriate for options
trading on the Exchange. Additionally,
as demonstrated above, each Bitcoin
Trust is characterized by a substantial
number of shares that are widely held
and actively traded. Options on the
Bitcoin Trust will trade in the same
manner as any other ETF or ETP
options—the same Exchange Rules that
currently govern the listing and trading
of options, including permissible
expirations, strike prices, minimum
increments, and margin requirements,
will govern the listing and trading of
options on Bitcoin Trusts in the same
manner.
The proposed position and exercise
limit for options on the Bitcoin Trusts
is 25,000 contracts. These position and
exercise limits are the lowest position
and exercise limits available in the
options industry, are extremely
conservative and more than appropriate
given the Bitcoin Trusts’ market
capitalization, average daily volume,
number of beneficial holders, and high
number of outstanding shares.54 The
proposed position and exercise limits
are consistent with the Act as they
addresses concerns related to
manipulation and protection of
investors because the position and
exercise limits are extremely
conservative and more than appropriate
given the Bitcoin Trusts are actively
traded.
Today, the Exchange has an adequate
surveillance program in place for
options. The Exchange intends to apply
those same program procedures to
options the Bitcoin Trusts that it applies
to the Exchange’s other options
54 The Exchange notes that IBIT—which has been
approved for options trading—represents a larger
percentage of the bitcoin market than all proposed
Bitcoin Trusts. As noted herein, the Bitcoin Trusts
collectively represent approximately 1.51% of the
bitcoin market. By comparison, IBIT options have
an approved position limit of 25,000 contracts per
side, which represents 4% of total underlying spot
BTC liquidity, and IBIT is the most liquid spot
Bitcoin ETF.
PO 00000
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95319
products.55 ISE’s market surveillance
staff would have access to the
surveillances conducted by Nasdaq 56
with respect to the Bitcoin Trusts and
would review activity in the underlying
Bitcoin Trusts when conducting
surveillances for market abuse or
manipulation in the options on the
Bitcoin Trusts. Additionally, ISE 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. ISE would
be able to obtain information regarding
trading and shares of the Bitcoin Trusts
from their primary listing market, and
from other markets that trade shares of
the Bitcoin Trusts, through ISG. In
addition, ISE has a Regulatory Services
Agreement with the Financial Industry
Regulatory Authority (‘‘FINRA’’).
Pursuant to a multi-party 17d–2 joint
plan, all options exchanges allocate
regulatory responsibilities to FINRA to
conduct certain options-related market
surveillance that are common to rules of
all options exchanges.57
The Exchange represents that the
same surveillance procedures applicable
to all other options on other ETFs
currently listed and traded on the
Exchange will apply to options on the
Bitcoin Trusts. Also, the Exchange
represents that it has the necessary
systems capacity to support the new
option series. The Exchange believes
that its existing surveillance and
reporting safeguards are designed to
deter and detect possible manipulative
behavior which might potentially arise
from listing and trading options on
ETFs, including the proposed options
on the Bitcoin Trusts. The underlying
shares of spot bitcoin ETPs, including
55 The surveillance program includes real-time
patterns for price and volume movements and posttrade surveillance patterns (e.g., spoofing, marking
the close, pinging, phishing).
56 The Nasdaq Stock Market LLC is an affiliated
market of ISE.
57 Section 19(g)(1) of the Act, among other things,
requires every SRO registered as a national
securities exchange or national securities
association to comply with the Act, the rules, and
regulations thereunder, and the SRO’s own rules,
and, absent reasonable justification or excuse,
enforce compliance by its members and persons
associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d–2. Section 17(d)(1)
of the Act allows the Commission to relieve an SRO
of certain responsibilities with respect to members
of the SRO who are also members of another SRO
(‘‘common members’’). Specifically, Section
17(d)(1) allows the Commission to relieve an SRO
of its responsibilities to: (i) receive regulatory
reports from such members; (ii) examine such
members for compliance with the Act and the rules
and regulations thereunder, and the rules of the
SRO; or (iii) carry out other specified regulatory
responsibilities with respect to such members.
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the Bitcoin Trusts, are also subject to
safeguards related to addressing market
abuse and manipulation. As the
Commission stated in its order
approving proposals of several
exchanges to list and trade shares of
spot bitcoin-based exchange-traded
products (‘‘Bitcoin ETP Order’’):
Each Exchange has a comprehensive
surveillance-sharing agreement with the CME
via their common membership in the
Intermarket Surveillance Group. This
facilitates the sharing of information that is
available to the CME through its surveillance
of its markets, including its surveillance of
the CME bitcoin futures market.58
ddrumheller on DSK120RN23PROD with NOTICES1
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].’’ 59 In light of
surveillance measures related to both
options and futures as well as the
underlying Bitcoin Trusts,60 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 Trusts.
The Exchange has also analyzed its
capacity and represents that it believes
the Exchange and the Options Price
Reporting Authority or ‘‘OPRA’’ have
the necessary systems capacity to
handle the additional traffic associated
with the listing of new series that may
result from the introduction of options
on the Bitcoin Trusts up to the number
of expirations currently permissible
under the Exchange Rules. Because the
proposal is limited to one class, the
Exchange believes any additional traffic
that may be generated from the
introduction of the options on the
Bitcoin Trusts will be manageable.
58 See Securities Exchange Act Release No. 99306
(January 10, 2024), 89 FR 3008, 3009 (January 17,
2024) (File Nos. SR–NYSEArca–2021–90; SR–
NYSEArca–2023–44; SR–NYSEArca–2023–58; SR–
NASDAQ–2023–016; SR–NASDAQ–2023–019; SR–
CboeBZX–2023–028; SR–CboeBZX–2023–038; SR–
CboeBZX–2023–040; SR–CboeBZX–2023–042;
SRCboeBZX–2023–044; and SR–CboeBZX–2023–
072) (Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by
Amendments Thereto, to List and Trade BitcoinBased Commodity-Based Trust Shares and Trust
Units).
59 Id.
60 Id.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange does not believe that
the proposed rule change will impose
any burden on intramarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act
as Bitcoin Trusts would need to satisfy
the initial listing standards set forth in
the Exchange Rules in the same manner
as any other ETF before the Exchange
could list options on them.
Additionally, options on the Bitcoin
Trusts will be equally available to all
market participants who wish to trade
such options. The Exchange Rules
currently applicable to the listing and
trading of options on ETFs on the
Exchange will apply in the same
manner to the listing and trading of all
options on Bitcoin Trusts. Also, and as
stated above, the Exchange already lists
options on other commodity-based
ETPs.
The Exchange does not believe that
the proposal to list and trade options on
Bitcoin Trusts 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 options on the Bitcoin
Trusts trading on the Exchange may
make the Exchange a more attractive
marketplace to market participants at
other exchanges, such market
participants are free to elect to become
market participants on the Exchange. As
noted herein, this is a competitive filing
as the Commission recently approved
the listing and trading of options on an
ETP that, like the Bitcoin Trusts, holds
bitcoin.61 Additionally, other options
exchanges are free to amend their listing
rules, as applicable, to permit them to
list and trade options on Bitcoin Trusts.
The Exchange notes that listing and
trading options on Bitcoin Trust on the
Exchange will subject such options to
transparent exchange-based rules as
well as price discovery and liquidity, as
opposed to alternatively trading such
options in the OTC market.
The Exchange believes that the
proposed rule change may relieve any
burden on, or otherwise promote,
competition as it is designed to increase
competition for order flow on the
Exchange in a manner that is beneficial
to investors by providing them with a
lower-cost option to hedge their
investment portfolios. The Exchange
61 See
PO 00000
supra note 3.
Frm 00153
Fmt 4703
Sfmt 4703
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 options
on the Bitcoin Trusts for trading on the
Exchange will promote competition by
providing investors with an additional,
relatively low-cost means to hedge their
portfolios and meet their investment
needs in connection with Bitcoin prices
and Bitcoin-related products and
positions on a listed options exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 62 and Rule
19b–4(f)(6) thereunder.63 Because the
foregoing proposed rule change does
not: (i) significantly affect the protection
of investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 64 and
subparagraph (f)(6) of Rule 19b–4
thereunder.65
A proposed rule change filed under
Rule 19b–4(f)(6) 66 under the Act does
not normally become operative prior to
30 days after the date of the filing.
However, pursuant to Rule 19b–
4(f)(6)(iii),67 the Commission may
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has requested that the
Commission waive the 30-day operative
delay so that the proposal may become
operative immediately upon filing. The
Commission previously approved the
listing of options on the Fidelity Wise
62 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
64 15 U.S.C. 78s(b)(3)(A)(iii).
65 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.
66 17 CFR 240.19b–4(f)(6).
67 17 CFR 240.19b–4(f)(6)(iii).
63 17
E:\FR\FM\02DEN1.SGM
02DEN1
Federal Register / Vol. 89, No. 231 / Monday, December 2, 2024 / Notices
Origin Bitcoin Fund, the ARK21Shares
Bitcoin ETF, the Grayscale Bitcoin Trust
(BTC), the Grayscale Bitcoin Mini Trust
BTC, and the Bitwise Bitcoin ETF.68 The
Exchange has provided information
regarding the underlying Bitcoin Trusts,
including, among other things,
information regarding trading volume,
the number of beneficial holders, and
the market capitalization of the Bitcoin
Trusts. The proposal also establishes
position and exercise limits for options
on the Bitcoin Trusts and provides
information regarding the surveillance
procedures that will apply to Bitcoin
Trust options. The Commission believes
that waiver of the operative delay could
benefit investors by providing an
additional venue for trading Bitcoin
Trust options. Therefore, the
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change as operative upon
filing.69
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
ddrumheller on DSK120RN23PROD with NOTICES1
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:
68 See Securities Exchange Act Release No.
101387 (October 18, 2024), 89 FR 84948 (October
24, 2024) (SR–Cboe–2024–035) (Notice of Filing of
Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment Nos. 2 and 3, To Permit
the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds). See also Securities
Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR–
NYSEAMER–2024–49) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, To Permit the Listing and
Trading of Options on Bitcoin Exchange-Traded
Funds).
69 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Sep<11>2014
18:25 Nov 29, 2024
Jkt 265001
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–
ISE–2024–54 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–ISE–2024–54. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–ISE–2024–54 and should be
submitted on or before December 23,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.70
Vanessa A. Countryman,
Secretary.
95321
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101743; File No. SR–BX–
2024–048]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change to Adopt an OTTO
Protocol
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
15, 2024, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt a
new protocol, ‘‘Ouch to Trade Options’’
or ‘‘OTTO’’ and establish pricing for this
new protocol.3
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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.
[FR Doc. 2024–28114 Filed 11–29–24; 8:45 am]
1 15
BILLING CODE 8011–01–P
70 17
PO 00000
CFR 200.30–3(a)(12), (59).
Frm 00154
Fmt 4703
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 On November 15, 2024, BX is withdrawing SR–
BX–2024–019 and is filing this rule change.
2 17
Sfmt 4703
E:\FR\FM\02DEN1.SGM
02DEN1
]]>Agencies
[Federal Register Volume 89, Number 231 (Monday, December 2, 2024)]
[Notices]
[Pages 95309-95321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28114]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101744; File No. SR-ISE-2024-54]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To List and Trade
Various Bitcoin Options
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, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to
[[Page 95310]]
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange to amend Options 4, Section 3, Criteria for Underlying
Securities.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the 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 Options 4, Section 3, Criteria for
Underlying Securities, to allow the Exchange to list and trade options
the (1) Fidelity Wise Origin Bitcoin Fund (``Fidelity Fund''); (2)
ARK21Shares Bitcoin ETF (``ARK 21 Fund''); (3) Grayscale Bitcoin Trust
(BTC) (the ``Grayscale Fund'' or ``GBTC''); (4) Grayscale Bitcoin Mini
Trust BTC (the ``Grayscale Mini Fund'' or ``BTC''); (5) and Bitwise
Bitcoin ETF (the ``Bitwise Fund'' or ``BITB''), (collectively ``Bitcoin
Trusts'') as ``Units'' deemed appropriate for options trading on the
Exchange. Options on each Bitcoin Trust were approved for trading on
other options exchanges.\3\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (SR-Cboe-2024-035) (Notice of
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2
and 3, To Permit the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds) (``CBOE-2024-035''). See also Securities
Exchange Act Release No. 101386 (October 18, 2024), 89 FR 84960
(October 24, 2024) (SR-NYSEAMER-2024-49) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 3, To Permit the
Listing and Trading of Options on Bitcoin Exchange-Traded Funds)
(``NYSEAMER-2024-49'').
---------------------------------------------------------------------------
Currently, Options 4, Section 3(h) provides that securities deemed
appropriate for options trading shall include shares or other
securities (``Exchange-Traded Fund Shares'' or ``ETFs'') that are
traded on a national securities exchange and are defined as an ``NMS''
stock under Rule 600 of Regulation NMS, and that meet certain criteria
specified in Options 4, Section 3(h), including that they:
(i) represent interests in registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts or similar entities that hold
portfolios of securities and/or financial instruments, including,
but not limited to, stock index futures contracts, options on
futures, options on securities and indices, equity caps, collars and
floors, swap agreements, forward contracts, repurchase agreements
and reverse repurchase agreements (the ``Financial Instruments''),
and money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements (the ``Money Market
Instruments'') comprising or otherwise based on or representing
investments in broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market Instruments (or that hold
securities in one or more other registered investment companies that
themselves hold such portfolios of securities and/or Financial
Instruments and Money Market Instruments) or
(ii) represent interests in a trust or similar entity that holds
a specified non-U.S. currency or currencies deposited with the trust
when aggregated in some specified minimum number may be surrendered
to the trust or similar entity by the beneficial owner to receive
the specified non-U.S. currency or currencies and pays the
beneficial owner interest and other distributions on the deposited
non-U.S. currency or currencies, if any, declared and paid by the
trust (``Currency Trust Shares'') or
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing portfolios or
baskets of securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs'') or
(iv) represent interests in the SPDR[supreg] Gold Trust, the
iShares COMEX Gold Trust, the iShares Silver Trust, the Aberdeen
Standard Physical Gold Trust, or the iShares Bitcoin Trust or
(v) represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management company
or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies,
which is issued in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities and/or a cash
amount with a value equal to the next determined net asset value
(``NAV''), and when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to
the next determined NAV (``Managed Fund Share'').
In addition to the aforementioned requirements, Options 4, Section
3(h)(1) and (2) must be met to list options on ETFs.\4\
---------------------------------------------------------------------------
\4\ Options 4, Section 3(h)(1) and (2) state that the Exchange-
Traded Fund Shares either (i) meet the criteria and guidelines set
forth in paragraphs (a) and (b) described herein; or (ii) the
Exchange-Traded Fund Shares are available for creation or redemption
each business day from or through the issuing trust, investment
company, commodity pool or other entity in cash or in kind at a
price related to net asset value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in a specified aggregate number
even if some or all of the investment assets and/or cash required to
be deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investment assets
has undertaken to deliver them 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 of
the Exchange-Traded Fund Shares, all as described in the Exchange-
Traded Fund Shares' prospectus. Also, the Exchange-Traded Fund
Shares based on international or global indexes, or portfolios that
include non-U.S. securities, shall meet the criteria in Options 4,
Section 3(h)(2)(A)-(F).
---------------------------------------------------------------------------
Proposal
The Exchange proposes to expand the list of ETFs that are
appropriate for options trading on the Exchange in Options 3, Section
4(h)(iv) to include the Bitcoin Trusts.\5\
---------------------------------------------------------------------------
\5\ Specifically, the Exchange proposes to amend Options 3,
Section 4(h)(iv) to include the name of each Bitcoin Trust to enable
options to be listed on the Bitcoin Trusts on the Exchange.
---------------------------------------------------------------------------
The Bitcoin Trusts are Bitcoin-backed commodity ETFs structured as
trusts. Similar to any Unit currently deemed appropriate for options
trading under Options 3, Section 4(h), the investment objective of each
Bitcoin Trust is for its shares to reflect the performance of Bitcoin
(less the expenses of the trust's operations), offering investors an
opportunity to gain exposure to Bitcoin without the complexities of
Bitcoin delivery. As is the case for Units currently deemed appropriate
for options trading, a Bitcoin Trust'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.\6\ The Bitcoin Trusts provide investors with cost-
efficient alternatives that allow a level of participation in the
Bitcoin market through the securities market. The primary substantive
difference
[[Page 95311]]
between Bitcoin Trusts and Units currently deemed appropriate for
options trading are that Units may hold securities, certain financial
instruments, and specified precious metals (which are deemed
commodities), while Bitcoin Trusts hold Bitcoin (which is also deemed a
commodity).
---------------------------------------------------------------------------
\6\ The trust may include minimal cash.
---------------------------------------------------------------------------
The Exchange believes each Bitcoin Trust satisfies the Exchange's
initial listing standards for Units on which the Exchange may list
options. Specifically, each Bitcoin Trust satisfies the initial listing
standards set forth in Options 3, Section 4(h), as is the case for
other Units on which the Exchange lists options (including trusts that
hold commodities). Currently, Options 4, Section 3(h)(1) and (2)
requires that Units must either (i) meet the criteria and guidelines
set forth in paragraphs (a) and (b) described herein; or (ii) be
available for creation or redemption each business day from or through
the issuing trust, investment company, commodity pool or other entity
in cash or in kind at a price related to net asset value, and the
issuer is obligated to issue Exchange-Traded Fund Shares in a specified
aggregate number even if some or all of the investment assets and/or
cash required to be deposited have not been received by the issuer,
subject to the condition that the person obligated to deposit the
investment assets has undertaken to deliver them 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 of the Exchange-Traded Fund Shares, all as described in the
Exchange-Traded Fund Shares' prospectus. Each Bitcoin Trust Fund
satisfies Options 4, Section 3(h)(1) and (2), as each is subject to
this creation and redemption process.
While not required by the Rules for purposes of options listings,
the Exchange believes each Bitcoin Trust satisfies the criteria and
guidelines set forth in Options 4, Section 3(b).\7\ Options 4, Section
3(a), a security (which includes a Unit) on which options may be listed
and traded on the Exchange must be duly registered (with the
Commission) and be an NMS stock (as defined in Rule 600 of Regulation
NMS under the Securities Exchange Act of 1934, as amended (the
``Act'')), and be characterized by a substantial number of outstanding
shares that are widely held and actively traded.\8\ Each Bitcoin Trust
is an NMS Stock as defined in Rule 600 of Regulation NMS under the
Act.\9\ The Exchange believes each Bitcoin Trust is characterized by a
substantial number of outstanding shares that are widely held and
actively traded.
---------------------------------------------------------------------------
\7\ ISE Options 4, Section 3(b) states that, in addition, the
Exchange shall from time to time establish guidelines to be
considered in evaluating potential underlying securities for
Exchange options transactions. There are many relevant factors which
must be considered in arriving at such a determination, and the fact
that a particular security may meet the guidelines established by
the Exchange does not necessarily mean that it will be selected as
an underlying security. Further, in exceptional circumstances an
underlying security may be selected by the Exchange even though it
does not meet all of the guidelines. The Exchange may also give
consideration to maintaining diversity among various industries and
issuers in selecting underlying securities. Notwithstanding the
forgoing, however, absent exceptional circumstances, an underlying
security will not be selected unless: (1) There are a minimum of
seven (7) million shares of the underlying security which are owned
by persons other than those required to report their stock holdings
under Section 16(a) of the Exchange Act; (2) There are a minimum of
2,000 holders of the underlying security; (3) The issuer is in
compliance with any applicable requirements of the Exchange Act; (4)
Trading volume (in all markets in which the underlying security is
traded) has been at least 2,400,000 shares in the preceding twelve
(12) months; (5) Either: (i) If the underlying security is a
``covered security'' as defined under Section 18(b)(1)(A) of the
Securities Act of 1933: (A) the market price per share of the
underlying security has been at least $3.00 for the previous three
consecutive business days preceding the date on which the Exchange
submits a certificate to the Clearing Corporation for listing and
trading, as measured by the closing price reported in the primary
market in which the underlying security is traded; however, (B) the
requirements set forth in (5)(i)(A) will be waived during the three
days following its initial public offering day for an underlying
security having a market capitalization of at least $3 billion based
upon the offering price of its initial public offering, and may be
listed and traded starting on or after the second business day
following the initial public offering day; or (ii) If the underlying
security is not a ``covered security,'' the market price per share
of the underlying security has been at least $7.50 for the majority
of business days during the three calendar months preceding the date
of selection, as measured by the lowest closing price reported in
any market in which the underlying security traded on each of the
subject days. Notwithstanding the requirements set forth in
Paragraphs 1, 2, 4 and 5 above, the Exchange may list and trade an
options contract if (i) the underlying security meets the guidelines
for continued approval in Options 4, Section 4; and (ii) options on
such underlying security are traded on at least one other registered
national securities exchange.
\8\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Options 4, Section
3(b), subject to exceptions.
\9\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
---------------------------------------------------------------------------
Fidelity Fund and ARK 21
Cboe Exchange, Inc. (``Cboe'') noted in CBOE-2024-035 that, as of
August 7, 2024, that the Fidelity Fund had 201,100,100 shares
outstanding and the ARK 21 Fund had 45,495,000 shares outstanding.
Further, each Bitcoin Trust had significantly more than 7,000,000
shares outstanding (approximately 29 and 6.5 times that amount,
respectively), which is the minimum number of shares of a corporate
stock that the Exchange generally requires to list options on that
stock pursuant to Options 4, Section 3(b).\10\ Cboe noted in CBOE-2024-
035 that this demonstrated that the Fidelity Fund and the ARK 21 Fund
were both characterized by a substantial number of outstanding shares.
Further, in CBOE-2024-035, Cboe noted that the Fidelity Fund, as of
June 27, 2024, had 279,656 beneficial owners and the ARK 21 Fund, as of
June 26, 2024, had 69,425 beneficial owners. Cboe noted that the
Fidelity Fund and the ARK 21 Fund both had significantly more than
2,000 beneficial holders (approximately 140 and 35 times more,
respectively), which is the minimum number of holders the Exchange
generally requires for corporate stock in order to list options on that
stock pursuant to Options 4, Section 3(b).\11\ Therefore, Cboe noted in
CBOE-2024-035, that it believed the shares of the Fidelity Fund and the
ARK 21 Fund are widely held. Cboe noted in CBOE-2024-035 that it
believed that the shares of the Fidelity Fund and the ARK 21 Fund are
both actively traded. Cboe noted in CBOE-2024-035 that as of August 7,
2024, the total trading volume (by shares) for each fund for the six-
month period of February 8 through August 7, 2024, and the approximate
average daily volume (``ADV'') (in shares and notional) over the 30-day
period of July 9 through August 7, 2024, for each Bitcoin Trust was as
follows:
---------------------------------------------------------------------------
\10\ See supra note 7.
\11\ See supra note 7.
----------------------------------------------------------------------------------------------------------------
6-Month trading 30-Day ADV 30-Day ADV
Bitcoin Trust volume (shares) (shares) (notional $)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund................................................ 1,112,861,581 6,014,335 250,354,755
ARK 21 Fund.................................................. 297,360,739 1,893,335 90,484,307
----------------------------------------------------------------------------------------------------------------
[[Page 95312]]
Cboe noted that as demonstrated above, despite the fact that the
Fidelity Fund and the ARK 21 Fund had been trading for approximately
seven months (as of January 10, 2024) only as of August 7, 2024, the
six-month trading volume for each as of that date was substantially
higher than 2,400,000 shares (approximately 464 and 124 times that
amount, respectively), which is the minimum 12-month volume the
Exchange generally requires for a corporate stock in order to list
options on that security as set forth in Options 4, Section 3(b).
Additionally, Cboe noted in in CBOE-2024-035 that as of August 7, 2024,
the trading volume for the Fidelity Fund and the ARK 21 Fund was in the
top 5% of all ETFs that are currently trading. Cboe noted in CBOE-2024-
035 that this data demonstrates the Fidelity Fund and the ARK 21 Fund
are characterized as having shares that are actively traded.
Cboe determined the proposed position and exercise limits
considering, among other things, the approximate six-month average
daily volume (``ADV'') and outstanding shares of the Fidelity Fund and
the ARK 21 Fund noted in the filing (which as discussed above
demonstrate that these Bitcoin Trusts are widely held and actively
traded and thus justify these conservatively proposed position limits),
as set forth in in CBOE-2024-035 and below, along with market
capitalization (as of August 7, 2024):
----------------------------------------------------------------------------------------------------------------
Six-month ADV Outstanding Market capitalization
Underlying Bitcoin Trust (shares) shares ($)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund.......................................... 8,902,893 201,100,100 14,217,013,188
ARK 21 Fund............................................ 2,378,886 45,495,000 2,487,666,600
----------------------------------------------------------------------------------------------------------------
Cboe then compared the number of outstanding shares of the Fidelity
Fund and the ARK 21 Fund to those of other ETFs. The following table in
CBOE-2024-035 provided the approximate average position (and exercise
limit) of ETF options with similar outstanding shares (as of August 27,
2024), compared to the proposed position and exercise limit for options
on the Fidelity Fund and the ARK 21 Fund:
----------------------------------------------------------------------------------------------------------------
Average limit
of other ETF Proposed limit
Underlying Bitcoin Trust options (contracts)
(contracts)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund.............................. 188,11023 25,000 Cboe noted in Cboe-2024-035 that
over 80% of the ETFs used for
comparison had a limit of at least
200,000, and more than half had a
limit of 250,000. Additionally,
the three-month ADV of the
majority of the ETFs used for
comparison was lower than the
Fidelity Fund three-month ADV of
5,665,027 shares.
ARK 21 Fund................................ 108,69624 25,000 Cboe noted in Cboe-2024-035 that
nearly 80% of the ETFs used for
comparison had a limit of at least
75,000 (and up to 250,000).
Additionally, the three-month ADV
of the majority of ETFs used for
comparison was lower (many more
than four times lower) than the
ARK 21 Fund three-month ADV of
1,737,327 shares.
----------------------------------------------------------------------------------------------------------------
Cboe considered current position and exercise limits of options on
ETFs with outstanding shares comparable to those of each the Fidelity
Fund and the ARK 21 Fund, with the proposed limit significantly lower
(between two and ten times lower) than the average limits of the
options on the other ETFs. As discussed above in in CBOE-2024-035, the
Fidelity Fund and the ARK 21 Fund are actively held and widely traded:
(1) each of these Bitcoin Trusts (as of August 7, 2024) had
significantly more than 7,000,000 shares outstanding, which is the
minimum number of shares of a corporate stock that the Exchange
generally requires to list options on that stock pursuant to Options 4,
Section 3(b); (2) the Fidelity Fund and the ARK 21 Fund (as of the
dates listed above) had significantly more than 2,000 beneficial
holders, which is the minimum number of holders the Exchange generally
requires for corporate stock in order to list options on that stock
pursuant to Options 4, Section 3(b)(2) and; (3) the Fidelity Fund and
the ARK 21 Fund had a six-month trading volume substantially higher
than 2,400,000 shares, which is the minimum 12-month volume the
Exchange generally requires for a security in order to list options on
that security as set forth in Options 4, Section 3.
Cboe noted in in CBOE-2024-035 that with respect to outstanding
shares, if a market participant held the maximum number of positions
possible pursuant to the proposed position and exercise limits, the
equivalent shares represented by the proposed position/exercise limit
would represent the following approximate percentage of current
outstanding shares:
----------------------------------------------------------------------------------------------------------------
Proposed position
/exercise limit Outstanding Percentage of
Underlying Bitcoin Trust (in equivalent shares outstanding
shares) shares (%)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund................................................ 2,500,000 201,100,100 1.2
ARK 21 Fund.................................................. 2,500,000 45,495,000 5.5
----------------------------------------------------------------------------------------------------------------
As this table demonstrated in CBOE-2024-035, if a market
participant held the maximum permissible options positions in either
the Fidelity Fund or the ARK 21 Fund and exercised all of them at the
same time, that market
[[Page 95313]]
participant would control a small percentage of the outstanding shares
of the particular underlying Bitcoin Trust. Cboe provided a table in in
CBOE-2024-035 noting the equivalent shares of the position limits
applicable to equity options, including ETFs, further represents the
percentages of the minimum number of outstanding shares that an
underlying stock or ETF must have to qualify for that position limit
(under the second method described above), all of which are higher than
the percentages for the Fidelity Fund and the ARK 21 Fund.
------------------------------------------------------------------------
Minimum Percentage of
Position/exercise limit (in equivalent outstanding outstanding
shares) shares shares (%)
------------------------------------------------------------------------
2,500,000............................... 6,300,000 40.0
5,000,000............................... 40,000,000 12.5
7,500,000............................... 120,000,000 6.3
20,000,000.............................. 240,000,000 8.3
25,000,000.............................. 300,000,000 8.3
------------------------------------------------------------------------
6,300,000 is the minimum number of outstanding shares an underlying
security must have for the Exchange to continue to list options on that
security, so this would be the smallest number of outstanding shares
permissible for any corporate option that would have a position limit
of 25,000 contract. See Options 4, Section 3(b). This rule applies to
corporate stock options but not ETF options, which currently have no
requirement regarding outstanding shares of the underlying ETF for the
Exchange to continue listing options on that ETF. Therefore, there may
be ETF options trading for which the 25,000 contract position limits
represent an even larger percentage of outstanding shares of the
underlying ETF than set forth above.
CBOE-2024-035 provided that the equivalent shares represented by
the proposed position and exercise limits for the Fidelity Fund and the
ARK 21 Fund as a percentage of outstanding shares of the underlying
Bitcoin Trust is significantly lower than the percentage for the lowest
possible position limit for equity options of 25,000 (under 6% compared
to 40%) and is lower than that percentage for each current position
limit bucket.\12\
---------------------------------------------------------------------------
\12\ As these percentages are based on the minimum number of
outstanding shares an underlying security must have to qualify for
the applicable position limit, these are the highest possible
percentages that would apply to any option subject to that position
and exercise limit.
---------------------------------------------------------------------------
GBTC, BTC and BITB
NYSE American LLC (``NYSE American'') noted in NYSEAmerican-2024-49
that, as of August 30, 2024, GBTC, BTC and BITB had the following
number of shares outstanding (and corresponding market capitalization):
------------------------------------------------------------------------
Shares Market value (08/
Bitcoin Trust outstanding 30/2024) ($)
------------------------------------------------------------------------
GBTC................................. 284,570,100 13,443,091,524
BTC.................................. 366,950,100 1,930,157,526
BITB................................. 68,690,000 2,221,640,670
------------------------------------------------------------------------
NYSE American noted in NYSEAmerican-2024-49 that, as displayed in
the above table, GBTC, BTC and BITB had significantly more than
7,000,000 shares outstanding, which is the minimum number of shares of
a corporate stock that the Exchange generally requires to list options
on that stock pursuant to Options 4, Section 3(b). NYSE American noted
in NYSEAmerican-2024-49 that this demonstrated that GBTC, BTC and BITB
are characterized by a substantial number of outstanding shares.
Further, as provided in NYSEAmerican-2024-49 the below table contained
information regarding the number of beneficial holders of GBTC, BTC and
BITB as of August 14, 2024.
------------------------------------------------------------------------
Beneficial
Bitcoin Trust holders (8/14/
24)
------------------------------------------------------------------------
GBTC.................................................... 464,364
BTC..................................................... 13,403
BITB.................................................... 75,437
------------------------------------------------------------------------
As shown in NYSEAmerican-2024-49, the table showed that GBTC, BTC
and BITB each had significantly more than 2,000 beneficial holders
(approximately 232, 7, and 38 times more, respectively), which is the
minimum number of holders the Exchange generally requires for corporate
stock in order to list options on that stock pursuant to pursuant to
Options 4, Section 3(b)(2).\13\ Therefore, NYSE American noted that the
shares of each GBTC, BTC and BITB are widely held. In addition, NYSE
American noted that the shares of each GBTC, BTC and BITB are actively
traded. NYSEAmerican-2024-49 provided, as of September 30, 2024, that
the total trading volume (by shares and notional) for these funds since
they began trading \14\ and the average daily volume (``ADV'') over the
30-day period of September 1 through September 30, 2024, was as
follows:
---------------------------------------------------------------------------
\13\ See supra note 7.
\14\ GBTC and BITB began trading on January 11th and BTC began
trading on July 31st. Thus, the measurement period for the trading
volume (shares/notional) was January 11 through September 20, 2024,
for GBTC and BITB (i.e., nine months) and July 31 through September
20, 2024, for BTC (i.e., two months).
----------------------------------------------------------------------------------------------------------------
Trading volume Trading volume
Bitcoin Trust (shares) (notional $) ADV (shares)
----------------------------------------------------------------------------------------------------------------
GBTC................................................... 1,803,567,700 93,472,544,497 3,266,138
[[Page 95314]]
BTC.................................................... 335,492,930 1,792,866,521 6,838,546
BITB................................................... 434,815,840 14,433,361,384 1,949,835
----------------------------------------------------------------------------------------------------------------
As demonstrated above and in NYSEAmerican-2024-49, even though
GBTC, BTC and BITB were trading for less than one year (and in the case
of the BTC, less than two months), the trading volume for each was
substantially higher than 2,400,000 shares (between roughly 165 and 700
times that amount), which is the minimum 12-month volume the Exchange
generally requires for a security in order to list options on that
security as set forth in Options 4, Section 3(b). NYSE American noted
that this data demonstrated that GBTC, BTC and BITB are characterized
by a substantial number of outstanding shares that are actively traded.
NYSE American noted in NYSEAmerican-2024-49 that BTC began trading
on July 31, 2024, and therefore had only two months of trading data
available at the time of filing NYSEAmerican-2024-49. In terms of total
volume, NYSEAmerican-2024-49 provided the below table.
------------------------------------------------------------------------
Total volume
Bitcoin Trust (9/30/2024)
------------------------------------------------------------------------
GBTC.................................................... 723,758,100 (6-
months).
BTC..................................................... 335,492,930 (2-
months).
BITB.................................................... 263,965,870 (6-
months).
------------------------------------------------------------------------
NYSE American noted in NYSEAmerican-2024-49 that based on the most-
recent trading volume, GBTC, BTC and BITB exceeded the requisite
minimum of 100,000,000 shares necessary to qualify for the 250,000-
contract position and exercise limits. By comparison, NYSE American
noted that other options symbols with six-month trading volume less
than GBTC, BITB, and BTC were eligible for position and exercise limits
of at least 250,000.\15\ NYSEAmerican-2024-49 provided, with respect to
the outstanding shares of each Bitcoin Trust, 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/exercise limit (2,500,000 shares)
would represent the following approximate percentage of current
outstanding shares:
---------------------------------------------------------------------------
\15\ 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).
----------------------------------------------------------------------------------------------------------------
Proposed position/ Outstanding Percentage of
Bitcoin Trust exercise limit in shares (8/30/ outstanding
equivalent shares 24) shares (%)
----------------------------------------------------------------------------------------------------------------
GBTC......................................................... 2,500,000 284,570,100 0.9
BTC.......................................................... 2,500,000 366,950,100 0.7
BITB......................................................... 2,500,000 68,690,000 3.6
----------------------------------------------------------------------------------------------------------------
As this table demonstrated in NYSEAmerican-2024-49, if a market
participant held the maximum permissible options positions in any one
of GBTC, BTB or BITB 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 GBTC, BTB or BITB. 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 Trust (if that market participant exercised all its options).
Based on the number of shares outstanding for each of GBTC, BTB or BITB
as of August 30, 2024, NYSE American noted in NYSEAmerican-2024-49 and
the table below, that the approximate number of market participants
that could hold the maximum of 25,000 same side positions in each of
GBTC, BTB and BITB that would equate to the number of shares
outstanding of that Bitcoin Trust:
------------------------------------------------------------------------
Number of market
Shares participants with
Bitcoin Trust outstanding 25,000 same side
positions
------------------------------------------------------------------------
GBTC........................... 284,570,100 114
BTC............................ 366,950,100 147
BITB........................... 68,690,000 27
------------------------------------------------------------------------
NYSE American concluded in NYSEAmerican-2024-49 that this meant if
114 market participants had 25,000 same side positions in options on
GBTC, 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 BTC, 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 BITB,
each of them would have to simultaneously exercise all of those options
to create a scenario that may put the underlying security under stress.
[[Page 95315]]
NYSE American noted in NYSEAmerican-2024-49 that it believed it was
highly unlikely for this to occur; however, even if such event did
occur, NYSE American would not expect GBTC, BTB or BITC to be under
stress because such an event would merely induce the creation of more
shares through the trust's creation and redemption process. Further,
given that the issuer of each of GBTC, BTB or BITC may create and
redeem shares that represent an interest in Bitcoin, NYSE American
noted in NYSEAmerican-2024-49 that it is relevant to compare the size
of a position limit to the market capitalization of the Bitcoin market.
NYSE American noted in NYSEAmerican-2024-49 that, as of August 30,
2024, the global supply of Bitcoin was 19,747, 066, and the price of
one Bitcoin was approximately $59,108.23,39 which equates to a market
capitalization of approximately $1.167 trillion.\16\ NYSE American
stated in NYSEAmerican-2024-49 that a position and exercise limit of
25,000 same side contracts effectively restricts a market participant
from holding positions that could result in the receipt of no more than
2,500,000 shares of GBTC, BTC, or BITB, as applicable (if that market
participant exercised all its options). NYSE American presented the
below table with the share price of each of GBTC, BTC and BITB on
August 30, 2024, the value of 2,500,000 shares of the particular
Bitcoin Trust at that price, and the approximate percentage of that
value of the size of the Bitcoin market:
---------------------------------------------------------------------------
\16\ See https://www.blockchain.com/explorer/charts/total-bitcoins.
----------------------------------------------------------------------------------------------------------------
Value of
Aug. 30th 2,500,000 Percentage of
Bitcoin Trust share price shares of Bitcoin market
($) Bitcoin Trust (%)
($)
----------------------------------------------------------------------------------------------------------------
GBTC............................................................ 46.75 116,875,000 0.010
BTC............................................................. 5.20 13,000,000 0.001
BITB............................................................ 31.95 79,875,000 0.007
----------------------------------------------------------------------------------------------------------------
NYSE American concluded that, if a market participant with the
maximum 25,000 same side contracts in options on GBTC, BTC, or BITB
exercised all positions at one time, such an event would have no
practical impact on the Bitcoin market. NYSE American also reviewed the
market capitalization of each Bitcoin Trust relative to the market
capitalization of the entire bitcoin market, as of August 30, 2024.
----------------------------------------------------------------------------------------------------------------
% of total
Bitcoin/shares Market value (8/30/ Bitcoin market
outstanding 2024) ($) (%)
----------------------------------------------------------------------------------------------------------------
Total Bitcoin Market................................... 19,747,066 $1,167,214,096,788 100.00
GBTC............................................... 284,570,100 $13,443,091,524 1.15
BTC................................................ 366,950,100 $1,930,157,526 0.17
BITB............................................... 68,690,000 $2,221,640,670 0.19
----------------------------------------------------------------------------------------------------------------
As shown above and in NYSEAmerican-2024-49, GBTC, BTC and BITB
collectively represented approximately 1.51% of the global supply of
Bitcoin (19,747,066). Based on the $46.75 price of a GBTC share on
August 30, 2024, a market participant could have redeemed one Bitcoin
for approximately 1,264 GBTC shares. Further, NYSE American noted that
another 24,967,146,455 GBTC shares could be created before the supply
of Bitcoin was exhausted. NYSEAmerican-2024-49 provided that as a
result, 9,987 market participants would have to simultaneously exercise
25,000 same side positions in GBTC options to receive shares of the
GBTC holding the entire global supply of Bitcoin. NYSEAmerican-2024-49
also provided that based on the $5.20 price of a BTC share on August
30, 2024, a market participant could have redeemed one Bitcoin for
approximately 11,367 BTC shares. Another 224,464,249,382 BTC shares
could be created before the supply of Bitcoin was exhausted. NYSE
American stated that as a result, 89,786 market participants would have
to simultaneously exercise 25,000 same side positions in BTC options to
receive shares of BTC holding the entire global supply of Bitcoin.
Similarly, NYSE American noted that based on the $31.95 price of a BITB
share on August 30, 2024, a market participant could have redeemed one
Bitcoin for approximately 1,850 BITB shares. NYSEAmerican-2024-49
provided that another 36,532,522,591 BITB shares could be created
before the supply of Bitcoin was exhausted. NYSE American concluded
that as a result, 14,613 market participants would have to
simultaneously exercise 25,000 same side positions in BITB options to
receive shares of BITB holding the entire global supply of Bitcoin.
NYSE American also concluded that, unlike GBTC, BTB and BITB, the
number of shares that corporations may issue is limited. NYSEAmerican-
2024-49 provided that, however, like corporations, which authorize
additional shares, repurchase shares, or split their shares, the
Bitcoin Trusts may create, redeem, or split shares in response to
demand and 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.\17\ NYSE American noted that the supply of Bitcoin
is larger than the available supply of most securities.\18\ NYSE
American concluded that given the significant unlikelihood of any of
these events ever occurring, NYSE American noted that it did not
believe options on GBTC, BTC and BITB 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. NYSE American also noted in
[[Page 95316]]
NYSEAmerican-2024-49 that it believed the proposed limits are
appropriate given position limits for Bitcoin futures. NYSE American
noted that the Chicago Mercantile Exchange (``CME'') imposed a position
limit of 2,000 futures (for the initial spot month) on its Bitcoin
futures contract.\19\ Further, NYSE American provided that on August
28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. NYSE American
noted that a position of 2,000 CME Bitcoin futures, therefore, would
have a notional value of $589,500,000. NYSEAmerican-2024-49 provided
the following table with the share price of each of GBTC, BTC and BITB
on August 28, 2024, and the approximate number of option contracts that
equates to that notional value:
---------------------------------------------------------------------------
\17\ See https://www.blockchain.com/explorer/assets/btc (citing
21 million as the ``total supply'' of bitcoin).
\18\ The market capitalization of Bitcoin would rank in the top
10 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
\19\ 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.
------------------------------------------------------------------------
Aug. 28th Number of options
Bitcoin Trust share price contracts
------------------------------------------------------------------------
GBTC................................. 46.94 125,585
BTC.................................. 5.23 1,127,151
BITB................................. 32.08 183,759
------------------------------------------------------------------------
NYSE American stated that approximate number of option contracts
for GBTC, BTC and BITB that equate to the notional value of CME Bitcoin
futures was significantly higher than the proposed limit of 25,000
options contract for each option on GBTC, BTC and BITB. Further, NYSE
American noted that 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 demonstrated how
conservative the proposed limits of 25,000 options contracts are for
options on GBTC, BTC and BITB.
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).\20\ 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.\21\ 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 options on Bitcoin Trusts.
---------------------------------------------------------------------------
\20\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\21\ Id.
---------------------------------------------------------------------------
NYSE American noted in NYSEAmerican-2024-049 that the available
supply of Bitcoin is not relevant to the determination of position and
exercise limits for options overlying the GBTC, BTC and BITB.\22\ NYSE
American noted stated that position and exercise limits are not a tool
that should be used to address a potential limited supply of the
underlying of an underlying. NYSE American noted that 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.\23\ ``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.'' \24\ NYSE American noted
that 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.'' \25\
---------------------------------------------------------------------------
\22\ NYSE American in NYSEAmerican-2024-49 stated that it 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-CBOE2005-11) (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
9054 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 Trust options.
\23\ NYSE American in NYSEAmerican-2024-49 provided an example
that supposed an option had a position limit of 25,000 option
contracts and there were a total of 10 investors trading that
option. If all 10 investors maxed out their positions, that would
result in 250,000 option contracts outstanding at that time.
However, if 10 more investors decided to begin trading that option
and also maxed out their positions. This would result in 500,000
option contracts outstanding at that time. NYSE American concluded
that an increase in the number of investors could cause an increase
in outstanding options even if position limits remain unchanged.
\24\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SRCBOE-1997-11).
\25\ Id.
---------------------------------------------------------------------------
The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each of GBTC, BTC and BITB, 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.\26\ Each Registration Statement
permits an unlimited number of shares of the applicable Bitcoin Trust
to be created.
[[Page 95317]]
Further, the Commission approved proposed rule changes that permitted
the listing and trading of shares of each of GBTC, BTC and BITB, 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 Trust would impact the supply of Bitcoin.\27\ 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 Trust shares, and does not believe
considering this supply with respect to the establishment of position
and exercise limits is appropriate given its lack of relevance to the
purpose of position and exercise limits. However, given the significant
size of the Bitcoin supply, the proposed positions limits are more than
sufficient to protect investors and the market.
---------------------------------------------------------------------------
\26\ See, e.g., GBTC Form S-1 Registration Statement, at p. 17,
https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm; BTC Form S-1 Registration Statement, at p. 21,
https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm; and BITB Amendment No 2. to S-1, at p. 47, https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm (``Bitcoin Trusts Reg. Stmts.'').
\27\ See NYSEAMER-2024-49.
---------------------------------------------------------------------------
Based on the foregoing and notwithstanding the position limits in
Options 9, Section 13(d) and exercise limits in Options 9, Section
15(c), ISE proposes the position and exercise limits for the options
Fidelity Fund, the ARK 21 Fund, GBTC, BTC and BITB to be 25,000
contracts on the same side pursuant to proposed Supplementary Material
.01 to Options 9, Section 13 and proposed Supplementary Material .01 to
Options 9, Section 15. Further, Exchange Rules that currently govern
the listing and trading of options on ETFs, including permissible
expirations, strike prices, minimum increments, and margin
requirements, will govern the listing and trading of options on the
Bitcoin Trusts. The proposed position limit, and exercise limit, is
consistent with the Act as it addresses concerns related to
manipulation and protection of investors because the position limit
(and exercise limit) is conservative and appropriate given the Bitcoin
Trusts are actively traded.
Options on the Bitcoin Trusts will be subject to the Exchange's
continued listing standards for options on ETFs set forth in Options 4,
Section 4(g). Specifically, options approved for trading pursuant to
Options 4, Section 3(h) 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 ETFs
if the ETFs are delisted from trading as provided in subparagraph
(b)(5) of Options 4, Section 4 \28\ or the ETFs are halted or suspended
from trading on their primary market.\29\ In addition, the Exchange
shall consider the suspension of opening transactions in any series of
options of the class covering ETFs in any of the following
circumstances:
---------------------------------------------------------------------------
\28\ Options 4, Section 4(b)(5) provides, If an underlying
security is approved for options listing and trading under the
provisions of Options 4, Section 3(c), the trading volume of the
Original Security (as therein defined) prior to but not after the
commencement of trading in the Restructure Security (as therein
defined), including `when-issued' trading, may be taken into account
in determining whether the trading volume requirement of (3) of this
paragraph (b) is satisfied.
\29\ See Options 4, Section 4(g).
---------------------------------------------------------------------------
(1) in the case of options covering Exchange-Traded Fund Shares
approved pursuant to Options 4, Section 3(h)(A)(i), in accordance with
the terms of subparagraphs (b)(1), (2), (3) and (4) of Options 4,
Section 4; \30\
---------------------------------------------------------------------------
\30\ Options 4, Section 4(b)(5)(1) through (4) provides, if: (1)
there are fewer than 6,300,000 shares of the underlying security
held by persons other than those who are required to report their
security holdings under Section 16(a) of the Act, (2) there are
fewer than 1,600 holders of the underlying security, (3) the trading
volume (in all markets in which the underlying security is traded)
has been less than 1,800,000 shares in the preceding twelve (12)
months, or (4) the underlying security ceases to be an `NMS stock'
as defined in Rule 600 of Regulation NMS under the Exchange Act.
Options 4, Section 3(h)(i) refers to Financial Instruments and Money
Market Instruments. In addition, the Exchange proposes to amend the
citation to ``Options 4, Section 3(h)(A)(i)'' herein to ``Options 4,
Section 3(h)(i).''
(2) in the case of options covering Fund Shares approved
pursuant to Options 4, Section 3(h)(A)(ii),\31\ following the
initial twelve-month period beginning upon the commencement of
trading in the Exchange-Traded Fund Shares on a national securities
exchange and are defined as an ``NMS stock'' under Rule 600 of
Regulation NMS, there were fewer than 50 record and/or beneficial
holders of such Exchange-Traded Fund Shares for 30 or more
consecutive trading days;
---------------------------------------------------------------------------
\31\ Options 4, Section 3(h)(ii) refers to Currency Trust
Shares. In addition, the Exchange proposes to amend the citation to
``Options 4, Section 3(h)(A)(ii)'' herein to ``Options 4, Section
3(h)(ii).''
---------------------------------------------------------------------------
(3) the value of the index or portfolio of securities or non-
U.S. currency, portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts, options on physical commodities and/or Financial
Instruments and Money Market Instruments, on which the Exchange-
Traded 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 the Bitcoin Trusts would be physically settled contracts
with American-style exercise.\32\ Consistent with current Options 4,
Section 5, which governs the opening of options series on a specific
underlying security (including ETFs), the Exchange will open at least
one expiration month for options on the Bitcoin Trusts and may also
list series of options on the Bitcoin Trusts for trading on a weekly
\33\ or quarterly \34\ basis. The Exchange may also list long-term
equity option series (``LEAPS'') \35\ that expire from twelve to
thirty-nine from the time they are listed.
---------------------------------------------------------------------------
\32\ See Options 4, Section 2, Rights and Obligations of Holders
and Writers, which provides that the rights and obligations of
holders and writers shall be as set forth in the Rules of the
Clearing Corporation. See also OCC Rules, Chapter VIII, which
governs exercise and assignment, and Chapter IX, which governs the
discharge of delivery and payment obligations arising out of the
exercise of physically settled stock option contracts. OCC Rules can
be located at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occ_rules.pdf.
\33\ See Supplementary .03 to Options 4, Section 5.
\34\ See Supplementary .04 to Options 4, Section 5.
\35\ See Options 4, Section 8.
---------------------------------------------------------------------------
Pursuant to Options 4, Section 5(d), which governs strike prices of
series of options on ETFs, the interval between strike prices of series
of options on ETFs approved for options trading pursuant to Section
3(h) of Options 4 shall be fixed at a price per share which is
reasonably close to the price per share at which the underlying
security is traded in the primary market at or about the same time such
series of options is first open for trading on the Exchange, or at such
intervals as may have been established on another options exchange
prior to the initiation of trading on the Exchange. With respect to the
Short Term Options Series or Weekly Program, during the month prior to
expiration of an option class that is selected for the Short Term
Option Series Program, the strike price intervals for the related non-
Short Term Option (``Related non-Short Term Option'') shall be the same
as the strike price intervals for the Short Term Option.\36\
Specifically, the Exchange may open for trading Short Term Option
Series at strike price intervals of (i) $0.50 or greater where the
strike price is less than $100, and $1 or greater where the strike
price is between $100 and $150 for all option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150.\37\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval
[[Page 95318]]
Program,\38\ the $0.50 Strike Program,\39\ the $2.50 Strike Price
Program,\40\ and the $5 Strike Program.\41\ Options 3, Section 3
governs the minimum increment for bids and offers for both equity and
index options. Pursuant to Options 3, Section 3, where the price of a
series of options for the Bitcoin Trusts 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 \42\ consistent with the minimum
increments for options on other ETFs listed on the Exchange. Any and
all new series of options on the Bitcoin Trusts that the Exchange lists
will be consistent and comply with the expirations, strike prices, and
minimum increments set forth in Options 4, Section 5 and Options 3,
Section 3, as applicable.
---------------------------------------------------------------------------
\36\ See Supplementary Material .03(e) to Options 4, Section 5.
\37\ Id.
\38\ See Supplementary Material .01 to Options 4, Section 5.
\39\ See Supplementary Material .05 to Options 4, Section 5.
\40\ See Supplementary Material .02 to Options 4, Section 5.
\41\ See Supplementary Material .06 to Options 4, Section 5.
\42\ Options that are eligible to participate in the Penny
Interval Program have a minimum increment of $0.01 below $3.00 and
$0.50 above $3.00. See Supplementary Material .01 to Options 3,
Section 3.
---------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options the Bitcoin Trusts that it applies to the
Exchange's other options products.\43\ ISE's market surveillance staff
would have access to the surveillances conducted by Nasdaq \44\ with
respect to the Bitcoin Trusts and would review activity in the
underlying Bitcoin Trusts when conducting surveillances for market
abuse or manipulation in the options on the Bitcoin Trusts.
Additionally, ISE 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, ISE has a Regulatory Services Agreement with the Financial
Industry Regulatory Authority (``FINRA''). Pursuant to a multi-party
17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillance that are common to rules of all options exchanges.\45\
---------------------------------------------------------------------------
\43\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\44\ The Nasdaq Stock Market LLC is an affiliated market of ISE.
\45\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules, and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
---------------------------------------------------------------------------
The Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Bitcoin Trusts.
Also, the Exchange represents that it has the necessary systems
capacity to support the new option series. The Exchange believes that
its existing surveillance and reporting safeguards are designed to
deter and detect possible manipulative behavior which might potentially
arise from listing and trading options on ETFs, including the proposed
options on the Bitcoin Trusts. The underlying shares of spot bitcoin
ETPs, including the Bitcoin Trusts, are also subject to safeguards
related to addressing market abuse and manipulation. As the Commission
stated in the orders approving proposals of several exchanges to list
and trade shares of spot bitcoin-based exchange-traded products: \46\
---------------------------------------------------------------------------
\46\ 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; SRCboeBZX-2023-044; and SR-
CboeBZX-2023-072) (Order Granting Accelerated Approval of Proposed
Rule Changes, as Modified by Amendments Thereto, to List and Trade
Bitcoin-Based Commodity-Based Trust Shares and Trust Units)
(``Bitcoin ETP Approval Order'').
Each Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that
is available to the CME through its surveillance of its markets,
including its surveillance of the CME bitcoin futures market.\47\
---------------------------------------------------------------------------
\47\ Id.
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].'' \48\ In light of surveillance measures related
to both options and futures as well as the underlying Bitcoin
Trusts,\49\ 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 Trusts.
---------------------------------------------------------------------------
\48\ Id.
\49\ Id.
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority or
``OPRA'' have the necessary systems capacity to handle the additional
traffic associated with the listing of new series that may result from
the introduction of options on the Bitcoin Trusts up to the number of
expirations currently permissible under the Exchange Rules. Because the
proposal is limited to one class, the Exchange believes any additional
traffic that may be generated from the introduction of the options on
the Bitcoin Trust will be manageable.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\50\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\51\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in 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) \52\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\50\ 15 U.S.C. 78f(b).
\51\ 15 U.S.C. 78f(b)(5).
\52\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Bitcoin Trusts will remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in
[[Page 95319]]
general, protect investors because offering options on the Bitcoin
Trusts will provide investors with an opportunity to realize the
benefits of utilizing options on a Bitcoin Trust, including cost
efficiencies and increased hedging strategies. The Exchange believes
that offering options on the Bitcoin Trusts will benefit investors by
providing them with a relatively lower-cost risk management tool, which
will allow them to manage their positions and associated risk in their
portfolios more easily in connection with exposure to the price of
Bitcoin and with Bitcoin-related products and positions. Additionally,
the Exchange's offering of options on the Bitcoin Trusts will provide
investors with the ability to transact in such options in a listed
market environment as opposed to in the unregulated OTC options market,
which would increase market transparency and enhance the process of
price discovery conducted on the Exchange through increased order flow
to the benefit of all investors. The Exchange also notes that it
already lists options on other commodity-based Units,\53\ which, as
described above, are trusts structured in substantially the same manner
as Bitcoin Trusts and essentially offer the same objectives and
benefits to investors, just with respect to a different commodity
(i.e., Bitcoin rather than precious metals) and for which the Exchange
has not identified any issues with the continued listing and trading of
commodity-backed Unit options it currently lists for trading.
---------------------------------------------------------------------------
\53\ See Options 4, Section 3(h)(iv).
---------------------------------------------------------------------------
The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules previously filed with the Commission. Options on the
Bitcoin Trusts satisfy the initial listing standards and continued
listing standards currently in the Exchange Rules applicable to options
on all Units, including Units that hold other commodities already
deemed appropriate for options trading on the Exchange. Additionally,
as demonstrated above, each Bitcoin Trust is characterized by a
substantial number of shares that are widely held and actively traded.
Options on the Bitcoin Trusts will trade in the same manner as any
other Unit options--the same Exchange Rules that currently govern the
listing and trading of all Unit options, including permissible
expirations, strike prices and minimum increments, and applicable
margin requirements, will govern the listing and trading of options on
Bitcoin Trusts in the same manner.
The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules previously filed with the Commission. Options on Bitcoin
Trusts satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules applicable to options on all
ETFs and ETPs, including ETPs that hold other commodities already
deemed appropriate for options trading on the Exchange. Additionally,
as demonstrated above, each Bitcoin Trust is characterized by a
substantial number of shares that are widely held and actively traded.
Options on the Bitcoin Trust will trade in the same manner as any other
ETF or ETP options--the same Exchange Rules that currently govern the
listing and trading of options, including permissible expirations,
strike prices, minimum increments, and margin requirements, will govern
the listing and trading of options on Bitcoin Trusts in the same
manner.
The proposed position and exercise limit for options on the Bitcoin
Trusts is 25,000 contracts. These position and exercise limits are the
lowest position and exercise limits available in the options industry,
are extremely conservative and more than appropriate given the Bitcoin
Trusts' market capitalization, average daily volume, number of
beneficial holders, and high number of outstanding shares.\54\ The
proposed position and exercise limits are consistent with the Act as
they addresses concerns related to manipulation and protection of
investors because the position and exercise limits are extremely
conservative and more than appropriate given the Bitcoin Trusts are
actively traded.
---------------------------------------------------------------------------
\54\ The Exchange notes that IBIT--which has been approved for
options trading--represents a larger percentage of the bitcoin
market than all proposed Bitcoin Trusts. As noted herein, the
Bitcoin Trusts collectively represent approximately 1.51% of the
bitcoin market. By comparison, IBIT options have an approved
position limit of 25,000 contracts per side, which represents 4% of
total underlying spot BTC liquidity, and IBIT is the most liquid
spot Bitcoin ETF.
---------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options the Bitcoin Trusts that it applies to the
Exchange's other options products.\55\ ISE's market surveillance staff
would have access to the surveillances conducted by Nasdaq \56\ with
respect to the Bitcoin Trusts and would review activity in the
underlying Bitcoin Trusts when conducting surveillances for market
abuse or manipulation in the options on the Bitcoin Trusts.
Additionally, ISE 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. ISE
would be able to obtain information regarding trading and shares of the
Bitcoin Trusts from their primary listing market, and from other
markets that trade shares of the Bitcoin Trusts, through ISG. In
addition, ISE has a Regulatory Services Agreement with the Financial
Industry Regulatory Authority (``FINRA''). Pursuant to a multi-party
17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillance that are common to rules of all options exchanges.\57\
---------------------------------------------------------------------------
\55\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\56\ The Nasdaq Stock Market LLC is an affiliated market of ISE.
\57\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules, and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
---------------------------------------------------------------------------
The Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Bitcoin Trusts.
Also, the Exchange represents that it has the necessary systems
capacity to support the new option series. The Exchange believes that
its existing surveillance and reporting safeguards are designed to
deter and detect possible manipulative behavior which might potentially
arise from listing and trading options on ETFs, including the proposed
options on the Bitcoin Trusts. The underlying shares of spot bitcoin
ETPs, including
[[Page 95320]]
the Bitcoin Trusts, are also subject to safeguards related to
addressing market abuse and manipulation. As the Commission stated in
its order approving proposals of several exchanges to list and trade
shares of spot bitcoin-based exchange-traded products (``Bitcoin ETP
---------------------------------------------------------------------------
Order''):
Each Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that
is available to the CME through its surveillance of its markets,
including its surveillance of the CME bitcoin futures market.\58\
---------------------------------------------------------------------------
\58\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008, 3009 (January 17, 2024) (File Nos. SR-NYSEArca-
2021-90; SR-NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ-2023-
016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038;
SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; SRCboeBZX-2023-044; and
SR-CboeBZX-2023-072) (Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, to List
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust
Units).
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].'' \59\ In light of surveillance measures related
to both options and futures as well as the underlying Bitcoin
Trusts,\60\ 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 Trusts.
---------------------------------------------------------------------------
\59\ Id.
\60\ Id.
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority or
``OPRA'' have the necessary systems capacity to handle the additional
traffic associated with the listing of new series that may result from
the introduction of options on the Bitcoin Trusts up to the number of
expirations currently permissible under the Exchange Rules. Because the
proposal is limited to one class, the Exchange believes any additional
traffic that may be generated from the introduction of the options on
the Bitcoin Trusts will be manageable.
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 Bitcoin Trusts
would need to satisfy the initial listing standards set forth in the
Exchange Rules in the same manner as any other ETF before the Exchange
could list options on them. Additionally, options on the Bitcoin Trusts
will be equally available to all market participants who wish to trade
such options. The Exchange Rules currently applicable to the listing
and trading of options on ETFs on the Exchange will apply in the same
manner to the listing and trading of all options on Bitcoin Trusts.
Also, and as stated above, the Exchange already lists options on other
commodity-based ETPs.
The Exchange does not believe that the proposal to list and trade
options on Bitcoin Trusts 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 options on the
Bitcoin Trusts trading on the Exchange may make the Exchange a more
attractive marketplace to market participants at other exchanges, such
market participants are free to elect to become market participants on
the Exchange. As noted herein, this is a competitive filing as the
Commission recently approved the listing and trading of options on an
ETP that, like the Bitcoin Trusts, holds bitcoin.\61\ Additionally,
other options exchanges are free to amend their listing rules, as
applicable, to permit them to list and trade options on Bitcoin Trusts.
The Exchange notes that listing and trading options on Bitcoin Trust 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.
---------------------------------------------------------------------------
\61\ See supra note 3.
---------------------------------------------------------------------------
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 options on the Bitcoin
Trusts for trading on the Exchange will promote competition by
providing investors with an additional, relatively low-cost means to
hedge their portfolios and meet their investment needs in connection
with Bitcoin prices and Bitcoin-related products and positions on a
listed options exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \62\ and Rule 19b-4(f)(6) thereunder.\63\
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \64\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\65\
---------------------------------------------------------------------------
\62\ 15 U.S.C. 78s(b)(3)(A)(iii).
\63\ 17 CFR 240.19b-4(f)(6).
\64\ 15 U.S.C. 78s(b)(3)(A)(iii).
\65\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission waives this requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \66\ under the
Act does not normally become operative prior to 30 days after the date
of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\67\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative immediately upon filing. The
Commission previously approved the listing of options on the Fidelity
Wise
[[Page 95321]]
Origin Bitcoin Fund, the ARK21Shares Bitcoin ETF, the Grayscale Bitcoin
Trust (BTC), the Grayscale Bitcoin Mini Trust BTC, and the Bitwise
Bitcoin ETF.\68\ The Exchange has provided information regarding the
underlying Bitcoin Trusts, including, among other things, information
regarding trading volume, the number of beneficial holders, and the
market capitalization of the Bitcoin Trusts. The proposal also
establishes position and exercise limits for options on the Bitcoin
Trusts and provides information regarding the surveillance procedures
that will apply to Bitcoin Trust options. The Commission believes that
waiver of the operative delay could benefit investors by providing an
additional venue for trading Bitcoin Trust options. Therefore, the
Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\69\
---------------------------------------------------------------------------
\66\ 17 CFR 240.19b-4(f)(6).
\67\ 17 CFR 240.19b-4(f)(6)(iii).
\68\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (SR-Cboe-2024-035) (Notice of
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2
and 3, To Permit the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds). See also Securities Exchange Act Release No.
101386 (October 18, 2024), 89 FR 84960 (October 24, 2024) (SR-
NYSEAMER-2024-49) (Notice of Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, To Permit the Listing and Trading of Options on
Bitcoin Exchange-Traded Funds).
\69\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-ISE-2024-54 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-ISE-2024-54. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-ISE-2024-54 and should be
submitted on or before December 23, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\70\
---------------------------------------------------------------------------
\70\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28114 Filed 11-29-24; 8:45 am]
BILLING CODE 8011-01-P
