Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rules 3120 (Position Limits) and 5020 (Criteria for Underlying Securities) To Permit Options Trading on Bitcoin Funds, 95834-95842 [2024-28341]
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Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices
to File No. 4–845 and should be
submitted on or before December 24,
2024.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
II. Date of Effectiveness of Proposed
Minor Rule Violation Plan and Timing
for Commission Action
The Exchange proposes to amend
proposes to amend Rules 3120 (Position
Limits), 5020 (Criteria for Underlying
Securities), and 5055 (FLEX Equity
Options). The text of the proposed rule
change is available from the principal
office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s internet
website at https://rules.
boxexchange.com/rulefilings.
Pursuant to Section 19(d)(1) of the Act
and Rule 19d–1(c)(2) thereunder,8 after
December 24, 2024, the Commission
may, by order, declare the Exchange’s
proposed MRVP effective if the plan is
consistent with the public interest, the
protection of investors, or otherwise in
furtherance of the purposes of the Act.
The Commission in its order may
restrict the categories of violations to be
designated as minor rule violations and
may impose any other terms or
conditions to the proposed MRVP, File
No. 4–845, and to the period of its
effectiveness, which the Commission
deems necessary or appropriate in the
public interest, for the protection of
investors or otherwise in furtherance of
the purposes of the Act.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–28255 Filed 12–2–24; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–101773; File No. SR–BOX–
2024–29]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rules 3120
(Position Limits) and 5020 (Criteria for
Underlying Securities) To Permit
Options Trading on Bitcoin Funds
lotter on DSK11XQN23PROD with NOTICES1
November 27, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4thereunder,2
notice is hereby given that on November
25, 2024, BOX Exchange LLC
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
U.S.C. 78s(d)(1); 17 CFR 240.19d–1(c)(2).
CFR 200.30–3(a)(44).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
9 17
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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
SECURITIES AND EXCHANGE
COMMISSION
8 15
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rules 3120 (Position Limits) and 5020
(Criteria for Underlying Securities) to
permit options trading on the Fidelity
Wise Origin Bitcoin Fund (the ‘‘Fidelity
Fund’’) and the ARK 21Shares Bitcoin
ETF (the ‘‘ARK 21 Fund’’ and, with the
Fidelity Fund, the ‘‘Bitcoin Funds’’).3
Additionally, the Exchange proposes to
amend Rule 5055 (FLEX Equity
Options). Specifically, the Exchange
proposes to amend Rule 5020(h) to
allow the Exchange to list and trade
options on the Bitcoin Funds.4 This is
a competitive filing that is based on a
proposal recently submitted by Cboe
3 See Securities Exchange Act Release No. 99306
(January 10, 2024), 89 FR 3008, 3009 (January 17,
2024) (SR–NYSEArca-2021–90; SR–NYSEArca–
2023–44; SR–NYSEArca–2023–58; SR- NASDAQ–
2023–016; SR–NASDAQ–2023–019; SR–CboeBZX–
2023–028; SR–CboeBZX–2023–038; SR–CboeBZX–
2023–040; SR–CboeBZX–2023–042; 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’’).
4 See proposed Rule 5020(h).
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Exchange, Inc. (‘‘CBOE’’) and approved
by the Commission.5
As discussed herein and as provided
in the CBOE Approval Order, the
Exchange believes options on the
Bitcoin Funds would permit hedging,
and allow for more liquidity, better
price efficiency, and less volatility with
respect to the underlying Funds.
Further, permitting the listing of such
options would enhance the
transparency and efficiency of markets
in these and correlated products. Rule
5020(h) provides that, subject to certain
other criteria set forth in the Rule,
securities deemed appropriate for
options trading include ExchangeTraded Fund Shares (or ETFs), that
represent certain types of interests 6 and
exchange-traded products (‘‘ETPs’’)
5 See Securities Exchange Act Release No. 101387
(October 18, 2024), 89 FR 84948 (October 24, 2024)
(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) (SR–CBOE–
2024–035, as amended) (‘‘CBOE Approval Order’’).
6 See Rule 5020(h), which permits options trading
on ETFs that are traded on a national securities
exchange and are defined as an ‘‘NMS stock’’ in
Rule 600 of Regulation NMS and that (i) represent
interests in registered investment companies (or
series thereof) organized as open-end management
investment companies, unit investment trusts or
similar entities that hold portfolios of securities
and/or financial instruments, including, but not
limited to, stock index futures contracts, options on
futures, options on securities and indices, equity
caps, collars and floors, swap agreements, forward
contracts, repurchase agreements and reverse
repurchase agreements (the ‘‘Financial
Instruments’’) and money market instruments,
including, but not limited to, U.S. government
securities and repurchase agreements (the ‘‘Money
Market Instruments’’) comprising or otherwise
based on or representing investments in 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
that holds a specified non-U.S. currency deposited
with the trust or similar entity when aggregated in
some specified minimum number may be
surrendered to the trust by the beneficial owner to
receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest
and other distributions on the deposited non-U.S.
currency or currencies, if any, declared and paid by
the trust (‘‘Currency Trust Shares’’); or (iii)
represent commodity pool interests principally
engaged, directly or indirectly, in holding and/or
managing portfolios or baskets of securities,
commodity futures contracts, options on
commodity futures contracts, swaps, forward
contracts and/or options on physical commodities
and/or non-U.S. currency (‘‘Commodity Pool
ETFs’’) or (iv) represent interests in the SPDR® Gold
Trust, the iShares COMEX Gold Trust, the iShares
Silver Trust, the abrdn Gold ETF Trust, the abrdn
Silver ETF Trust, the abrdn Palladium ETF Trust,
the abrdn Platinum ETF Trust, the Sprott Physical
Gold Trust, the iShares Bitcoin Trust, the Grayscale
Bitcoin Trust, the Grayscale Bitcoin Mini Trust or
the Bitwise Bitcoin ETF; provided that all of the
conditions in Rules 5020(h)(1) and (2) are met.
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structured as trusts that hold precious
metals (which are deemed
commodities).7 Like ETPs backed by
precious metals (i.e., commodities), the
Exchange proposes to allow options
trading on the Bitcoin Funds that hold
Bitcoin—which is also deemed a
commodity.8 The Bitcoin Funds are
structured as trusts that hold Bitcoin.
Like ETFs and ETPs currently deemed
appropriate for options trading, the
investment objective of each Bitcoin
Fund trust is for its shares to reflect the
performance of Bitcoin (less the
expenses of the trust’s operations),
offering investors an opportunity to gain
exposure to Bitcoin without the
complexities of Bitcoin delivery. Each
Bitcoin Fund’s shares represent units of
fractional undivided beneficial interest
in the trust, the assets of which consist
principally of Bitcoin and are designed
to track Bitcoin or the performance of
the price of Bitcoin and offer access to
the Bitcoin market.9 The Bitcoin Funds
provide investors with cost-efficient
alternatives that allow a level of
participation in the Bitcoin market
through the securities market. The
Exchange believes each Bitcoin Fund
satisfies the Exchange’s initial listing
standards set forth in Rule 5020(a).10
The Exchange notes that the Bitcoin
Funds also satisfy the listing standard
applied to ETFs traded on the Exchange
that they be available for creation and
redemption each business day as set
forth in Rule 5020(h).11 First, each of the
Bitcoin Funds satisfy the criteria and
guidelines set forth in Rule 5020(a).
Pursuant to Rule 5020(a), a security on
which options may be listed and traded
on the Exchange must be duly registered
(with the Commission) and be an NMS
stock (as defined in Rule 600 of
Regulation NMS under the Act) and be
characterized by a substantial number of
outstanding shares that are widely held
7 See Rule 5020(h) (permitting the listing and
trading of options on certain ETPs backed by
precious metals).
8 See proposed Rule 5020(h).
9 The trust may include minimal cash.
10 Rule 5020(a) provides for guidelines to be used
by the Exchange when evaluating potential
underlying securities for Exchange option
transactions.
11 Rule 5020(h)(1) requires that ETFs must be
available for creation or redemption each business
day from or through the issuer in cash or in kind
at a price related to net asset value, and the issuer
must be obligated to issue ETFs in a specified
aggregate number even if some or all of the
investment assets required to be deposited have not
been received by the issuer, subject to the condition
that the person obligated to deposit the investments
has undertaken to deliver the investment assets as
soon as possible and such undertaking is secured
by the delivery and maintenance of collateral
consisting of cash or cash equivalents satisfactory
to the issuer, as provided in the respective
prospectus.
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and actively traded.12 Each of the
Bitcoin Funds is an NMS Stock as
defined in Rule 600 of Regulation NMS
under the Act.13
As provided in the CBOE Approval
Order, each Bitcoin Fund is
characterized by a substantial number of
outstanding shares that are widely held
and actively traded. Specifically, as
shown in the CBOE Approval Order,
each of the Bitcoin Funds had
significantly more than 7,000,000 shares
outstanding (approximately 29 and 6.5
times that amount, respectively), which
is the minimum number of shares of a
corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Rule 5020(b). The
Exchange believes this demonstrates
that each Bitcoin Fund is characterized
by a substantial number of outstanding
shares.
Further, as provided in the CBOE
Approval Order, each Bitcoin Fund has
significantly more than 2,000 beneficial
holders (approximately 140 and 35
times more, respectively), which is the
minimum number of holders the
Exchange generally requires for
corporate stock in order to list options
on that stock pursuant to Rule
5020(b)(2). Therefore, the Exchange
believes the shares of each Bitcoin Fund
are widely held.
The Exchange also believes the shares
of each Bitcoin Fund are actively traded.
As provided in the CBOE Approval
Order, even though these Bitcoin Funds
have been trading for less than one year,
the trading volume for each is
substantially higher than 2,400,000
shares (between roughly 464 and 124
times that amount), which is the
minimum 12-month volume the
Exchange generally requires for a
security in order to list options on that
security as set forth in Rule 5020(b).
In addition to satisfying the
Exchange’s initial listing standards,
options on Bitcoin Funds will be subject
to the Exchange’s continued listing
standards as set forth in Rule 5030(h).
Pursuant to Rule 5030(b), the Exchange
will not open for trading any additional
series of option contracts covering a
fund traded on the Exchange if such
fund ceases to be an ‘‘NMS stock’’ as
12 The criteria and guidelines for a security to be
considered widely held and actively traded are set
forth in Rule 5020(b), subject to exceptions.
13 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’’).
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95835
provided for in Rule 5030(a) or the fund
is halted from trading on its primary
market.14 Additionally, options on
funds traded on the Exchange may be
subject to the suspension of opening
transactions as follows: (1) the fund no
longer meets the terms of Rule 5030(b);
(2) following the initial twelve-month
period beginning upon the
commencement of trading of the fund,
there are fewer than 50 record and/or
beneficial holders of the fund for 30 or
more consecutive trading days; (3) the
value of the underlying commodity is
no longer calculated or available; or (4)
such other event occurs or condition
exists that in the opinion of the
Exchange makes further dealing on BOX
inadvisable.
Options on each Bitcoin Fund will be
physically settled contracts with
American-style exercise.15 Consistent
with Rule 5050, which governs the
opening of options series on a specific
underlying security (including ETFs and
ETPs), BOX will open at least one
expiration month for options on each
Bitcoin Fund 16 at the commencement of
trading on the Exchange and may also
list series of options on Bitcoin Funds
for trading on a weekly,17 monthly,18 or
14 See
Rule 5030(h).
Rule 5010 (Rights and Obligations of
Holders and Writers), which provides that the rights
and obligations of holders and writers of option
contracts of any class of options dealt in on the
Exchange shall be as set forth in the Rules of the
Clearing Corporation. See also OCC Rules, Chapter
VIII, which governs exercise and assignment, and
Chapter IX, which governs the discharge of delivery
and payment obligations arising out of the exercise
of physically settled stock option contracts. OCC
Rules can be located at: https://www.theocc.com/
getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/
occrules.pdf.
16 See Rule 5050(b). The standard expirations are
subject to certain listing criteria for underlying
securities described within Rule 5020. Standard
listings expire the third Friday of the month. The
term ‘‘expiration date’’ (unless separately defined
elsewhere in the OCC By-Laws), when used in
respect of an option contract (subject to certain
exceptions), means the third Friday of the
expiration month of such option contract, or if such
Friday is a day on which the exchange on which
such option is listed is not open for business, the
preceding day on which such exchange is open for
business. See OCC By-Laws Article I, Section 1.
Pursuant to Rule 5050(c), additional series of
options of the same class may be opened for trading
on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet
customer demand or when the market price of the
underlying stock moves more than five strike prices
from the initial exercise price or prices. New series
of options on an individual stock may be added
until the beginning of the month in which the
options contract will expire. Due to unusual market
conditions, the Exchange, in its discretion, may add
a new series of options on an individual stock until
the close of trading on the business day prior to
expiration.
17 See IM–5050–6.
18 See IM–5050–13.
15 See
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Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices
quarterly 19 basis. BOX may also list
long-term equity option series
(‘‘LEAPS’’) that expire from twelve to
one-hundred eighty months from the
time they are listed.20 Pursuant to IM–
5050–1(b), which governs strike prices
of series of options on ETFs, the interval
between strike prices of series of options
on Bitcoin Funds will be $1 or greater
when the strike price is $200 or less and
$5 or greater where the strike price is
over $200.21 Additionally, BOX may list
series of options pursuant to the $1
Strike Price Interval Program,22 the
$0.50 Strike Program,23 and the $2.50
Strike Price Program.24 Pursuant to Rule
7050, where the price of a series of a
Bitcoin Fund option is less than $3.00,
the minimum increment will be $0.05,
and where the price is $3.00 or higher,
the minimum increment will be $0.10.25
Any and all new series of Bitcoin Fund
options that BOX lists will be consistent
and comply with the expirations, strike
prices, and minimum increments set
forth in Rules 5050 and 7050, as
applicable. Further, the Exchange notes
that Rule Series 10100, which governs
margin requirements applicable to the
trading of all options on BOX, including
options on ETFs and ETPs, will also
apply to the trading of Bitcoin Fund
options. Other examples of the
Exchange Rules that currently apply to
all options traded on BOX, include
Rules that govern listing criteria,
customer accounts, and trading halt
procedures.
Rule 5055(e)(2)(i) permits the
Exchange to authorize for trading a
FLEX Equity Option class on any equity
security if it may authorize for trading
a Non-FLEX Equity Option class on that
equity security pursuant to Rule 5020.26
At this time, the Exchange is not
proposing to permit Bitcoin Fund
options to trade as FLEX Equity
Options.27 The Exchange therefore
19 See
IM–5050–4.
Rule 5070.
21 The Exchange notes that for options listed
pursuant to the Short Term Option Series Program,
the Monthly Options Series Program, and the
Quarterly Options Series Program, IM–5050–6, IM–
5050–13, and IM–5050–4, specifically set forth
intervals between strike prices on Quarterly
Options Series, Short Term Option Series, and
Monthly Options Series, respectively.
22 See IM–5050–2.
23 See IM–5050–5.
24 See IM–5050–3.
25 If options on a Bitcoin Fund are eligible to
participate in the Penny Interval Program, the
minimum increment of $0.01 below $3.00 and
$0.05 above $3.00 would apply. See Rule
7050(a)(3). See also Rule 7260 (which describes the
requirements for the Penny Interval Program).
26 See Rule 5055(e)(2)(i).
27 The Exchange would be required to submit a
separate rule filing to permit the Exchange to
authorize for trading FLEX Equity Options on the
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20 See
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proposes to modify Rule 5055(e)(2)(i) to
specify this exception, which will add
clarity and transparency to Exchange
Rules.28
Position and Exercise Limits
CBOE’s Approval Order stated that
the position and exercise limits for
Bitcoin Funds shall be 25,000 contracts.
At this time, the Exchange proposes to
amend IM–3120–2 to similarly note that
Bitcoin Fund options position limits
shall be 25,000 contracts to mirror
CBOE’s Approval Order. Rule 3140
provides that the exercise limits shall be
determined in the manner described in
Rule 3120, therefore the exercise limits
would also be 25,000 contracts.
As provided in the CBOE Approval
Order, these proposed position and
exercise limits were determined
considering, among other things, the
approximate six-month average daily
volume (‘‘ADV’’) and outstanding shares
of each underlying Bitcoin Fund (which
as discussed above demonstrate that
each Bitcoin Fund is widely held and
actively traded and thus justify these
conservatively proposed position
limits).
As provided in the CBOE Approval
Order, comparing current position and
exercise limits of options on ETFs with
outstanding shares comparable to those
of each Bitcoin Fund, demonstrates the
proposed limit to be significantly lower
(between two and ten times lower) than
the average limits of the options on the
other ETFs. As discussed above, the
Bitcoin Funds are actively held and
widely traded: (1) each Bitcoin Fund (as
of August 7, 2024) had significantly
more than 7,000,000 shares outstanding,
which is the minimum number of shares
of a corporate stock that the Exchange
generally requires to list options on that
stock pursuant to Rule 5020(b)(1); (2)
each Bitcoin Fund (as of the dates listed
above) had significantly more than
2,000 beneficial holders, which is the
minimum number of holders the
Exchange generally requires for
corporate stock in order to list options
on that stock pursuant to Rule
5020(b)(2); and (3) each Bitcoin Fund
had a six-month trading volume
substantially higher than 2,400,000
shares, which is the minimum 12-month
volume the Exchange generally requires
for a security in order to list options on
that security as set forth in Rule
5020(b)(4).
As provided in the CBOE Approval
Order, if a market participant held the
Bitcoin Funds (which filing may propose changes
to existing FLEX Equity Option position limits for
such options if appropriate).
28 See proposed Rule 5055(e)(2)(i).
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maximum permissible options positions
in one of the Bitcoin Fund options and
exercised all of them at the same time,
that market participant would control a
small percentage of the outstanding
shares of the underlying Bitcoin Fund.
Rule 3120(d) provides two methods of
qualifying for a position limit tier above
25,000 option contracts. The first
method is based on six-month trading
volume in the underlying security, and
the second method is based on slightly
lower six-month trading volume and
number of shares outstanding in the
underlying security. As provided in the
CBOE Approval Order, the equivalent
shares represented by the proposed
position and exercise limits for each
Bitcoin Fund as a percentage of
outstanding shares of the underlying
Bitcoin Fund is significantly lower than
the percentage for the lowest possible
position limit for equity options of
25,000 (under 6% compared to 40%)
and is lower than that percentage for
each current position limit bucket.29
Further, the proposed position and
exercise limits for each Bitcoin Fund
option are significantly below the limits
that would otherwise apply pursuant to
current Rule 3120. These position and
exercise limits are the lowest position
and exercise limits available in the
options industry, are extremely
conservative and more than appropriate
given the market capitalization, average
daily volume, and high number of
outstanding shares of the Bitcoin Funds.
All of the above information
demonstrates that the proposed position
and exercise limits for the Bitcoin Fund
options are more than reasonable and
appropriate. The trading volume, ADV,
and outstanding shares of each Bitcoin
Fund demonstrate that these funds are
actively traded and widely held, and
proposed position and exercise limits
are well below those of other ETFs with
similar market characteristics. The
proposed position and exercise limits
are the lowest position and exercise
limits available for equity options in the
industry, are extremely conservative,
and are more than appropriate given
each Bitcoin Fund’s market
capitalization, ADV, and high number of
outstanding shares.
Today, the Exchange has an adequate
surveillance program in place for
options. The Exchange intends to apply
those same program procedures to
options on the Bitcoin Funds that it
applies to the Exchange’s other options
29 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.
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products.30 Additionally, the Exchange
is a member of the Intermarket
Surveillance Group (‘‘ISG’’) under the
Intermarket Surveillance Group
Agreement. The Exchange would be
able to obtain information regarding
trading in shares of the Bitcoin Funds
from Cboe BZX Exchange, Inc. (‘‘BZX’’)
and other markets that trade shares of
the Bitcoin Funds through ISG. ISG
members work together to coordinate
surveillance and investigative
information sharing in the stock,
options, and futures markets. In
addition, the Exchange has a Regulatory
Services Agreement with the Financial
Industry Regulatory Authority
(‘‘FINRA’’) for certain market
surveillance, investigation and
examinations functions. Pursuant to a
multi-party 17d–2 joint plan, all options
exchanges allocate amongst themselves
and FINRA responsibilities to conduct
certain options-related market
surveillance that are common to rules of
all options exchanges.31
The underlying shares of spot bitcoin
exchange-traded products (‘‘ETPs’’),
including the Bitcoin Funds, are also
subject to safeguards related to
addressing market abuse and
manipulation. As the Commission
stated in its order approving proposals
of several exchanges to list and trade
shares of spot bitcoin-based ETPs,
‘‘[e]ach Exchange has a comprehensive
surveillance-sharing agreement with the
CME via their common membership in
the Intermarket Surveillance Group.
This facilitates the sharing of
information that is available to the CME
through its surveillance of its markets,
including its surveillance of the CME
bitcoin futures market.32 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].’’ 33 In light of
surveillance measures related to both
options and futures as well as the
underlying Bitcoin Funds,34 the
Exchange believes that existing
surveillance procedures are designed to
deter and detect possible manipulative
behavior which might potentially arise
from listing and trading the proposed
options on the Bitcoin Funds. Further,
the Exchange will implement any new
surveillance procedures it deems
necessary to effectively monitor the
trading of options on Bitcoin ETPs.
The Exchange has also analyzed its
capacity and represents that it believes
the Exchange and OPRA have the
necessary systems capacity to handle
the additional traffic associated with the
listing of new series that may result
from the introduction of options on
Bitcoin Funds up to the number of
expirations currently permissible under
the Rules. Because the proposal is
limited to two classes, the Exchange
believes any additional traffic that may
be generated from the introduction of
Bitcoin Fund options will be
manageable.
The Exchange believes that offering
options on Bitcoin Funds will benefit
investors by providing them with an
additional, relatively lower cost
investing tool to gain exposure to the
price of Bitcoin and hedging vehicle to
meet their investment needs in
connection with Bitcoin-related
products and positions. The Exchange
33 See
Bitcoin ETP Approval Order, 89 FR 3010–
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11.
30 The surveillance program includes surveillance
patterns for price and volume movements as well
as patterns for potential manipulation (e.g.,
spoofing and marking the close).
31 Section 19(g)(1) of the Act, among other things,
requires every self-regulatory organization (‘‘SRO’’)
registered as a national securities exchange or
national securities association to comply with the
Act, the rules and regulations thereunder, and the
SRO’s own rules, and, absent reasonable
justification or excuse, enforce compliance by its
members and persons associated with its members.
See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d–2.
Section 17(d)(1) of the Act allows the Commission
to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also
members of another SRO (‘‘common members’’).
Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities
to: (i) receive regulatory reports from such
members; (ii) examine such members for
compliance with the Act and the rules and
regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory
responsibilities with respect to such members.
32 See Bitcoin ETP Approval Order.
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34 See Securities Exchange Act Release Nos.
99290 (January 8, 2024), 89 FR 2338, 2343, 2347—
2348 (January 12, 2024) (SR–CboeBZX–2023–044)
(Notice of Filing of Amendment No. 3 to a Proposed
Rule Change to List and Trade Shares of the Fidelity
Wise Origin Bitcoin Fund Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares); and
99288 (January 8, 2024), 89 FR 2387, 2392, 2399—
2400 (January 12, 2024) (SR–CboeBZX–2023–028)
(Notice of Filing of Amendment No. 5 to a Proposed
Rule Change To List and Trade Shares of the ARK
21Shares Bitcoin ETF Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares). See also Securities
Exchange Act Release No. 99306 (January 10, 2024),
89 FR 3008, 3009 (January 17, 2024) (SR–
NYSEArca–2021–90; SR–NYSEArca–2023–44; SR–
NYSEArca–2023–58; SR–NASDAQ–2023–016; SR–
NASDAQ–2023–019; SR–CboeBZX–2023–028; SR–
CboeBZX–2023–038; SR–CboeBZX–2023–040; SR–
CboeBZX–2023–042; SRCboeBZX–2023–044; and
SR–CboeBZX–2023–072) (Order Granting
Accelerated Approval of Proposed Rule Changes, as
Modified by Amendments Thereto, to List and
Trade Bitcoin-Based Commodity-Based Trust
Shares and Trust Units) (‘‘Bitcoin ETP Approval
Order’’).
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95837
expects investors will transact in
options on Bitcoin Funds in the
unregulated over-the-counter (‘‘OTC’’)
options market,35 but may prefer to
trade such options in a listed
environment to receive the benefits of
trading listing options, including (1)
enhanced efficiency in initiating and
closing out positions; (2) increased
market transparency; and (3) heightened
contra-party creditworthiness due to the
role of OCC as issuer and guarantor of
all listed options. The Exchange
believes that listing Bitcoin Fund
options may cause investors to bring
this liquidity to the Exchange, would
increase market transparency and
enhance the process of price discovery
conducted on BOX through increased
order flow. The ETFs that hold financial
instruments, money market instruments,
or precious metal commodities on
which the Exchange may already list
and trade options are trusts structured
in substantially the same manner as
Bitcoin Funds and essentially offer the
same objectives and benefits to
investors, just with respect to different
assets. The Exchange notes that it has
not identified any issues with the
continued listing and trading of any ETF
options, including ETFs that hold
commodities (i.e., precious metals) that
it currently lists and trades on the
Exchange.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),36 in general, and Section 6(b)(5)
of the Act,37 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general to protect investors and the
public interest.
In particular, the Exchange believes
that the proposal to list and trade
options on the Bitcoin Funds will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, protect investors because
offering options on the Bitcoin Funds
35 The Exchange understands from customers that
investors have historically transacted in options on
ETFs in the OTC options market if such options
were not available for trading in a listed
environment.
36 15 U.S.C. 78f(b).
37 15 U.S.C. 78f(b)(5).
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will provide investors with an
opportunity to realize the benefits of
utilizing options on a Bitcoin Fund,
including cost efficiencies and
increased hedging strategies. The
Exchange believes that offering Bitcoin
Fund options will benefit investors by
providing them with a relatively lowercost risk management tool, which will
allow them to manage their positions
and associated risk in their portfolios
more easily in connection with
exposure to the price of Bitcoin and
with Bitcoin-related products and
positions. Additionally, the Exchange’s
offering of Bitcoin Fund options will
provide investors with the ability to
transact in such options in a listed
market environment as opposed to in
the unregulated OTC options market,
which would increase market
transparency and enhance the process of
price discovery conducted on BOX
through increased order flow to the
benefit of all investors. The Exchange
also notes that BOX already lists options
on other commodity-based ETPs,38
which, as described above, are trusts
structured in substantially the same
manner as Bitcoin Funds and essentially
offer the same objectives and benefits to
investors, just with respect to a different
commodity (i.e., Bitcoin rather than
precious metals) and for which the
Exchange has not identified any issues
with the continued listing and trading of
commodity-backed ETP options it
currently lists for trading. The Exchange
also believes the proposed rule change
will remove impediments to and perfect
the mechanism of a free and open
market and a national market system,
because it is consistent with current
Exchange Rules previously filed with
the Commission. Options on Bitcoin
Funds satisfy the initial listing
standards and continued listing
standards currently in the Exchange
Rules applicable to options on all ETFs
and ETPs, including ETPs that hold
other commodities already deemed
appropriate for options trading on BOX.
Additionally, as demonstrated above,
each Bitcoin Fund is characterized by a
substantial number of shares that are
widely held and actively traded. Bitcoin
Fund options will trade in the same
manner as any other ETF or ETP
options—the same Exchange Rules that
currently govern the listing and trading
of options, including permissible
expirations, strike prices, minimum
increments, customer accounts, trading
halt procedures, and margin
requirements, will govern the listing
and trading of options on Bitcoin Funds
in the same manner. The proposed
38 See
39 See Blockchain.com | Charts—Total Circulating
Bitcoin.
Rule 5020(h).
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position and exercise limit for options
on the Bitcoin Funds is 25,000
contracts. These position and exercise
limits are the lowest position and
exercise limits available in the options
industry, are extremely conservative
and more than appropriate given the
Bitcoin Funds’ market capitalization,
average daily volume, number of
beneficial holders, and high number of
outstanding shares. The proposed
position and exercise limits are
consistent with the Act as they address
concerns related to manipulation and
protection of investors because the
position and exercise limits are
extremely conservative and more than
appropriate given the Bitcoin Funds are
actively traded. The CBOE Approval
Order demonstrates that the average
position and exercise limits of options
on ETFs with comparable outstanding
shares and trading volume to those of
the Bitcoin Funds are significantly
higher than the proposed position and
exercise limits for Bitcoin Fund options.
Therefore, the proposed position and
exercise limits for the Bitcoin Fund
options are conservative relative to
options on ETFs with comparable
market characteristics.
Further, given that the issuer of each
Bitcoin Fund may create and redeem
shares that represent an interest in
Bitcoin, the Exchange believes it is
relevant to compare the size of a
position limit to the market
capitalization of the Bitcoin market. As
of August 27, 2024, the global supply of
Bitcoin was 19,745,940, and the price of
one Bitcoin was approximately
$59,466.82,39 which equates to a market
capitalization of approximately $1.165
trillion. Consider the proposed position
and exercise limit of 25,000 option
contracts for each Bitcoin Fund option.
A position and exercise limit of 25,000
same side contracts effectively restricts
a market participant from holding
positions that could result in the receipt
of no more than 2,500,000 of Fidelity
Fund shares or ARK 21 Fund shares, as
applicable (if that market participant
exercised all its options. As provided in
the CBOE Approval Order, if a market
participant with the maximum 25,000
same side contracts in either Fidelity
Fund options or ARK 21 Fund options
exercised all positions at one time, such
an event would have no practical
impact on the Bitcoin market.
The Exchange also believes the
proposed limits are appropriate given
position limits for Bitcoin futures. For
example, the Chicago Mercantile
Exchange (‘‘CME’’) imposes a position
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PO 00000
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limit of 2,000 futures (for the initial spot
month) on its Bitcoin futures contract.40
On August 28, 2024, CME Aug 24
Bitcoin Futures settled at $58,950. A
position of 2,000 CME Bitcoin futures,
therefore, would have a notional value
of $589,500,000. As provided in the
CBOE Approval Order, the approximate
number of option contracts for each
Bitcoin Fund that equate to the notional
value of CME Bitcoin futures is
significantly higher than the proposed
limit of 25,000 options contract for each
Bitcoin Fund option. The fact that many
options ultimately expire out-of-themoney and thus are not exercised for
shares of the underlying, while the delta
of a Bitcoin Future is 1, further
demonstrates how conservative the
proposed limits of 25,000 options
contracts are for the Bitcoin Fund
options.
The Exchange notes, unlike options
contracts, CME position limits are
calculated on a net futures-equivalent
basis by contract and include contracts
that aggregate into one or more base
contracts according to an aggregation
ratio(s).41 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.42 If a position exceeds
position limits because of an option
assignment, CME permits market
participants to liquidate the excess
position within one business day
without being considered in violation of
its rules. Additionally, if at the close of
trading, a position that includes options
exceeds position limits for futures
contracts, when evaluated using the
delta factors as of that day’s close of
trading but does not exceed the limits
when evaluated using the previous
day’s delta factors, then the position
shall not constitute a position limit
violation. Considering CME’s position
limits on futures for Bitcoin, the
Exchange believes that that the
proposed same side position limits are
more than appropriate for the Bitcoin
Fund options.
As provided in the CBOE Approval
Order, the proposed position and
40 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.
41 See CME Rulebook Chapter 5, Position Limit,
Position Accountability and Reportable Level Table
in the Interpretations & Special Notices.
42 Id.
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exercise limits in this proposal will
have no material impact to the supply
of Bitcoin. For example, consider again
the proposed position limit of 25,000
option contracts for each Bitcoin Fund
option. As noted above, a position limit
of 25,000 same side contracts effectively
restricts a market participant from
holding positions that could result in
the receipt of no more than 2,500,000
shares of the applicable Bitcoin Fund (if
that market participant exercised all of
its options).
As provided in the CBOE Approval
Order, if 80 market participants had
25,000 same side positions in Fidelity
Fund options, each of them would have
to simultaneously exercise all of those
options to create a scenario that may put
the underlying security under stress.
Similarly, if 18 market participants had
25,000 same side positions in ARK 21
Fund options, each of them would have
to simultaneously exercise all of those
options to create a scenario that may put
the underlying security under stress.
The Exchange believes it is highly
unlikely for either such event to occur;
however, even if either such event did
occur, the Exchange would not expect
either Bitcoin Fund to be under stress
because such an event would merely
induce the creation of more shares
through the trust’s creation and
redemption process.
As of August 7, 2024, the global
supply of Bitcoin was approximately
19,736,528.43 Based on the $47.88 price
of a Fidelity Fund share on August 7,
2024, a market participant could have
redeemed one Bitcoin for approximately
1,149 Fidelity Fund shares. Another
22,677,270,672 Fidelity Fund shares
could be created before the supply of
Bitcoin was exhausted. As a result,
9,070 market participants would have to
simultaneously exercise 25,000 same
side positions in Fidelity Fund options
to receive shares of the Fidelity Fund
holding the entire global supply of
Bitcoin. Similarly, based on the $54.68
price of an ARK 21 Fund share on
August 7, 2024, a market participant
could have redeemed one Bitcoin for
approximately 1,006 ARK 21 Fund
Shares. Another 19,854,947,168 ARK 21
Fund shares could be created before the
supply of Bitcoin were exhausted. As a
result, 7,941 market participants would
have to simultaneously exercise 25,000
same side positions in ARK 21 Fund
options to receive shares of the ARK 21
Fund holding the entire global supply of
Bitcoin. Unlike the Bitcoin Funds, the
number of shares that corporations may
43 See Blockchain.com | Charts—Total Circulating
Bitcoin (which also shows the price of one Bitcoin
equal to $55,033.47).
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issue is limited. However, like
corporations, which authorize
additional shares, repurchase shares, or
split their shares, the Bitcoin Funds may
create, redeem, or split shares in
response to demand. While the supply
of Bitcoin is limited to 21,000,000, it is
believed that it will take more than 100
years to fully mine the remaining
Bitcoin.44 The supply of Bitcoin is larger
than the available supply of most
securities.45 Given the significant
unlikelihood of any of these events ever
occurring, the Exchange does not
believe options on the Bitcoin Funds
should be subject to position and
exercise limits even lower than those
proposed (which are already equal to
the lowest available limit for equity
options in the industry) to protect the
supply of Bitcoin.46
The Exchange believes the available
supply of Bitcoin is not relevant to the
determination of position and exercise
limits for options overlying the Bitcoin
Funds.47 Position and exercise limits are
not a tool that should be used to address
a potential limited supply of an
underlying. Position and exercise limits
do not limit the total number of options
that may be held, but rather they limit
the number of positions a single
customer may hold or exercise at one
time.48 ‘‘Since the inception of
44 See Pre-Effective Amendment No. 5 to Form S–
1 Registration Statement No. 333–254652, Fidelity
Fund, filed January 9, 2024, at 53—54; and
Amendment No. 8 to Form S–1 Registration
Statement No. 333–257474, ARK 21 Fund, filed
January 9, 2024, at 15.
45 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/.
46 This would be even more unlikely with respect
to the Bitcoin Funds for which the Exchange
proposes lower position limits.
47 The Exchange is unaware of any proposed rule
change related to position and exercise limits for
any equity option (including commodity ETF
options) for which the Commission required
consideration of whether the available supply of an
underlying (whether it be a corporate stock or an
ETF) or the contents of an ETF (commodity or
otherwise) should be considered when an exchange
proposed to establish those limits. See, e.g.,
Securities Exchange Act Release No. 57894 (May
30, 2008), 73 FR 32061 (June 5, 2008) (SR–CBOE–
2005–11) (approval order in which the Commission
stated that the ‘‘listing and trading of Gold Trust
Options will be subject to the exchanges’ rules
pertaining to position and exercise limits and
margin’’). For reference, the current position and
exercise limits for options on SPDR Gold Shares
ETF (‘‘GLD’’) and options on iShares Silver Trust
(‘‘SLV’’) are 250,000 contracts, or 10 times that
proposed position and exercise limit for the Bitcoin
Fund options.
48 For example, suppose an option has a position
limit of 25,000 option contracts and there are a total
of 10 investors trading that option. If all 10
investors max out their positions, that would result
in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide
to begin trading that option and also max out their
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95839
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.’’ 49 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.’’ 50
The Exchange notes that a
Registration Statement on Form S–1 was
filed with the Commission for each
Bitcoin Fund, each of which described
the supply of Bitcoin as being limited to
21,000,000 (of which approximately
90% had already been mined), and that
the limit would be reached around the
year 2140.51 Each Registration
Statement permits an unlimited number
of shares of the applicable Bitcoin ETF
to be created. Further, the Commission
approved proposed rule changes that
permitted the listing and trading of
shares of each Bitcoin Fund, which
approval did not comment on the
sufficient supply of Bitcoin or address
whether there was a risk that permitting
an unlimited number of shares for a
Bitcoin Fund would impact the supply
of Bitcoin.52 Therefore, the Exchange
believes the Commission had ample
time and opportunity to consider
whether the supply of Bitcoin was
sufficient to permit the creation of
unlimited Bitcoin Fund shares, and
does not believe considering this supply
with respect to the establishment of
position and exercise limits is
appropriate given its lack of relevance to
the purpose of position and exercise
limits. However, given the significant
size of the Bitcoin supply, the proposed
positions. This would result in 500,000 option
contracts outstanding at that time. An increase in
the number of investors could cause an increase in
outstanding options even if position limits remain
unchanged.
49 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
50 See id.
51 See Pre-Effective Amendment No. 5 to Form S–
1 Registration Statement No. 333–254652, Fidelity
Fund, filed January 9, 2024, at 53—54; and
Amendment No. 8 to Form S–1 Registration
Statement No. 333–257474, ARK 21 Fund, filed
January 9, 2024, at 15.
52 See Bitcoin ETP Approval Order.
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position limits are more than sufficient
to protect investors and the market.
Based on the above information
demonstrating, among other things, that
each Bitcoin Fund is characterized by a
substantial number of outstanding
shares that are actively traded and
widely held, the Exchange believes the
proposed position and exercise limits
are extremely conservative compared to
those of ETF options with similar
market characteristics. The proposed
position and exercise limits reasonably
and appropriately balance the liquidity
provisioning in the market against the
prevention of manipulation. The
Exchange believes these proposed limits
are effectively designed to prevent an
individual customer or entity from
establishing options positions that could
be used to manipulate the market of the
underlying as well as the Bitcoin
market.53
The Exchange believes the proposed
rule change to exclude the Bitcoin
Funds from being eligible for trading as
FLEX Equity Options is consistent with
the Act, because without this
prohibition, trading a FLEX Equity
Option in the Bitcoin Funds would
otherwise establish different position
and exercise limits than those proposed
herein.54
The Exchange represents that it has
the necessary systems capacity to
support the new Bitcoin Fund options.
The Exchange believes that its existing
surveillance and reporting safeguards
are designed to deter and detect possible
manipulative behavior which might
arise from listing and trading options,
including Bitcoin Fund options. The
Exchange’s existing surveillance and
reporting safeguards are designed to
deter and detect possible manipulative
behavior which might arise from listing
and trading options on ETFs and ETPs,
such as (existing) precious metalcommodity backed ETP options as well
as the proposed options on Bitcoin
Funds. The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of options
on Bitcoin Funds and to deter and
detect violations of Exchange rules.
Additionally, the Exchange is a member
of the ISG under the Intermarket
Surveillance Group Agreement. The
Exchange would be able to obtain
information regarding trading in shares
53 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
54 The Exchange would be required to submit a
separate rule filing to permit the Exchange to
authorize for trading FLEX Equity Options on the
Bitcoin Funds (which filing may propose changes
to existing FLEX Equity Option position limits for
such options if appropriate).
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of the Bitcoin Funds from BZX and
other markets that trade shares of the
Bitcoin Funds through ISG. ISG
members work together to coordinate
surveillance and investigative
information sharing in the stock,
options, and futures markets. In
addition, the Exchange has a Regulatory
Services Agreement with FINRA and, as
noted herein, pursuant to a multi-party
17d–2 joint plan, all options exchanges
allocate regulatory responsibilities to
FINRA to conduct certain optionsrelated market surveillances. Further,
the Exchange will implement any new
surveillance procedures it deems
necessary to effectively monitor the
trading of options on the Bitcoin Funds.
The underlying shares of spot bitcoin
ETPs, including the Bitcoin Funds, are
also subject to safeguards related to
addressing market abuse and
manipulation. As the Commission
stated in its order approving proposals
of several exchanges to list and trade
shares of spot bitcoin-based ETPs,
‘‘[e]ach Exchange has a comprehensive
surveillance-sharing agreement with the
CME via their common membership in
the Intermarket Surveillance Group.
This facilitates the sharing of
information that is available to the CME
through its surveillance of its markets,
including its surveillance of the CME
bitcoin futures market.’’ 55 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].’’ 56 The Exchange
believes that existing surveillance
procedures are designed to deter and
detect possible manipulative behavior
which might potentially arise from
listing and trading the proposed options
on the Bitcoin Funds. Further, the
Exchange will implement any new
surveillance procedures it deems
necessary to effectively monitor the
trading of options on Bitcoin ETPs.
55 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).
56 See Bitcoin ETP Order, 89 FR at 3010–11.
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Finally, the Exchange notes that this
proposal will remove impediments to
and perfect the mechanism of a free and
open market and a national market
system and, in general, protect investors
because applicable Exchange rules will
require that customers receive
appropriate disclosure before trading
options in Bitcoin Funds 57 and will
require that brokers opening accounts
and recommending options transactions
comply with relevant customer
suitability standards.58 The Exchange
notes the proposed rule change is
substantively the same as a rule change
proposed by CBOE which the
Commission recently approved.59
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. In this regard
and as indicated above, the Exchange
notes that the rule change is being
proposed as a competitive response to a
filing submitted by CBOE that was
recently approved by the Commission.60
Intramarket Competition: The
Exchange does not believe that the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
as Bitcoin Funds would need to satisfy
the initial listing standards set forth in
the Exchange Rules in the same manner
as any other ETF before the Exchange
could list options on them.
Additionally, Bitcoin Fund options will
be equally available to all market
participants who wish to trade such
options. The Exchange Rules currently
applicable to the listing and trading of
options on ETFs on BOX will apply in
the same manner to the listing and
trading of all options on Bitcoin Funds,
including, for example, Rules that
govern expirations, exercise prices,
minimum increments, margin
requirements, customer accounts, and
trading halt procedures. Also, and as
stated above, the Exchange already lists
options on other commodity-based
ETPs.61 Further, the Bitcoin Funds
would need to satisfy the maintenance
listing standards set forth in the
Exchange Rules in the same manner as
any other ETF for the Exchange to
continue listing options on them.
57 See
Rules 4020(b), (e) and 4100.
Rule 4040.
59 See supra note 5.
60 Id.
61 See Rule 5020(h).
58 See
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Intermarket Competition: The
Exchange does not believe that the
proposal to list and trade options on
Bitcoin Funds will impose any burden
on intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the extent
that the advent of Bitcoin Fund options
trading on BOX may make BOX a more
attractive marketplace to market
participants at other exchanges, such
market participants are free to elect to
become market participants on BOX. As
noted herein, this is a competitive filing
as the Commission recently approved
the listing and trading of the Bitcoin
Funds on another options exchange.62
Additionally, other options exchanges
are free to amend their listing rules, as
applicable, to permit them to list and
trade options on Bitcoin Funds. The
Exchange notes that listing and trading
Bitcoin Fund options on BOX will
subject such options to transparent
exchange-based rules as well as price
discovery and liquidity, as opposed to
alternatively trading such options in the
OTC market.
The Exchange believes that the
proposed rule change may relieve any
burden on, or otherwise promote,
competition as it is designed to increase
competition for order flow on BOX in a
manner that is beneficial to investors by
providing them with a lower-cost option
to hedge their investment portfolios.
The Exchange notes that BOX operates
in a highly competitive market in which
market participants can readily direct
order flow to competing venues that
offer similar products. Ultimately, the
Exchange believes that offering Bitcoin
Fund options for trading on BOX will
promote competition by providing
investors with an additional, relatively
low-cost means to hedge their portfolios
and meet their investment needs in
connection with Bitcoin prices and
Bitcoin-related products and positions
on a listed options exchange.
Finally, the proposed rule change to
exclude Bitcoin Fund options from
being eligible for trading as FLEX Equity
Options does not impose an undue
burden on competition as no BOX
Participant will be able to transact a
FLEX Equity Option on the Bitcoin
Funds.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received written comments on the
proposed rule change.
62 See
supra note 5.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 63 and Rule 19b–
4(f)(6) thereunder.64
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act normally does not become operative
for 30 days after the date of its filing.
However, Rule 19b–4(f)(6)(iii) 65 permits
the Commission to designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Commission previously
approved the listing of options on the
shares of the Bitcoin Funds.66 The
Exchange has provided information
regarding the underlying Bitcoin Funds,
including, among other things,
information regarding trading volume,
the number of beneficial holders, and
the market capitalization of the Bitcoin
Funds. The proposal also establishes
position and exercise limits for options
on the Bitcoin Funds and provides
information regarding the surveillance
procedures that will apply to options on
the Bitcoin Funds. The Commission
believes that waiver of the operative
delay could benefit investors by
providing an additional venue for
trading Bitcoin Fund options. Therefore,
the Commission believes that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest. Accordingly, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change operative upon
filing.67
63 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Commission
waives this requirement.
65 17 CFR 240.19b–4(f)(6)(iii).
66 See supra note 5.
67 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).
64 17
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
95841
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number
SR–BOX–2024–29 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–BOX–2024–29. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
E:\FR\FM\03DEN1.SGM
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95842
Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices
submissions should refer to file number
SR–BOX–2024–29 and should be
submitted on or before December 24,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.68
Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2024–28341 Filed 12–2–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–136, OMB Control No.
3235–0157]
lotter on DSK11XQN23PROD with NOTICES1
Submission for OMB Review;
Comment Request; Extension: Form
N–8F
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
approved collection of information
discussed below.
Form N–8F (17 CFR 274.218) is the
form prescribed for use by registered
investment companies in certain
circumstances to request orders of the
Commission declaring that the
registration of that investment company
cease to be in effect. The form requests
information about: (i) the investment
company’s identity, (ii) the investment
company’s distributions, (iii) the
investment company’s assets and
liabilities, (iv) the events leading to the
request to deregister, and (v) the
conclusion of the investment company’s
business. The information is needed by
the Commission to determine whether
an order of deregistration is appropriate.
The Form takes approximately 5.2
hours on average to complete. It is
estimated that approximately 101
investment companies file Form N–8F
annually, so the total annual burden for
the form is estimated to be
approximately 525 hours. The estimate
of average burden hours is made solely
for the purposes of the Paperwork
Reduction Act and is not derived from
a comprehensive or even a
representative survey or study.
Commission staff continues to believe
68 17
CFR 200.30–3(a)(12), (59).
VerDate Sep<11>2014
17:09 Dec 02, 2024
Jkt 265001
that there is no cost burden for
completing and filing Form N–8F.
The collection of information on Form
N–8F is not mandatory. The information
provided on Form N–8F is not kept
confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently-valid OMB control number.
The 30-day public comment period
for this information collection request
opens on December 4, 2024 and closes
on January 3, 2025. The public may
view the full information request and
submit comments at https://
www.reginfo.gov/public/do/
PRAViewICR?ref_nbr=202408-3235-028
or email comments to
MBX.OMB.OIRA.SEC_desk_officer@
omb.eop.gov.
Dated: November 26, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–28260 Filed 12–2–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–261, OMB Control No.
3235–0274]
Proposed Collection; Comment
Request; Extension: Rule 17Ad–11
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 17Ad–11 (17 CFR
240.17Ad–11), under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.). The Commission plans to submit
this existing collection of information to
the Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Rule 17Ad–11 requires every
registered recordkeeping transfer agent
to report certain information to issuers
and its appropriate regulatory agency in
the event that the aggregate market
value of an ‘‘aged record difference’’
exceeds certain thresholds. A ‘‘record
difference’’ occurs when the number of
shares or principal dollar amount of
securities in an issuer’s records do not
equal those in the master securityholder
file as indicated, for instance, on
certificates presented to the transfer
agent for purchase, redemption, or
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
transfer. An ‘‘aged record difference’’ is
a record difference that has existed for
more than 30 calendar days. In addition,
the rule requires every registered
recordkeeping transfer agent to report
certain information to issuers and its
appropriate regulatory agency
concerning buy-ins of all issues for
which it acts as recordkeeping transfer
agent. Further, the rule requires every
registered recordkeeping transfer agent
to report to its appropriate regulatory
agency when it has failed to post
certificate detail to the master
securityholder file within five business
days of the time required by Rule 17Ad–
10 (17 CFR 240.17Ad–10). Transfer
agents must also maintain a copy of any
report required under Rule 17Ad–11 for
a period of not less than three years
following the date of the report, the first
year in an easily accessible place.
Because the information required by
Rule 17Ad–11 is already available to
transfer agents, any collection burden
for small transfer agents is minimal.
Based on a review of the number of Rule
17Ad–11 reports the Commission, the
Comptroller of the Currency, the Board
of Governors of the Federal Reserve
System, and the Federal Deposit
Insurance Corporation (collectively, the
‘‘appropriate regulatory agencies’’)
received since 2019, the Commission
staff estimates that 8 respondents will
file a total of approximately 1 report
annually. The Commission staff
estimates that, on average, each report
can be completed in 30 minutes.
Therefore, the total annual time burden
for the entire transfer agent industry is
approximately .5 hours (0.5 hours × 1
report). Assuming an average hourly
rate of $78 for a compliance staff
employee at a transfer agent, the average
total internal cost of compliance for
each report is $39. The total annual
internal cost of compliance for the
estimated 8 respondents is thus
approximately $39 ($39 per report × 1
report).
The retention period for the
recordkeeping requirement under Rule
17Ad–11 is not less than three years
following the date of a report prepared
pursuant to the rule. The recordkeeping
requirement under Rule 17Ad–11 is
mandatory to assist the Commission and
other regulatory agencies in monitoring
transfer agents who are not performing
their functions promptly and accurately.
This rule does not involve the collection
of confidential information.
Written comments are invited on: (a)
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
E:\FR\FM\03DEN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 232 (Tuesday, December 3, 2024)]
[Notices]
[Pages 95834-95842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28341]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101773; File No. SR-BOX-2024-29]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Rules
3120 (Position Limits) and 5020 (Criteria for Underlying Securities) To
Permit Options Trading on Bitcoin Funds
November 27, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4thereunder,\2\ notice is hereby given that
on November 25, 2024, BOX Exchange LLC (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 proposes to amend proposes to amend Rules 3120
(Position Limits), 5020 (Criteria for Underlying Securities), and 5055
(FLEX Equity Options). The text of the proposed rule change is
available from the principal office of the Exchange, at the
Commission's Public Reference Room and also on the Exchange's internet
website at https://rules.boxexchange.com/rulefilings.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rules 3120 (Position Limits) and
5020 (Criteria for Underlying Securities) to permit options trading on
the Fidelity Wise Origin Bitcoin Fund (the ``Fidelity Fund'') and the
ARK 21Shares Bitcoin ETF (the ``ARK 21 Fund'' and, with the Fidelity
Fund, the ``Bitcoin Funds'').\3\ Additionally, the Exchange proposes to
amend Rule 5055 (FLEX Equity Options). Specifically, the Exchange
proposes to amend Rule 5020(h) to allow the Exchange to list and trade
options on the Bitcoin Funds.\4\ This is a competitive filing that is
based on a proposal recently submitted by Cboe Exchange, Inc.
(``CBOE'') and approved by the Commission.\5\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008, 3009 (January 17, 2024) (SR-NYSEArca-2021-90; SR-
NYSEArca-2023-44; SR-NYSEArca-2023-58; SR- NASDAQ-2023-016; SR-
NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-
CboeBZX-2023-040; SR-CboeBZX-2023-042; 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'').
\4\ See proposed Rule 5020(h).
\5\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (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)
(SR-CBOE-2024-035, as amended) (``CBOE Approval Order'').
---------------------------------------------------------------------------
As discussed herein and as provided in the CBOE Approval Order, the
Exchange believes options on the Bitcoin Funds would permit hedging,
and allow for more liquidity, better price efficiency, and less
volatility with respect to the underlying Funds. Further, permitting
the listing of such options would enhance the transparency and
efficiency of markets in these and correlated products. Rule 5020(h)
provides that, subject to certain other criteria set forth in the Rule,
securities deemed appropriate for options trading include Exchange-
Traded Fund Shares (or ETFs), that represent certain types of interests
\6\ and exchange-traded products (``ETPs'')
[[Page 95835]]
structured as trusts that hold precious metals (which are deemed
commodities).\7\ Like ETPs backed by precious metals (i.e.,
commodities), the Exchange proposes to allow options trading on the
Bitcoin Funds that hold Bitcoin--which is also deemed a commodity.\8\
The Bitcoin Funds are structured as trusts that hold Bitcoin. Like ETFs
and ETPs currently deemed appropriate for options trading, the
investment objective of each Bitcoin Fund trust is for its shares to
reflect the performance of Bitcoin (less the expenses of the trust's
operations), offering investors an opportunity to gain exposure to
Bitcoin without the complexities of Bitcoin delivery. Each Bitcoin
Fund's shares represent units of fractional undivided beneficial
interest in the trust, the assets of which consist principally of
Bitcoin and are designed to track Bitcoin or the performance of the
price of Bitcoin and offer access to the Bitcoin market.\9\ The Bitcoin
Funds provide investors with cost-efficient alternatives that allow a
level of participation in the Bitcoin market through the securities
market. The Exchange believes each Bitcoin Fund satisfies the
Exchange's initial listing standards set forth in Rule 5020(a).\10\ The
Exchange notes that the Bitcoin Funds also satisfy the listing standard
applied to ETFs traded on the Exchange that they be available for
creation and redemption each business day as set forth in Rule
5020(h).\11\ First, each of the Bitcoin Funds satisfy the criteria and
guidelines set forth in Rule 5020(a). Pursuant to Rule 5020(a), a
security on which options may be listed and traded on the Exchange must
be duly registered (with the Commission) and be an NMS stock (as
defined in Rule 600 of Regulation NMS under the Act) and be
characterized by a substantial number of outstanding shares that are
widely held and actively traded.\12\ Each of the Bitcoin Funds is an
NMS Stock as defined in Rule 600 of Regulation NMS under the Act.\13\
---------------------------------------------------------------------------
\6\ See Rule 5020(h), which permits options trading on ETFs that
are traded on a national securities exchange and are defined as an
``NMS stock'' in Rule 600 of Regulation NMS and that (i) represent
interests in registered investment companies (or series thereof)
organized as open-end management investment companies, unit
investment trusts or similar entities that hold portfolios of
securities and/or financial instruments, including, but not limited
to, stock index futures contracts, options on futures, options on
securities and indices, equity caps, collars and floors, swap
agreements, forward contracts, repurchase agreements and reverse
repurchase agreements (the ``Financial Instruments'') and money
market instruments, including, but not limited to, U.S. government
securities and repurchase agreements (the ``Money Market
Instruments'') comprising or otherwise based on or representing
investments in broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market Instruments (or that hold
securities in one or more other registered investment companies that
themselves hold such portfolios of securities and/or Financial
Instruments and Money Market Instruments); or (ii) represent
interests in a trust that holds a specified non-U.S. currency
deposited with the trust or similar entity when aggregated in some
specified minimum number may be surrendered to the trust by the
beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''); or
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing portfolios or
baskets of securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs'') or (iv) represent interests in the SPDR[supreg] Gold Trust,
the iShares COMEX Gold Trust, the iShares Silver Trust, the abrdn
Gold ETF Trust, the abrdn Silver ETF Trust, the abrdn Palladium ETF
Trust, the abrdn Platinum ETF Trust, the Sprott Physical Gold Trust,
the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the
Grayscale Bitcoin Mini Trust or the Bitwise Bitcoin ETF; provided
that all of the conditions in Rules 5020(h)(1) and (2) are met.
\7\ See Rule 5020(h) (permitting the listing and trading of
options on certain ETPs backed by precious metals).
\8\ See proposed Rule 5020(h).
\9\ The trust may include minimal cash.
\10\ Rule 5020(a) provides for guidelines to be used by the
Exchange when evaluating potential underlying securities for
Exchange option transactions.
\11\ Rule 5020(h)(1) requires that ETFs must be available for
creation or redemption each business day from or through the issuer
in cash or in kind at a price related to net asset value, and the
issuer must be obligated to issue ETFs in a specified aggregate
number even if some or all of the investment assets required to be
deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investments has
undertaken to deliver the investment assets as soon as possible and
such undertaking is secured by the delivery and maintenance of
collateral consisting of cash or cash equivalents satisfactory to
the issuer, as provided in the respective prospectus.
\12\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Rule 5020(b),
subject to exceptions.
\13\ 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'').
---------------------------------------------------------------------------
As provided in the CBOE Approval Order, each Bitcoin Fund is
characterized by a substantial number of outstanding shares that are
widely held and actively traded. Specifically, as shown in the CBOE
Approval Order, each of the Bitcoin Funds had significantly more than
7,000,000 shares outstanding (approximately 29 and 6.5 times that
amount, respectively), which is the minimum number of shares of a
corporate stock that the Exchange generally requires to list options on
that stock pursuant to Rule 5020(b). The Exchange believes this
demonstrates that each Bitcoin Fund is characterized by a substantial
number of outstanding shares.
Further, as provided in the CBOE Approval Order, each Bitcoin Fund
has significantly more than 2,000 beneficial holders (approximately 140
and 35 times more, respectively), which is the minimum number of
holders the Exchange generally requires for corporate stock in order to
list options on that stock pursuant to Rule 5020(b)(2). Therefore, the
Exchange believes the shares of each Bitcoin Fund are widely held.
The Exchange also believes the shares of each Bitcoin Fund are
actively traded. As provided in the CBOE Approval Order, even though
these Bitcoin Funds have been trading for less than one year, the
trading volume for each is substantially higher than 2,400,000 shares
(between roughly 464 and 124 times that amount), which is the minimum
12-month volume the Exchange generally requires for a security in order
to list options on that security as set forth in Rule 5020(b).
In addition to satisfying the Exchange's initial listing standards,
options on Bitcoin Funds will be subject to the Exchange's continued
listing standards as set forth in Rule 5030(h). Pursuant to Rule
5030(b), the Exchange will not open for trading any additional series
of option contracts covering a fund traded on the Exchange if such fund
ceases to be an ``NMS stock'' as provided for in Rule 5030(a) or the
fund is halted from trading on its primary market.\14\ Additionally,
options on funds traded on the Exchange may be subject to the
suspension of opening transactions as follows: (1) the fund no longer
meets the terms of Rule 5030(b); (2) following the initial twelve-month
period beginning upon the commencement of trading of the fund, there
are fewer than 50 record and/or beneficial holders of the fund for 30
or more consecutive trading days; (3) the value of the underlying
commodity is no longer calculated or available; or (4) such other event
occurs or condition exists that in the opinion of the Exchange makes
further dealing on BOX inadvisable.
---------------------------------------------------------------------------
\14\ See Rule 5030(h).
---------------------------------------------------------------------------
Options on each Bitcoin Fund will be physically settled contracts
with American-style exercise.\15\ Consistent with Rule 5050, which
governs the opening of options series on a specific underlying security
(including ETFs and ETPs), BOX will open at least one expiration month
for options on each Bitcoin Fund \16\ at the commencement of trading on
the Exchange and may also list series of options on Bitcoin Funds for
trading on a weekly,\17\ monthly,\18\ or
[[Page 95836]]
quarterly \19\ basis. BOX may also list long-term equity option series
(``LEAPS'') that expire from twelve to one-hundred eighty months from
the time they are listed.\20\ Pursuant to IM-5050-1(b), which governs
strike prices of series of options on ETFs, the interval between strike
prices of series of options on Bitcoin Funds will be $1 or greater when
the strike price is $200 or less and $5 or greater where the strike
price is over $200.\21\ Additionally, BOX may list series of options
pursuant to the $1 Strike Price Interval Program,\22\ the $0.50 Strike
Program,\23\ and the $2.50 Strike Price Program.\24\ Pursuant to Rule
7050, where the price of a series of a Bitcoin Fund option is less than
$3.00, the minimum increment will be $0.05, and where the price is
$3.00 or higher, the minimum increment will be $0.10.\25\ Any and all
new series of Bitcoin Fund options that BOX lists will be consistent
and comply with the expirations, strike prices, and minimum increments
set forth in Rules 5050 and 7050, as applicable. Further, the Exchange
notes that Rule Series 10100, which governs margin requirements
applicable to the trading of all options on BOX, including options on
ETFs and ETPs, will also apply to the trading of Bitcoin Fund options.
Other examples of the Exchange Rules that currently apply to all
options traded on BOX, include Rules that govern listing criteria,
customer accounts, and trading halt procedures.
---------------------------------------------------------------------------
\15\ See Rule 5010 (Rights and Obligations of Holders and
Writers), which provides that the rights and obligations of holders
and writers of option contracts of any class of options dealt in on
the Exchange shall be as set forth in the Rules of the Clearing
Corporation. See also OCC Rules, Chapter VIII, which governs
exercise and assignment, and Chapter IX, which governs the discharge
of delivery and payment obligations arising out of the exercise of
physically settled stock option contracts. OCC Rules can be located
at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf.
\16\ See Rule 5050(b). The standard expirations are subject to
certain listing criteria for underlying securities described within
Rule 5020. Standard listings expire the third Friday of the month.
The term ``expiration date'' (unless separately defined elsewhere in
the OCC By-Laws), when used in respect of an option contract
(subject to certain exceptions), means the third Friday of the
expiration month of such option contract, or if such Friday is a day
on which the exchange on which such option is listed is not open for
business, the preceding day on which such exchange is open for
business. See OCC By-Laws Article I, Section 1. Pursuant to Rule
5050(c), additional series of options of the same class may be
opened for trading on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying stock moves more than five
strike prices from the initial exercise price or prices. New series
of options on an individual stock may be added until the beginning
of the month in which the options contract will expire. Due to
unusual market conditions, the Exchange, in its discretion, may add
a new series of options on an individual stock until the close of
trading on the business day prior to expiration.
\17\ See IM-5050-6.
\18\ See IM-5050-13.
\19\ See IM-5050-4.
\20\ See Rule 5070.
\21\ The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Monthly Options Series
Program, and the Quarterly Options Series Program, IM-5050-6, IM-
5050-13, and IM-5050-4, specifically set forth intervals between
strike prices on Quarterly Options Series, Short Term Option Series,
and Monthly Options Series, respectively.
\22\ See IM-5050-2.
\23\ See IM-5050-5.
\24\ See IM-5050-3.
\25\ If options on a Bitcoin Fund are eligible to participate in
the Penny Interval Program, the minimum increment of $0.01 below
$3.00 and $0.05 above $3.00 would apply. See Rule 7050(a)(3). See
also Rule 7260 (which describes the requirements for the Penny
Interval Program).
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Rule 5055(e)(2)(i) permits the Exchange to authorize for trading a
FLEX Equity Option class on any equity security if it may authorize for
trading a Non-FLEX Equity Option class on that equity security pursuant
to Rule 5020.\26\ At this time, the Exchange is not proposing to permit
Bitcoin Fund options to trade as FLEX Equity Options.\27\ The Exchange
therefore proposes to modify Rule 5055(e)(2)(i) to specify this
exception, which will add clarity and transparency to Exchange
Rules.\28\
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\26\ See Rule 5055(e)(2)(i).
\27\ The Exchange would be required to submit a separate rule
filing to permit the Exchange to authorize for trading FLEX Equity
Options on the Bitcoin Funds (which filing may propose changes to
existing FLEX Equity Option position limits for such options if
appropriate).
\28\ See proposed Rule 5055(e)(2)(i).
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Position and Exercise Limits
CBOE's Approval Order stated that the position and exercise limits
for Bitcoin Funds shall be 25,000 contracts. At this time, the Exchange
proposes to amend IM-3120-2 to similarly note that Bitcoin Fund options
position limits shall be 25,000 contracts to mirror CBOE's Approval
Order. Rule 3140 provides that the exercise limits shall be determined
in the manner described in Rule 3120, therefore the exercise limits
would also be 25,000 contracts.
As provided in the CBOE Approval Order, these proposed position and
exercise limits were determined considering, among other things, the
approximate six-month average daily volume (``ADV'') and outstanding
shares of each underlying Bitcoin Fund (which as discussed above
demonstrate that each Bitcoin Fund is widely held and actively traded
and thus justify these conservatively proposed position limits).
As provided in the CBOE Approval Order, comparing current position
and exercise limits of options on ETFs with outstanding shares
comparable to those of each Bitcoin Fund, demonstrates the proposed
limit to be significantly lower (between two and ten times lower) than
the average limits of the options on the other ETFs. As discussed
above, the Bitcoin Funds are actively held and widely traded: (1) each
Bitcoin Fund (as of August 7, 2024) had significantly more than
7,000,000 shares outstanding, which is the minimum number of shares of
a corporate stock that the Exchange generally requires to list options
on that stock pursuant to Rule 5020(b)(1); (2) each Bitcoin Fund (as of
the dates listed above) had significantly more than 2,000 beneficial
holders, which is the minimum number of holders the Exchange generally
requires for corporate stock in order to list options on that stock
pursuant to Rule 5020(b)(2); and (3) each Bitcoin Fund had a six-month
trading volume substantially higher than 2,400,000 shares, which is the
minimum 12-month volume the Exchange generally requires for a security
in order to list options on that security as set forth in Rule
5020(b)(4).
As provided in the CBOE Approval Order, if a market participant
held the maximum permissible options positions in one of the Bitcoin
Fund options and exercised all of them at the same time, that market
participant would control a small percentage of the outstanding shares
of the underlying Bitcoin Fund.
Rule 3120(d) provides two methods of qualifying for a position
limit tier above 25,000 option contracts. The first method is based on
six-month trading volume in the underlying security, and the second
method is based on slightly lower six-month trading volume and number
of shares outstanding in the underlying security. As provided in the
CBOE Approval Order, the equivalent shares represented by the proposed
position and exercise limits for each Bitcoin Fund as a percentage of
outstanding shares of the underlying Bitcoin Fund is significantly
lower than the percentage for the lowest possible position limit for
equity options of 25,000 (under 6% compared to 40%) and is lower than
that percentage for each current position limit bucket.\29\
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\29\ As these percentages are based on the minimum number of
outstanding shares an underlying security must have to qualify for
the applicable position limit, these are the highest possible
percentages that would apply to any option subject to that position
and exercise limit.
---------------------------------------------------------------------------
Further, the proposed position and exercise limits for each Bitcoin
Fund option are significantly below the limits that would otherwise
apply pursuant to current Rule 3120. These position and exercise limits
are the lowest position and exercise limits available in the options
industry, are extremely conservative and more than appropriate given
the market capitalization, average daily volume, and high number of
outstanding shares of the Bitcoin Funds.
All of the above information demonstrates that the proposed
position and exercise limits for the Bitcoin Fund options are more than
reasonable and appropriate. The trading volume, ADV, and outstanding
shares of each Bitcoin Fund demonstrate that these funds are actively
traded and widely held, and proposed position and exercise limits are
well below those of other ETFs with similar market characteristics. The
proposed position and exercise limits are the lowest position and
exercise limits available for equity options in the industry, are
extremely conservative, and are more than appropriate given each
Bitcoin Fund's market capitalization, ADV, and high number of
outstanding shares.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options on the Bitcoin Funds that it applies to the
Exchange's other options
[[Page 95837]]
products.\30\ Additionally, the Exchange is a member of the Intermarket
Surveillance Group (``ISG'') under the Intermarket Surveillance Group
Agreement. The Exchange would be able to obtain information regarding
trading in shares of the Bitcoin Funds from Cboe BZX Exchange, Inc.
(``BZX'') and other markets that trade shares of the Bitcoin Funds
through ISG. ISG members work together to coordinate surveillance and
investigative information sharing in the stock, options, and futures
markets. In addition, the Exchange has a Regulatory Services Agreement
with the Financial Industry Regulatory Authority (``FINRA'') for
certain market surveillance, investigation and examinations functions.
Pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate amongst themselves and FINRA responsibilities to conduct
certain options-related market surveillance that are common to rules of
all options exchanges.\31\
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\30\ The surveillance program includes surveillance patterns for
price and volume movements as well as patterns for potential
manipulation (e.g., spoofing and marking the close).
\31\ Section 19(g)(1) of the Act, among other things, requires
every self-regulatory organization (``SRO'') registered as a
national securities exchange or national securities association to
comply with the Act, the rules and regulations thereunder, and the
SRO's own rules, and, absent reasonable justification or excuse,
enforce compliance by its members and persons associated with its
members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section
17(d)(1) of the Act allows the Commission to relieve an SRO of
certain responsibilities with respect to members of the SRO who are
also members of another SRO (``common members''). Specifically,
Section 17(d)(1) allows the Commission to relieve an SRO of its
responsibilities to: (i) receive regulatory reports from such
members; (ii) examine such members for compliance with the Act and
the rules and regulations thereunder, and the rules of the SRO; or
(iii) carry out other specified regulatory responsibilities with
respect to such members.
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The underlying shares of spot bitcoin exchange-traded products
(``ETPs''), including the Bitcoin Funds, are also subject to safeguards
related to addressing market abuse and manipulation. As the Commission
stated in its order approving proposals of several exchanges to list
and trade shares of spot bitcoin-based ETPs, ``[e]ach Exchange has a
comprehensive surveillance-sharing agreement with the CME via their
common membership in the Intermarket Surveillance Group. This
facilitates the sharing of information that is available to the CME
through its surveillance of its markets, including its surveillance of
the CME bitcoin futures market.\32\ 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].'' \33\ In light of surveillance
measures related to both options and futures as well as the underlying
Bitcoin Funds,\34\ the Exchange believes that existing surveillance
procedures are designed to deter and detect possible manipulative
behavior which might potentially arise from listing and trading the
proposed options on the Bitcoin Funds. Further, the Exchange will
implement any new surveillance procedures it deems necessary to
effectively monitor the trading of options on Bitcoin ETPs.
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\32\ See Bitcoin ETP Approval Order.
\33\ See Bitcoin ETP Approval Order, 89 FR 3010-11.
\34\ See Securities Exchange Act Release Nos. 99290 (January 8,
2024), 89 FR 2338, 2343, 2347--2348 (January 12, 2024) (SR-CboeBZX-
2023-044) (Notice of Filing of Amendment No. 3 to a Proposed Rule
Change to List and Trade Shares of the Fidelity Wise Origin Bitcoin
Fund Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares); and
99288 (January 8, 2024), 89 FR 2387, 2392, 2399--2400 (January 12,
2024) (SR-CboeBZX-2023-028) (Notice of Filing of Amendment No. 5 to
a Proposed Rule Change To List and Trade Shares of the ARK 21Shares
Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares). See also Securities Exchange Act Release No. 99306 (January
10, 2024), 89 FR 3008, 3009 (January 17, 2024) (SR-NYSEArca-2021-90;
SR-NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ-2023-016; SR-
NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-
CboeBZX-2023-040; SR-CboeBZX-2023-042; SRCboeBZX-2023-044; and SR-
CboeBZX-2023-072) (Order Granting Accelerated Approval of Proposed
Rule Changes, as Modified by Amendments Thereto, to List and Trade
Bitcoin-Based Commodity-Based Trust Shares and Trust Units)
(``Bitcoin ETP Approval Order'').
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and OPRA have the necessary systems capacity to
handle the additional traffic associated with the listing of new series
that may result from the introduction of options on Bitcoin Funds up to
the number of expirations currently permissible under the Rules.
Because the proposal is limited to two classes, the Exchange believes
any additional traffic that may be generated from the introduction of
Bitcoin Fund options will be manageable.
The Exchange believes that offering options on Bitcoin Funds will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Bitcoin and
hedging vehicle to meet their investment needs in connection with
Bitcoin-related products and positions. The Exchange expects investors
will transact in options on Bitcoin Funds in the unregulated over-the-
counter (``OTC'') options market,\35\ but may prefer to trade such
options in a listed environment to receive the benefits of trading
listing options, including (1) enhanced efficiency in initiating and
closing out positions; (2) increased market transparency; and (3)
heightened contra-party creditworthiness due to the role of OCC as
issuer and guarantor of all listed options. The Exchange believes that
listing Bitcoin Fund options may cause investors to bring this
liquidity to the Exchange, would increase market transparency and
enhance the process of price discovery conducted on BOX through
increased order flow. The ETFs that hold financial instruments, money
market instruments, or precious metal commodities on which the Exchange
may already list and trade options are trusts structured in
substantially the same manner as Bitcoin Funds and essentially offer
the same objectives and benefits to investors, just with respect to
different assets. The Exchange notes that it has not identified any
issues with the continued listing and trading of any ETF options,
including ETFs that hold commodities (i.e., precious metals) that it
currently lists and trades on the Exchange.
---------------------------------------------------------------------------
\35\ The Exchange understands from customers that investors have
historically transacted in options on ETFs in the OTC options market
if such options were not available for trading in a listed
environment.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Securities Exchange Act of 1934
(the ``Act''),\36\ in general, and Section 6(b)(5) of the Act,\37\ in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest.
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Bitcoin Funds will remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, protect investors because offering options on
the Bitcoin Funds
[[Page 95838]]
will provide investors with an opportunity to realize the benefits of
utilizing options on a Bitcoin Fund, including cost efficiencies and
increased hedging strategies. The Exchange believes that offering
Bitcoin Fund options will benefit investors by providing them with a
relatively lower-cost risk management tool, which will allow them to
manage their positions and associated risk in their portfolios more
easily in connection with exposure to the price of Bitcoin and with
Bitcoin-related products and positions. Additionally, the Exchange's
offering of Bitcoin Fund options will provide investors with the
ability to transact in such options in a listed market environment as
opposed to in the unregulated OTC options market, which would increase
market transparency and enhance the process of price discovery
conducted on BOX through increased order flow to the benefit of all
investors. The Exchange also notes that BOX already lists options on
other commodity-based ETPs,\38\ which, as described above, are trusts
structured in substantially the same manner as Bitcoin Funds and
essentially offer the same objectives and benefits to investors, just
with respect to a different commodity (i.e., Bitcoin rather than
precious metals) and for which the Exchange has not identified any
issues with the continued listing and trading of commodity-backed ETP
options it currently lists for trading. The Exchange also believes the
proposed rule change will remove impediments to and perfect the
mechanism of a free and open market and a national market system,
because it is consistent with current Exchange Rules previously filed
with the Commission. Options on Bitcoin Funds satisfy the initial
listing standards and continued listing standards currently in the
Exchange Rules applicable to options on all ETFs and ETPs, including
ETPs that hold other commodities already deemed appropriate for options
trading on BOX. Additionally, as demonstrated above, each Bitcoin Fund
is characterized by a substantial number of shares that are widely held
and actively traded. Bitcoin Fund options will trade in the same manner
as any other ETF or ETP options--the same Exchange Rules that currently
govern the listing and trading of options, including permissible
expirations, strike prices, minimum increments, customer accounts,
trading halt procedures, and margin requirements, will govern the
listing and trading of options on Bitcoin Funds in the same manner. The
proposed position and exercise limit for options on the Bitcoin Funds
is 25,000 contracts. These position and exercise limits are the lowest
position and exercise limits available in the options industry, are
extremely conservative and more than appropriate given the Bitcoin
Funds' market capitalization, average daily volume, number of
beneficial holders, and high number of outstanding shares. The proposed
position and exercise limits are consistent with the Act as they
address concerns related to manipulation and protection of investors
because the position and exercise limits are extremely conservative and
more than appropriate given the Bitcoin Funds are actively traded. The
CBOE Approval Order demonstrates that the average position and exercise
limits of options on ETFs with comparable outstanding shares and
trading volume to those of the Bitcoin Funds are significantly higher
than the proposed position and exercise limits for Bitcoin Fund
options. Therefore, the proposed position and exercise limits for the
Bitcoin Fund options are conservative relative to options on ETFs with
comparable market characteristics.
---------------------------------------------------------------------------
\38\ See Rule 5020(h).
---------------------------------------------------------------------------
Further, given that the issuer of each Bitcoin Fund may create and
redeem shares that represent an interest in Bitcoin, the Exchange
believes it is relevant to compare the size of a position limit to the
market capitalization of the Bitcoin market. As of August 27, 2024, the
global supply of Bitcoin was 19,745,940, and the price of one Bitcoin
was approximately $59,466.82,\39\ which equates to a market
capitalization of approximately $1.165 trillion. Consider the proposed
position and exercise limit of 25,000 option contracts for each Bitcoin
Fund option. A position and exercise limit of 25,000 same side
contracts effectively restricts a market participant from holding
positions that could result in the receipt of no more than 2,500,000 of
Fidelity Fund shares or ARK 21 Fund shares, as applicable (if that
market participant exercised all its options. As provided in the CBOE
Approval Order, if a market participant with the maximum 25,000 same
side contracts in either Fidelity Fund options or ARK 21 Fund options
exercised all positions at one time, such an event would have no
practical impact on the Bitcoin market.
---------------------------------------------------------------------------
\39\ See Blockchain.com [verbar] Charts--Total Circulating
Bitcoin.
---------------------------------------------------------------------------
The Exchange also believes the proposed limits are appropriate
given position limits for Bitcoin futures. For example, the Chicago
Mercantile Exchange (``CME'') imposes a position limit of 2,000 futures
(for the initial spot month) on its Bitcoin futures contract.\40\ On
August 28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. A
position of 2,000 CME Bitcoin futures, therefore, would have a notional
value of $589,500,000. As provided in the CBOE Approval Order, the
approximate number of option contracts for each Bitcoin Fund that
equate to the notional value of CME Bitcoin futures is significantly
higher than the proposed limit of 25,000 options contract for each
Bitcoin Fund option. The fact that many options ultimately expire out-
of-the-money and thus are not exercised for shares of the underlying,
while the delta of a Bitcoin Future is 1, further demonstrates how
conservative the proposed limits of 25,000 options contracts are for
the Bitcoin Fund options.
---------------------------------------------------------------------------
\40\ 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.
---------------------------------------------------------------------------
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).\41\ 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.\42\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position shall not constitute a position limit
violation. Considering CME's position limits on futures for Bitcoin,
the Exchange believes that that the proposed same side position limits
are more than appropriate for the Bitcoin Fund options.
---------------------------------------------------------------------------
\41\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\42\ Id.
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As provided in the CBOE Approval Order, the proposed position and
[[Page 95839]]
exercise limits in this proposal will have no material impact to the
supply of Bitcoin. For example, consider again the proposed position
limit of 25,000 option contracts for each Bitcoin Fund option. As noted
above, a position limit of 25,000 same side contracts effectively
restricts a market participant from holding positions that could result
in the receipt of no more than 2,500,000 shares of the applicable
Bitcoin Fund (if that market participant exercised all of its options).
As provided in the CBOE Approval Order, if 80 market participants
had 25,000 same side positions in Fidelity Fund options, each of them
would have to simultaneously exercise all of those options to create a
scenario that may put the underlying security under stress. Similarly,
if 18 market participants had 25,000 same side positions in ARK 21 Fund
options, each of them would have to simultaneously exercise all of
those options to create a scenario that may put the underlying security
under stress. The Exchange believes it is highly unlikely for either
such event to occur; however, even if either such event did occur, the
Exchange would not expect either Bitcoin Fund to be under stress
because such an event would merely induce the creation of more shares
through the trust's creation and redemption process.
As of August 7, 2024, the global supply of Bitcoin was
approximately 19,736,528.\43\ Based on the $47.88 price of a Fidelity
Fund share on August 7, 2024, a market participant could have redeemed
one Bitcoin for approximately 1,149 Fidelity Fund shares. Another
22,677,270,672 Fidelity Fund shares could be created before the supply
of Bitcoin was exhausted. As a result, 9,070 market participants would
have to simultaneously exercise 25,000 same side positions in Fidelity
Fund options to receive shares of the Fidelity Fund holding the entire
global supply of Bitcoin. Similarly, based on the $54.68 price of an
ARK 21 Fund share on August 7, 2024, a market participant could have
redeemed one Bitcoin for approximately 1,006 ARK 21 Fund Shares.
Another 19,854,947,168 ARK 21 Fund shares could be created before the
supply of Bitcoin were exhausted. As a result, 7,941 market
participants would have to simultaneously exercise 25,000 same side
positions in ARK 21 Fund options to receive shares of the ARK 21 Fund
holding the entire global supply of Bitcoin. Unlike the Bitcoin Funds,
the number of shares that corporations may issue is limited. However,
like corporations, which authorize additional shares, repurchase
shares, or split their shares, the Bitcoin Funds may create, redeem, or
split shares in response to demand. While the supply of Bitcoin is
limited to 21,000,000, it is believed that it will take more than 100
years to fully mine the remaining Bitcoin.\44\ The supply of Bitcoin is
larger than the available supply of most securities.\45\ Given the
significant unlikelihood of any of these events ever occurring, the
Exchange does not believe options on the Bitcoin Funds should be
subject to position and exercise limits even lower than those proposed
(which are already equal to the lowest available limit for equity
options in the industry) to protect the supply of Bitcoin.\46\
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\43\ See Blockchain.com [verbar] Charts--Total Circulating
Bitcoin (which also shows the price of one Bitcoin equal to
$55,033.47).
\44\ See Pre-Effective Amendment No. 5 to Form S-1 Registration
Statement No. 333-254652, Fidelity Fund, filed January 9, 2024, at
53--54; and Amendment No. 8 to Form S-1 Registration Statement No.
333-257474, ARK 21 Fund, filed January 9, 2024, at 15.
\45\ 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/.
\46\ This would be even more unlikely with respect to the
Bitcoin Funds for which the Exchange proposes lower position limits.
---------------------------------------------------------------------------
The Exchange believes the available supply of Bitcoin is not
relevant to the determination of position and exercise limits for
options overlying the Bitcoin Funds.\47\ Position and exercise limits
are not a tool that should be used to address a potential limited
supply of an underlying. Position and exercise limits do not limit the
total number of options that may be held, but rather they limit the
number of positions a single customer may hold or exercise at one
time.\48\ ``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.'' \49\ 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.''
\50\
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\47\ The Exchange is unaware of any proposed rule change related
to position and exercise limits for any equity option (including
commodity ETF options) for which the Commission required
consideration of whether the available supply of an underlying
(whether it be a corporate stock or an ETF) or the contents of an
ETF (commodity or otherwise) should be considered when an exchange
proposed to establish those limits. See, e.g., Securities Exchange
Act Release No. 57894 (May 30, 2008), 73 FR 32061 (June 5, 2008)
(SR-CBOE-2005-11) (approval order in which the Commission stated
that the ``listing and trading of Gold Trust Options will be subject
to the exchanges' rules pertaining to position and exercise limits
and margin''). For reference, the current position and exercise
limits for options on SPDR Gold Shares ETF (``GLD'') and options on
iShares Silver Trust (``SLV'') are 250,000 contracts, or 10 times
that proposed position and exercise limit for the Bitcoin Fund
options.
\48\ For example, suppose an option has a position limit of
25,000 option contracts and there are a total of 10 investors
trading that option. If all 10 investors max out their positions,
that would result in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide to begin trading
that option and also max out their positions. This would result in
500,000 option contracts outstanding at that time. An increase in
the number of investors could cause an increase in outstanding
options even if position limits remain unchanged.
\49\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\50\ See id.
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The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each Bitcoin Fund, each of which
described the supply of Bitcoin as being limited to 21,000,000 (of
which approximately 90% had already been mined), and that the limit
would be reached around the year 2140.\51\ Each Registration Statement
permits an unlimited number of shares of the applicable Bitcoin ETF to
be created. Further, the Commission approved proposed rule changes that
permitted the listing and trading of shares of each Bitcoin Fund, which
approval did not comment on the sufficient supply of Bitcoin or address
whether there was a risk that permitting an unlimited number of shares
for a Bitcoin Fund would impact the supply of Bitcoin.\52\ Therefore,
the Exchange believes the Commission had ample time and opportunity to
consider whether the supply of Bitcoin was sufficient to permit the
creation of unlimited Bitcoin Fund shares, and does not believe
considering this supply with respect to the establishment of position
and exercise limits is appropriate given its lack of relevance to the
purpose of position and exercise limits. However, given the significant
size of the Bitcoin supply, the proposed
[[Page 95840]]
position limits are more than sufficient to protect investors and the
market.
---------------------------------------------------------------------------
\51\ See Pre-Effective Amendment No. 5 to Form S-1 Registration
Statement No. 333-254652, Fidelity Fund, filed January 9, 2024, at
53--54; and Amendment No. 8 to Form S-1 Registration Statement No.
333-257474, ARK 21 Fund, filed January 9, 2024, at 15.
\52\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------
Based on the above information demonstrating, among other things,
that each Bitcoin Fund is characterized by a substantial number of
outstanding shares that are actively traded and widely held, the
Exchange believes the proposed position and exercise limits are
extremely conservative compared to those of ETF options with similar
market characteristics. The proposed position and exercise limits
reasonably and appropriately balance the liquidity provisioning in the
market against the prevention of manipulation. The Exchange believes
these proposed limits are effectively designed to prevent an individual
customer or entity from establishing options positions that could be
used to manipulate the market of the underlying as well as the Bitcoin
market.\53\
---------------------------------------------------------------------------
\53\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------
The Exchange believes the proposed rule change to exclude the
Bitcoin Funds from being eligible for trading as FLEX Equity Options is
consistent with the Act, because without this prohibition, trading a
FLEX Equity Option in the Bitcoin Funds would otherwise establish
different position and exercise limits than those proposed herein.\54\
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\54\ The Exchange would be required to submit a separate rule
filing to permit the Exchange to authorize for trading FLEX Equity
Options on the Bitcoin Funds (which filing may propose changes to
existing FLEX Equity Option position limits for such options if
appropriate).
---------------------------------------------------------------------------
The Exchange represents that it has the necessary systems capacity
to support the new Bitcoin Fund options. The Exchange believes that its
existing surveillance and reporting safeguards are designed to deter
and detect possible manipulative behavior which might arise from
listing and trading options, including Bitcoin Fund options. The
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal-commodity backed ETP options as well as the proposed
options on Bitcoin Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Bitcoin Funds and to deter and detect violations of Exchange rules.
Additionally, the Exchange is a member of the ISG under the Intermarket
Surveillance Group Agreement. The Exchange would be able to obtain
information regarding trading in shares of the Bitcoin Funds from BZX
and other markets that trade shares of the Bitcoin Funds through ISG.
ISG members work together to coordinate surveillance and investigative
information sharing in the stock, options, and futures markets. In
addition, the Exchange has a Regulatory Services Agreement with FINRA
and, as noted herein, pursuant to a multi-party 17d-2 joint plan, all
options exchanges allocate regulatory responsibilities to FINRA to
conduct certain options-related market surveillances. Further, the
Exchange will implement any new surveillance procedures it deems
necessary to effectively monitor the trading of options on the Bitcoin
Funds. The underlying shares of spot bitcoin ETPs, including the
Bitcoin Funds, are also subject to safeguards related to addressing
market abuse and manipulation. As the Commission stated in its order
approving proposals of several exchanges to list and trade shares of
spot bitcoin-based ETPs, ``[e]ach Exchange has a comprehensive
surveillance-sharing agreement with the CME via their common membership
in the Intermarket Surveillance Group. This facilitates the sharing of
information that is available to the CME through its surveillance of
its markets, including its surveillance of the CME bitcoin futures
market.'' \55\ 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].''
\56\ The Exchange believes that existing surveillance procedures are
designed to deter and detect possible manipulative behavior which might
potentially arise from listing and trading the proposed options on the
Bitcoin Funds. Further, the Exchange will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on Bitcoin ETPs. Finally, the Exchange notes that
this proposal will remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general,
protect investors because applicable Exchange rules will require that
customers receive appropriate disclosure before trading options in
Bitcoin Funds \57\ and will require that brokers opening accounts and
recommending options transactions comply with relevant customer
suitability standards.\58\ The Exchange notes the proposed rule change
is substantively the same as a rule change proposed by CBOE which the
Commission recently approved.\59\
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\55\ 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).
\56\ See Bitcoin ETP Order, 89 FR at 3010-11.
\57\ See Rules 4020(b), (e) and 4100.
\58\ See Rule 4040.
\59\ See supra note 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In this regard and as indicated
above, the Exchange notes that the rule change is being proposed as a
competitive response to a filing submitted by CBOE that was recently
approved by the Commission.\60\
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\60\ Id.
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Intramarket Competition: The Exchange does not believe that the
proposed rule change will impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act as Bitcoin Funds would need to satisfy the initial listing
standards set forth in the Exchange Rules in the same manner as any
other ETF before the Exchange could list options on them. Additionally,
Bitcoin Fund options will be equally available to all market
participants who wish to trade such options. The Exchange Rules
currently applicable to the listing and trading of options on ETFs on
BOX will apply in the same manner to the listing and trading of all
options on Bitcoin Funds, including, for example, Rules that govern
expirations, exercise prices, minimum increments, margin requirements,
customer accounts, and trading halt procedures. Also, and as stated
above, the Exchange already lists options on other commodity-based
ETPs.\61\ Further, the Bitcoin Funds would need to satisfy the
maintenance listing standards set forth in the Exchange Rules in the
same manner as any other ETF for the Exchange to continue listing
options on them.
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\61\ See Rule 5020(h).
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[[Page 95841]]
Intermarket Competition: The Exchange does not believe that the
proposal to list and trade options on Bitcoin Funds will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the extent that the
advent of Bitcoin Fund options trading on BOX may make BOX a more
attractive marketplace to market participants at other exchanges, such
market participants are free to elect to become market participants on
BOX. As noted herein, this is a competitive filing as the Commission
recently approved the listing and trading of the Bitcoin Funds on
another options exchange.\62\ Additionally, other options exchanges are
free to amend their listing rules, as applicable, to permit them to
list and trade options on Bitcoin Funds. The Exchange notes that
listing and trading Bitcoin Fund options on BOX will subject such
options to transparent exchange-based rules as well as price discovery
and liquidity, as opposed to alternatively trading such options in the
OTC market.
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\62\ See supra note 5.
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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 BOX in a manner that is
beneficial to investors by providing them with a lower-cost option to
hedge their investment portfolios. The Exchange notes that BOX operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues that offer similar products.
Ultimately, the Exchange believes that offering Bitcoin Fund options
for trading on BOX will promote competition by providing investors with
an additional, relatively low-cost means to hedge their portfolios and
meet their investment needs in connection with Bitcoin prices and
Bitcoin-related products and positions on a listed options exchange.
Finally, the proposed rule change to exclude Bitcoin Fund options
from being eligible for trading as FLEX Equity Options does not impose
an undue burden on competition as no BOX Participant will be able to
transact a FLEX Equity Option on the Bitcoin Funds.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \63\ and Rule 19b-
4(f)(6) thereunder.\64\
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\63\ 15 U.S.C. 78s(b)(3)(A).
\64\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission waives this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act normally does not become operative for 30 days after the date of
its filing. However, Rule 19b-4(f)(6)(iii) \65\ permits the Commission
to designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission previously
approved the listing of options on the shares of the Bitcoin Funds.\66\
The Exchange has provided information regarding the underlying Bitcoin
Funds, including, among other things, information regarding trading
volume, the number of beneficial holders, and the market capitalization
of the Bitcoin Funds. The proposal also establishes position and
exercise limits for options on the Bitcoin Funds and provides
information regarding the surveillance procedures that will apply to
options on the Bitcoin Funds. The Commission believes that waiver of
the operative delay could benefit investors by providing an additional
venue for trading Bitcoin Fund options. Therefore, the Commission
believes that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Accordingly, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change operative upon filing.\67\
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\65\ 17 CFR 240.19b-4(f)(6)(iii).
\66\ See supra note 5.
\67\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number
SR-BOX-2024-29 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-BOX-2024-29. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
[[Page 95842]]
submissions should refer to file number SR-BOX-2024-29 and should be
submitted on or before December 24, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\68\
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\68\ 17 CFR 200.30-3(a)(12), (59).
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Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2024-28341 Filed 12-2-24; 8:45 am]
BILLING CODE 8011-01-P
