Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 19.3, Criteria for Underlying Securities, To List and Trade Options on the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, and the Bitwise Bitcoin ETF, 105143-105152 [2024-30779]
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101968; File No. SR–NYSE–
2024–35]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of a Longer Period for
Commission Action on Proceedings To
Determine Whether To Approve or
Disapprove a Proposed Rule Change
To Amend Section 302.00 of the NYSE
Listed Company Manual To Exempt
Closed-End Funds Registered Under
the Investment Company Act of 1940
From the Requirement To Hold Annual
Shareholder Meetings
December 18, 2024.
On June 21, 2024, New York Stock
Exchange LLC (‘‘NYSE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Section 302.00 of the NYSE
Listed Company Manual to exempt
closed-end funds registered under the
Investment Company Act of 1940 from
the requirement to hold annual
shareholder meetings. The proposed
rule change was published for comment
in the Federal Register on July 9, 2024.3
On August 21, 2024, pursuant to
Section 19(b)(2) of the Exchange Act,4
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
On October 4, 2024, the Commission
instituted proceedings under Section
19(b)(2)(B) of the Act 6 to determine
whether to approve or disapprove the
proposed rule change.7
Section 19(b)(2) of the Act 8 provides
that, after initiating proceedings, the
Commission shall issue an order
approving or disapproving the proposed
rule change not later than 180 days after
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 100460
(July 3, 2024), 89 FR 56447. Comments on the
proposed rule change are available at: https://
www.sec.gov/comments/sr-nyse-2024-35/
srnyse202435.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No.
100790, 89 FR 68676 (Aug. 27, 2024). The
Commission designated October 7, 2024, as the date
by which the Commission shall approve or
disapprove, or institute proceedings to determine
whether to disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No.
101257, 89 FR 82277 (Oct. 10, 2024).
8 15 U.S.C. 78s(b)(2).
ddrumheller on DSK120RN23PROD with NOTICES1
2 17
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the date of publication of notice of filing
of the proposed rule change. The
Commission may extend the period for
issuing an order approving or
disapproving the proposed rule change,
however, by not more than 60 days if
the Commission determines that a
longer period is appropriate and
publishes the reasons for such
determination. The proposed rule
change was published for comment in
the Federal Register on July 9, 2024.9
The 180th day after publication of the
proposed rule change is January 5, 2025.
The Commission is extending the time
period for approving or disapproving
the proposed rule change for an
additional 60 days.
The Commission finds that it is
appropriate to designate a longer period
within which to issue an order
approving or disapproving the proposed
rule change so that it has sufficient time
to consider the proposed rule change,
the issues raised therein, and the
comments received. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,10 designates March
6, 2025, as the date by which the
Commission shall either approve or
disapprove the proposed rule change
(File No. SR–NYSE–2024–35).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024–30688 Filed 12–23–24; 8:45 am]
BILLING CODE 8011–01–P
105143
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule change to
amend Rule 19.3, Criteria for
Underlying Securities. The text of the
proposed rule change is provided in
Exhibit 5.
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
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101973; File No. SR–
MEMX–2024–47]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend Exchange Rule
19.3, Criteria for Underlying Securities,
To List and Trade Options on the
Grayscale Bitcoin Trust, the Grayscale
Bitcoin Mini Trust, and the Bitwise
Bitcoin ETF
December 19, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
12, 2024, MEMX LLC (‘‘MEMX’’ or
‘‘Exchange’’) filed with the Securities
9 See
supra note 3 and accompanying text.
U.S.C. 78s(b)(2).
11 17 CFR 200.30–3(a)(57).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
10 15
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The Exchange proposes to amend
Rule 19.3 regarding the criteria for
underlying securities. Specifically, the
Exchange proposes to amend Rule
19.3(i) to allow the Exchange to list and
trade options on shares or other
securities (‘‘Fund Shares’’) that are
principally traded on a national
securities exchange and are defined as
an ‘‘NMS stock’’ under Rule 600 of
Regulation NMS and that represent
interests in the Grayscale Bitcoin Trust
(the ‘‘Grayscale Fund’’), the Grayscale
Bitcoin Mini Trust (the ‘‘Grayscale Mini
Fund’’), or the Bitwise Bitcoin ETF (the
‘‘Bitwise Fund’’ and, together with the
Grayscale Fund, and the Grayscale Mini
Fund, the ‘‘Bitcoin Funds’’).3 This is a
3 See Securities Exchange Act Release No. 99306
(January 10, 2024), 89 FR 3008, (January 17, 2024)
(SR–NYSEArca–2021–90; SR–NYSEArca–2023–44;
SR–NYSEArca–2023–58; SRNASDAQ–2023–016;
SR–NASDAQ–2023–019; SR–CboeBZX–2023–028;
SR–CboeBZX–2023–038; SR–CboeBZX–2023–040;
SR–CboeBZX–2023–042; SR–CboeBZX–2023–044;
and SR–CboeBZX–2023–072) (Order Granting
Accelerated Approval of Proposed Rule Changes, as
E:\FR\FM\26DEN1.SGM
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
competitive filing based on a similar
proposal submitted by NYSE American,
LLC (‘‘NYSE American’’) which was
recently approved by the Securities and
Exchange Commission (the
‘‘Commission’’).4 Current Rule 19.3(i)
provides that, subject to certain other
criteria set forth in that Rule, securities
deemed appropriate for options trading
include Fund Shares that represent
certain types of interests,5 including
interests in certain specific trusts that
hold financial instruments, money
market instruments, precious metals
(which are deemed commodities), or
Bitcoin (which is deemed a commodity).
In addition, Rule 19.3(i)(1) requires that
Fund Shares meet the criteria and
standards set forth in Rule 19.3(a) and
(b) 6 or (2) be available for creation or
redemption each business day from or
through the issuer in cash or in kind at
Modified by Amendments Thereto, to List and
Trade Bitcoin-Based Commodity-Based Trust
Shares and Trust Units) (‘‘Bitcoin ETP Approval
Order’’).
4 See Securities Exchange Act Release No. 101386
(October 18, 2024), 89 FR 84960 (October 24, 2024)
(SR–NYSEAMER–2024–49) (‘‘NYSE American
Approval’’).
5 See Rule 19.3(i) which permits options trading
on Fund Shares that (1) represent interests in
registered investment companies (or series thereof)
organized as open-end management investment
companies, unit investment trusts or similar
entities, and that hold portfolios of securities
comprising or otherwise based on or representing
investments in indexes or portfolios of securities (or
that hold securities in one or more other registered
investment companies that themselves hold such
portfolios of securities) (‘‘Funds ’’) and/or financial
instruments including, but not limited to, stock
index futures contracts, options on futures, options
on securities and indexes, equity caps, collars and
floors, swap agreements, forward contracts,
repurchase agreements and reverse repurchase
agreements (the ‘‘Financial Instruments’’), and
money market instruments, including, but not
limited to, U.S. government securities and
repurchase agreements (the ‘‘Money Market
Instruments’’) constituting or otherwise based on or
representing an investment in an index or portfolio
of securities and/or Financial Instruments and
Money Market Instruments, or (2) represent
commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing
portfolios or baskets of securities, commodity
futures contracts, options on commodity futures
contracts, swaps, forward 477 [sic] contracts and/
or options on physical commodities and/or nonU.S. currency (‘‘Commodity Pool ETFs’’) or (3)
represent interests in a trust or similar entity that
holds a specified non-U.S. currency or currencies
deposited with the trust or similar entity when
aggregated in some specified minimum number
may be surrendered to the trust by the beneficial
owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest
and other distributions on the deposited non-U.S.
currency or currencies, if any, declared and paid by
the trust (‘‘Currency Trust Shares’’), or (4) represent
interests in the SPDR Gold Trust or are issued by
the iShares COMEX Gold Trust, the iShares Silver
Trust, or the iShares Bitcoin Trust.
6 Rule 19.3(a) and (b) sets forth the criteria that
underlying securities must satisfy for option
contracts on those underlying securities to be
eligible for listing and trading on the Exchange.
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a price related to net asset value, and
the issuer must be obligated to issue
Fund Shares in a specified aggregate
number even if some or all of the
investment assets required to be
deposited have not been received by the
issuer, subject to the condition that the
person obligated to deposit the
investments has undertaken to deliver
the investment assets as soon as
possible and such undertaking is
secured by the delivery and
maintenance of collateral consisting of
cash or cash equivalents satisfactory to
the issuer, as provided in the respective
prospectus.
The Bitcoin Funds are Bitcoin-backed
commodity exchange-traded funds
(‘‘ETFs’’) structured as trusts. Similar to
any Fund Share currently deemed
appropriate for options trading under
Rule 19.3(i), the investment objective of
each Bitcoin Fund is for its shares to
reflect the performance of Bitcoin (less
the expenses of the trust’s operations),
offering investors an opportunity to gain
exposure to Bitcoin without the
complexities of Bitcoin delivery. As is
the case for Fund Shares currently
deemed appropriate for options trading,
a Bitcoin Fund’s shares represent units
of fractional undivided beneficial
interest in the trust, the assets of which
consist principally of Bitcoin and are
designed to track Bitcoin or the
performance of the price of Bitcoin and
offer access to the Bitcoin market.7 The
Bitcoin Funds provide investors with
cost-efficient alternatives that allow a
level of participation in the Bitcoin
market through the securities market.
The primary substantive difference
between Bitcoin Funds and Fund Shares
currently deemed appropriate for
options trading is that Fund Shares may
hold securities, certain financial
instruments, and specified precious
metals (which are deemed
commodities), while Bitcoin Funds hold
Bitcoin (which is also deemed a
commodity). The Bitcoin Funds are
similar to the iShares Bitcoin Trust,
which is already eligible for options
trading on the Exchange.8
The Exchange’s initial listing
standards for Fund Shares on which
options may be listed and traded on the
Exchange will apply to the Bitcoin
Funds. Pursuant to Rule 19.3(a), a
security (which includes a Fund Share)
on which options may be listed and
traded on the Exchange must be
registered with the Commission and be
an ‘‘NMS stock’’ as defined in Rule 600
of Regulation NMS under the Act; and
the security shall be characterized by a
7 The
trust may include minimal cash.
8 See Rule 19.3(i).
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substantial number of outstanding
shares that are widely held and actively
traded. Rule 19.3(i)(1) requires that
Fund Shares either (1) meet the criteria
and standards set forth in Rule 19.3(a)
and (b),9 or (2) are available for creation
or redemption each business day in cash
or in kind from the investment
company, commodity pool or other
entity at a price related to net asset
value, and the investment company,
commodity pool or other entity is
obligated to provide that Fund Shares
may be created even if some or all of the
securities and/or cash required to be
deposited have not been received by the
Fund, the unit investment trust or the
management investment company,
provided the authorized creation
participant has undertaken to deliver
the securities and/or cash as soon as
possible and such undertaking is
secured by the delivery and
maintenance of collateral consisting of
cash or cash equivalents satisfactory to
the Fund, all as described in the Fund’s
or unit trust’s prospectus. Each Bitcoin
Fund satisfies Rule 19.3(i)(1)(B) as each
is subject to this creation and
redemption process.
Options on the Bitcoin Funds will be
subject to the Exchange’s continued
listing standards set forth in Rule 19.4(g)
for Fund Shares deemed appropriate for
options trading pursuant to Rule 19.3(i).
Specifically, 19.4(g) provides that Fund
Shares that were initially approved for
options trading pursuant to Rule 19.3
will not be deemed to meet the
requirements for continued approval,
and the Exchange shall not open for
trading any additional series of option
contracts of the class covering such
Fund Shares if the security ceases to be
an NMS stock (see Rule 19.4(b)(4)).
Additionally, the Exchange will not
open for trading any additional series of
option contracts of the class covering
Fund Shares in any of the following
circumstances: (1) in the case of options
covering Fund Shares approved for
trading under Rule 19.3(i)(4)(A), in
accordance with the terms of Rule
19.4(b)(1), (2) and (3); (2) in the case of
options covering Fund Shares approved
pursuant to Rule 19.3(i)(4)(B), following
the initial 12-month period beginning
upon the commencement of trading in
the Fund Shares on a national securities
exchange and are defined as NMS stock
under Rule 600 of Regulation NMS,
there were fewer than 50 record and/or
beneficial holders of such Fund Shares
for 30 consecutive days; (3) the value of
the index, non-U.S. currency, portfolio
9 Rule 19.3(a) and (b) sets forth the criteria an
underlying security must meet for the Exchange to
be able to list options on the underlying.
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices
of commodities including commodity
futures contracts, options on commodity
futures contracts, swaps, forward
contracts and/or options on physical
commodities and/or Financial
Instruments or Money Market
Instruments, or portfolio of securities on
which the Fund Shares are based is no
longer calculated or available; or (4)
such other event occurs or condition
exists that in the opinion of the
Exchange makes further dealing in such
options on the Exchange inadvisable.
Options on each Bitcoin Fund will be
physically settled contracts with
American-style exercise.10 Consistent
with current Rule 19.5, which governs
the opening of options series on a
specific underlying security (including
Fund Shares), the Exchange will open at
least one expiration month for options
on each Bitcoin Fund 11 at the
commencement of trading on the
Exchange and may also list series of
options on each Bitcoin Fund for
ddrumheller on DSK120RN23PROD with NOTICES1
10 See Rule 19.2, which provides that the rights
and obligations of holders and writers are set forth
in the Rules of the Options Clearing Corporation
(‘‘OCC’’); see also OCC Rules, Chapters VIII (which
governs exercise and assignment) and Chapter IX
(which governs the discharge of delivery and
payment obligations arising out of the exercise of
physically settled stock option contracts).
11 See Rule 19.5(b). The monthly expirations are
subject to certain listing criteria for underlying
securities described within Rule 19.3. Monthly
listings expire the third Friday of the month. The
term ‘‘expiration date’’ (unless separately defined
elsewhere in the OCC By-Laws), when used in
respect of an option contract (subject to certain
exceptions), means the third Friday of the
expiration month of such option contract, or if such
Friday is a day on which the exchange on which
such option is listed is not open for business, the
preceding day on which such exchange is open for
business. See OCC By-Laws Article I, Section 1.
Pursuant to Rule 19.5(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.
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19:37 Dec 23, 2024
Jkt 265001
trading on a weekly,12 monthly,13 or
quarterly 14 basis.
Pursuant to Rule 19.5, Interpretation
and Policy .01, which governs strike
prices of series of options on Fund
Shares, the interval of strikes prices for
series of options on Bitcoin Funds will
be $1 or greater when the strike price is
$200 or less and $5 or greater where the
strike price is over $200.15 Additionally,
the Exchange may list series of options
pursuant to the $1 Strike Price Interval
Program,16 the $0.50 Strike Program,17
the $2.50 Strike Price Program,18 and
the $5 Strike Program.19 Pursuant to
Rule 21.5, where the price of a series of
a Bitcoin Fund option is less than $3.00,
the minimum increment will be $0.05,
and where the price is $3.00 or higher,
the minimum increment will be $0.10.20
Any and all new series of Bitcoin Fund
options that the Exchange lists will be
consistent and comply with the
expirations, strike prices, and minimum
increments set forth in Rules 19.5 and
21.5, as applicable.
Bitcoin Fund options will trade in the
same manner as any other Fund Share
options on the Exchange. The Exchange
Rules that currently apply to the listing
and trading of all Fund Share options on
the Exchange, including, for example,
Rules that govern listing criteria,
expirations, exercise prices, minimum
increments, margin requirements,
12 See
Rule 19.5, Interpretation and Policy .05.
Rule 19.5, Interpretation and Policy .08.
14 See Rule 19.5, Interpretation and Policy .04.
15 The Exchange notes that for options listed
pursuant to the Short Term Option Series Program,
the Monthly Options Series Program, and the
Quarterly Options Series Program, Rule 19.5,
Interpretations and Policies .05, .08, and .04
specifically sets forth intervals between strike
prices on Quarterly Options Series, Short Term
Option Series, and Monthly Options Series,
respectively.
16 See Rule 19.5, Interpretation and Policy .02.
17 See Rule 19.5, Interpretation and Policy .06.
18 See Rule 19.5, Interpretation and Policy .03.
19 See Rule 19.5(d)(5).
20 If options on a Bitcoin Fund are eligible to
participate in the Penny Interval Program, the
minimum increment will be $0.01 for series with
a price below $3.00 and $0.05 for series with a price
at or above $3.00. See Rule 21.5(d) (which describes
the requirements for the Penny Interval Program).
13 See
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105145
customer accounts, and trading halt
procedures will apply to the listing and
trading of Bitcoin Funds options on the
Exchange in the same manner as they
apply to other options on all other Fund
Shares that are listed and traded on the
Exchange, including the precious-metal
backed commodity Fund Shares and the
Fidelity and Ark 21 Funds already
deemed appropriate for options trading
[sic] on the Exchange pursuant to
current already deemed appropriate for
options trading [sic] on the Exchange
pursuant to current Rule 19.3(i).
Pursuant to Rules 18.7 21 and 18.9, the
position and exercise limits,
respectively, for each Bitcoin Fund
option will be 25,000 same side option
contracts. In considering the appropriate
position and exercise limits for the
Bitcoin Funds, the Exchange reviewed
the data presented by NYSE American
in its filing.22 NYSE American
aggregated market capitalization,
volume, and shares outstanding data of
the Bitcoin Funds and compared that
data to those of other ETFs, and
compared the proposed position limit of
the Bitcoin Funds to the position limits
of the options overlying those other
ETFs. The Exchange reviewed NYSE
American’s data that demonstrated that
each of these three Bitcoin Funds would
easily qualify for the 250,000-contract
position limit available to other ETFs
and ETPs.23
21 See Regulatory Notice 23–12, available at:
https://info.memxtrading.com/wp-content/uploads/
2023/09/RegNotice-23-12-Options-PositionLimits.pdf, which informed Exchange members of
the specific position limits applicable to options
trading on MEMX Options, pursuant to Rule 18.7,
as those position limits calculated and
disseminated by the OCC, published daily and
which can be found at: https://www.theocc.com/
market-data/market-data-reports/series-andtrading-data/position-limits.
22 See NYSE American Approval.
23 To be eligible for the 250,000 option contract
limit, either the most recent six-month trading
volume of the underlying security must have
totaled at least 100,000,000 shares; or the most
recent six-month trading volume of the underlying
security must have totaled at least 75,000,000
shares and the underlying security must have at
least 300,000,000 currently outstanding.
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Federal Register / Vol. 89, No. 247 / Thursday, December 26, 2024 / Notices
Total volume
(shares)
(as of
September 30,
2024)
Bitcoin Fund
Grayscale Fund ...............................................................................................................................................................................
Grayscale Mini Fund ........................................................................................................................................................................
Bitwise Fund ....................................................................................................................................................................................
Based on this trading volume,24 each
Bitcoin Fund exceeded the requisite
100,000,000 shares necessary to qualify
for the 250,000-contract position and
exercise limits. By comparison, the
underlying of other options with sixmonth trading volume less than the
volumes in the table above are eligible
for position and exercise limits of at
least 250,000.25
Second, with respect to the
outstanding shares of these three Bitcoin
Funds, the Exchange reviewed NYSE
American’s data regarding the
outstanding shares of each of these
Bitcoin Funds. NYSE American
performed an exercise to demonstrate
that if a market participant held the
Grayscale Fund .................................................................................................
Grayscale Mini Fund ..........................................................................................
Bitwise Fund ......................................................................................................
As this table demonstrates, if a market
participant held the maximum
permissible options positions in one of
the Bitcoin Fund options and exercised
all of them at the same time, that market
participant would control a small
percentage of the outstanding shares of
the underlying Bitcoin Fund. For
maximum number of contracts possible
pursuant to the proposed position and
exercise limits (25,000 contracts), the
equivalent shares represented by the
proposed position and exercise limits
(2,500,000 shares) would represent the
following approximate percentage of
outstanding shares as of August 30,
2024:
Proposed position/exercise
limits in equivalent shares
Bitcoin Fund
Percentage of
outstanding
shares
(%)
284,570,100
366,950,100
68,690,000
0.9
0.7
3.6
number of shares outstanding for each
Bitcoin Fund as of August 30, 2024, and
calculated the approximate number of
market participants that could hold the
maximum of 25,000 same side positions
in each Bitcoin Fund that would equate
to the number of shares outstanding of
that Bitcoin Fund:
Outstanding
shares
Bitcoin Fund
Grayscale Fund .................................................................................................................................
Grayscale Mini Fund ..........................................................................................................................
Bitwise Fund ......................................................................................................................................
ddrumheller on DSK120RN23PROD with NOTICES1
Outstanding
shares
2,500,000
2,500,000
2,500,000
example, as noted above, a position
limit of 25,000 same side contracts
effectively restricts a market participant
from holding positions that could result
in the receipt of no more than 2,500,000
shares of the applicable Bitcoin Fund (if
that market participant exercised all its
options). NYSE American used the
723,758,100
335,492,930
263,965,870
284,570,100
366,950,100
68,690,000
Number of market
participants with
25,000 same side
positions
114
147
27
This means if 114 market participants
had 25,000 same side positions in
options on the Grayscale Fund, each of
them would have to simultaneously
exercise all of those options to create a
scenario that may put the underlying
security under stress. Similarly, this
means if 147 market participants had
25,000 same side positions in options
on the Grayscale Mini Fund, each of
them would have to simultaneously
exercise all of those options to create a
scenario that may put the underlying
security under stress. Finally, this
means if 27 market participants had
25,000 same side positions in options
on the Bitwise Fund, each of them
would have to simultaneously exercise
all of those options to create a scenario
that may put the underlying security
under stress. The Exchange believes it is
highly unlikely for this to occur;
however, even if such event did occur,
the Exchange would not expect any of
the Bitcoin Fund to be under stress
because such an event would merely
induce the creation of more shares
through the trust’s creation and
redemption process.
NYSE American also performed an
exercise to compare the size of the
proposed position limit to the market
capitalization of the Bitcoin market
given that the issuer of each of these
three Bitcoin Funds may create and
redeem shares that represent an interest
in Bitcoin. NYSE American took the
global supply of Bitcoin, which was
19,747,066, and the price of one Bitcoin,
which was approximately $59,108.23, as
of August 30, 2024, which equates to a
market capitalization of approximately
24 See FactSet, 9/30/2024, https://
www.factset.com/data-attribution. Bitwise Fund
shares began trading on July 31, 2024, and therefore
the data in the above table has only two months of
trading data available.
25 See https://www.theocc.com/Market-Data/
Market-Data-Reports/Series-and-Trading-Data/
SeriesSearch (including the following symbols that
have a position limit of 250,000: GLD, IAU, SLV,
SIVR, SGOL).
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$1.167 trillion.26 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
30, 2024 and calculated the value of
2,500,000 shares of the Bitcoin Fund at
that price, and the approximate
percentage of that value of the size of
the Bitcoin market:
the receipt of no more than 2,500,000
shares of the Grayscale Fund, the
Grayscale Mini Fund, or the Bitwise
Fund, as applicable (if that market
participant exercised all its options).
NYSE American considered the share
price of each Bitcoin Fund on August
Grayscale Fund ...........................................................................................................................
Grayscale Mini Fund ....................................................................................................................
Bitwise Fund ................................................................................................................................
Therefore, if a market participant with
the maximum 25,000 same side
contracts in options on the Grayscale
Fund, the Grayscale Mini Fund, or the
Bitwise Fund exercised all positions at
one time, such an event would have no
practical impact on the Bitcoin market.
The Exchange also reviewed NYSE
American’s data regarding the market
46.75
5.20
31.95
Total Bitcoin Market ...............................................................................................
Grayscale Fund .....................................................................................................
Grayscale Mini Fund ..............................................................................................
Bitwise Fund ..........................................................................................................
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Grayscale Fund ...............................................................................................................................................
Grayscale Mini Fund ........................................................................................................................................
Bitwise Fund ....................................................................................................................................................
26 See https://www.blockchain.com/explorer/
charts/total-bitcoins.
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27 See
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46.94
5.23
32.08
Fmt 4703
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100
1.15
0.17
0.19
Number of
option contracts
125,585
1,127,151
183,759
proposed limits of 25,000 options
contracts are for the Bitcoin Fund
options.
The Exchange notes, again, unlike
options contracts, CME position limits
are calculated on a net futures-
id.
Frm 00183
% of total
Bitcoin market
1,167,214,096,788
13,443,091,524
1,930,157,526
2,221,640,670
Share price
($)
option. As noted above, the fact that
many options ultimately expire out-ofthe-money and thus are not exercised
for shares of the underlying, while the
delta of a Bitcoin Future is 1, further
demonstrates how conservative the
0.010
0.001
0.007
14,613 market participants would have
to simultaneously exercise 25,000 same
side positions in Bitwise Fund options
to receive shares of Bitwise Fund
holding the entire global supply of
Bitcoin.
NYSE American also compared the
proposed position limits to the position
limit of CME Bitcoin futures, which as
noted above is 2,000 futures. On August
28, 2024, CME Aug 24 Bitcoin Futures
settled at $58,950. A position of 2,000
CME Bitcoin futures, therefore, would
have a notional value of $589,500,000.
The following table shows the share
price of each Bitcoin Fund on August
28, 2024, and the approximate number
of option contracts that equates to that
notional value:
Bitcoin Fund
The approximate number of option
contracts for each Bitcoin Fund that
equate to the notional value of CME
Bitcoin futures is significantly higher
than the proposed limit of 25,000
options contracts for each Bitcoin Fund
116,875,000
13,000,000
79,875,000
Market value
($)
19,747,066
284,570,100
366,950,100
68,690,000
market participant could have redeemed
one Bitcoin for approximately 11,367
Grayscale Mini Fund shares. Another
224,464,249,382 Grayscale Mini Fund
shares could be created before the
supply of Bitcoin was exhausted. As a
result, 89,786 market participants would
have to simultaneously exercise 25,000
same side positions in Grayscale Mini
Fund options to receive shares of
Grayscale Mini Fund holding the entire
global supply of Bitcoin. Similarly,
based on the $31.95 price of a Bitwise
Fund share on August 30, 2024, a
market participant could have redeemed
one Bitcoin for approximately 1,850
Bitwise Fund shares. Another
36,532,522,591 Bitwise Fund shares
could be created before the supply of
Bitcoin was exhausted. As a result,
Percentage of
bitcoin market
capitalization of each of these three
Bitcoin Funds relative to the market
capitalization of the entire Bitcoin
market, as of August 30, 2024: 27
Bitcoin/shares
outstanding
As this data gathered by NYSE
American demonstrates, none of these
three Bitcoin Funds represent more than
1.2% of the global supply of Bitcoin
(19,747,066). Based on the $46.75 price
of a Grayscale Fund share on August 30,
2024, a market participant could have
redeemed one Bitcoin for approximately
1,264 Grayscale Fund shares. Another
24,967,146,455 Grayscale Fund shares
could be created before the supply of
Bitcoin was exhausted. As a result,
9,987 market participants would have to
simultaneously exercise 25,000 same
side positions in Grayscale Fund
options to receive shares of the
Grayscale Fund holding the entire
global supply of Bitcoin. Similarly,
based on the $5.20 price of a Grayscale
Mini Fund share on August 30, 2024, a
Value of
2,500,000
shares
Share price
($)
Bitcoin Fund
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equivalent basis by contract and include
contracts that aggregate into one or more
base contracts according to an
aggregation ratio(s).28 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.29 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 Grayscale
Fund, Grayscale Mini Fund, and Bitwise
Fund options.
While the supply of Bitcoin is limited
to 21,000,000, it is believed that it will
take more than 100 years to fully mine
the remaining Bitcoin.30 The Exchange
notes that Bitcoin is a viable economic
alternative to traditional assets. The
price of goods denominated by Bitcoin
has actually declined. This dynamic not
only makes a fixed supply desirable, but
a necessary condition of the value
added by this asset in the broader
economy. Unlike the Bitcoin Funds, the
number of shares that corporations may
issue is limited. However, like
corporations, which authorize
additional shares, repurchase shares, or
split their shares, the Bitcoin Funds may
create, redeem, or split shares in
response to demand. Given the
significant unlikelihood of any of events
described above ever occurring, the
Exchange does not believe options on
the Bitcoin Funds should be subject to
position and exercise limits even lower
than those proposed (which are already
equal to the lowest available limit for
equity options in the industry) to
protect the supply of Bitcoin.
28 See CME Rulebook Chapter 5, Position Limit,
Position Accountability and Reportable Level Table
in the Interpretations & Special Notices.
29 Id.
30 See https://www.blockchain.com/explorer/
assets/btc (citing 21 million as the ‘‘total supply’’
of bitcoin).
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Importantly, because the supply of
Bitcoin is much larger than the available
supply of most securities and the
proposed 25,000 contract position limit
is so conservative, the Exchange
believes that evaluating the available
supply of Bitcoin in establishing a
position limit for options on each of the
Bitcoin Funds would demonstrate that
the proposed limit is safe for investors
and the market.31 Each Bitcoin Fund
represents less than 2% of the entire
Bitcoin supply. When comparing the
market capitalization of bitcoin against
the largest securities, Bitcoin would
rank 7th among those securities.32
Further, the Exchange believes that its
proposal to list options on the Bitcoin
Funds each with a position limit of
25,000 on the same side is a
conservative position limit that does not
lend itself to manipulation in the market
given the ample market capitalization
and liquidity in each Bitcoin Fund. If
we look to the liquidity statistics of
similar instruments and their
concomitant position limits, we are able
to extrapolate a reasonable standard for
arriving at a position limit for a new
product. In this case we can look to
GLD, SLV, and the ProShares Bitcoin
Strategy ETF. These products have
volume statistics and ‘‘float’’ statistics,
which gauge liquidity, which are in
line, yet slightly lower than the Bitcoin
Funds. All three of these reference
products have position limits of 250,000
contracts. These reference products are
remarkably similar in nature to the
Bitcoin Funds; they are exchange-traded
products (‘‘ETPs’’) holding one asset in
a trust.
The Exchange believes the available
supply of Bitcoin is not relevant to the
determination of position and exercise
limits for options overlying the Bitcoin
Funds.33 Position and exercise limits are
not a tool that should be used to address
a potential limited supply of the
underlying of an underlying. Position
and exercise limits do not limit the total
31 A supply consideration would likely be
valuable for an option symbol that had far less
liquidity than the Trust.
32 See https://companiesmarketcap.com/usa/
largest-companies-in-the-usa-by-market-cap/.
33 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’’).
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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.34 ‘‘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.’’ 35 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.’’ 36
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 2140.37 Each Registration
Statement permits an unlimited number
of shares of the applicable Bitcoin Fund
to be created. Further, the Commission
approved proposed rule changes that
permitted the listing and trading of
shares of each Bitcoin Fund, which
approval did not comment on the
sufficient supply of Bitcoin or address
whether there was a risk that permitting
an unlimited number of shares for a
Bitcoin Fund would impact the supply
34 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.
35 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
36 See id.
37 See iShares Fund Form S–1 Registration
Statement, at p. 25 https://www.sec.gov/Archives/
edgar/data/1980994/000143774923017574/
bit20230608_s1.htm; Grayscale Fund Form S–1
Registration Statement, at p. 17, https://
www.sec.gov/Archives/edgar/data/1588489/
000119312517013693/d157414ds1.htm; Grayscale
Mini Fund, Form S–1 Registration Statement, at p.
21, https://www.sec.gov/Archives/edgar/data/
2015034/000119312524065444/d785023ds1.htm;
and Bitwise Amendment No 2. to S–1, at p. 47,
https://www.sec.gov/Archives/edgar/data/1763415/
000199937123000735/bitwise-s1a_120423.htm.
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of Bitcoin.38 Therefore, the Exchange
believes the Commission had ample
time and opportunity to consider
whether the supply of Bitcoin was
sufficient to permit the creation of
unlimited Bitcoin Fund shares, and
does not believe considering this supply
with respect to the establishment of
position and exercise limits is
appropriate given its lack of relevance to
the purpose of position and exercise
limits. However, given the significant
size of the Bitcoin supply, the proposed
positions limits are more than sufficient
to protect investors and the market.
All of the above information
demonstrates that the proposed position
and exercise limits for the Bitcoin Fund
options are more than reasonable and
appropriate. The trading volume, ADV,
and outstanding shares of each Bitcoin
Fund demonstrate that these funds are
actively traded and widely held, and
proposed position and exercise limits
are well below those of other ETFs with
similar market characteristics. The
proposed position and exercise limits
are the lowest position and exercise
limits available for equity options in the
industry, are extremely conservative,
and are more than appropriate given
each Bitcoin Fund’s market
capitalization and ADV.
Today, the Exchange has an adequate
surveillance program in place for
options. The Exchange intends to apply
those same program procedures to
options on the Bitcoin Funds that it
applies to the Exchange’s other options
products.39 The Exchange’s market
surveillance staff would have access to
the surveillances conducted by the
Exchange and its affiliate exchange,
MEMX Equities, with respect to the
Bitcoin Funds, trading in the shares of
the underlying Bitcoin Funds, and
would review activity in the underlying
Bitcoin Funds when conducting
surveillances for market abuse or
manipulation in the options on the
Bitcoin Funds. Additionally, the
Exchange is a member of the
Intermarket Surveillance Group (‘‘ISG’’)
under the Intermarket Surveillance
Group Agreement. ISG members work
together to coordinate surveillance and
investigative information sharing in the
stock, options, and futures markets. In
addition to obtaining information from
its affiliated market, the Exchange
would be able to obtain information
regarding trading in shares of the
Bitcoin Funds from their primary listing
38 See
Bitcoin ETP Approval Order.
surveillance program includes surveillance
patterns for price and volume movements as well
as patterns for potential manipulation (e.g.,
spoofing and marking the close).
39 The
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market, NYSE Arca, and from other
markets that trades shares of the Bitcoin
Funds through ISG. In addition, the
Exchange has a Regulatory Services
Agreement with the Financial Industry
Regulatory Authority (‘‘FINRA’’) for
certain market surveillance,
investigation and examinations
functions. Pursuant to a multi-party
17d–2 joint plan, all options exchanges
allocate amongst themselves and FINRA
responsibilities to conduct certain
options-related market surveillance that
are common to rules of all options
exchanges.40
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.41 The Exchange
states that, given the consistently high
correlation between the CME Bitcoin
futures market and the spot bitcoin
market, as confirmed by the
Commission through robust correlation
analysis, the Commission was able to
conclude that such surveillance sharing
agreements could reasonably be
‘‘expected to assist in surveilling for
fraudulent and manipulative acts and
practices in the specific context of the
[Bitcoin ETPs].’’ 42 In light of
surveillance measures related to both
options and futures as well as the
40 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.
41 See Bitcoin ETP Approval Order.
42 See Bitcoin ETP Approval Order, 89 FR at
3010–11.
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105149
underlying Bitcoin Funds,43 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
expects investors will transact in
options on Bitcoin Funds in the
unregulated over-the-counter (‘‘OTC’’)
options market,44 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
43 See Amendment No. 2 to Proposed Rule
Change to List and Trade Shares of the Grayscale
Bitcoin Trust (BTC) under NYSE Arca Rule 8.201–
E (Commodity-Based Trust Shares) (SR–
NYSEARCA–2021–90), filed Jan. 5, 2024, available
at https://www.sec.gov/comments/sr-nysearca-202190/srnysearca202190-358659-884182.pdf;
Amendment No. 2 to Proposed Rule Change to List
and Trade Shares of the Bitwise Bitcoin ETF under
NYSE Arca Rule 8.201–E (Commodity-Based Trust
Shares) (SR–NYSEARCA–2023–44), filed Jan. 5,
2024, available at https://www.sec.gov/comments/
sr-nysearca-2023-44/srnysearca202344-358800884322.pdf; and Notice of Filing of Proposed Rule
Change, as Modified by Amendment No. 1, To List
and Trade Shares of the Grayscale Bitcoin Mini
Trust Under NYSE Arca Rule 8.201–E,
CommodityBased Trust Shares, Securities Exchange
Act Release No. 100290 (June 6, 2024), 89 FR 49931
(June 12, 2024) (SR–NYSEARCA–2024–45).
44 The Exchange understands from customers that
investors have historically transacted in options on
Fund Shares in the OTC options market if such
options were not available for trading in a listed
environment.
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all listed options. The Exchange
believes that listing Bitcoin Fund
options may cause investors to bring
this liquidity to the Exchange, would
increase market transparency and
enhance the process of price discovery
conducted on the Exchange through
increased order flow. The Fund Shares
that hold financial instruments, money
market instruments, or precious metal
commodities on which the Exchange
may already list and trade options are
trusts structured in substantially the
same manner as Bitcoin Funds and
essentially offer the same objectives and
benefits to investors, just with respect to
different assets. The Exchange notes that
it has not identified any issues with the
continued listing and trading of any
Fund Share options, including Fund
Shares that hold commodities (i.e.,
precious metals) that it currently lists
and trades on the Exchange.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder applicable to the Exchange
and, in particular, the requirements of
Section 6(b) of the Act.45 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 46 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 47 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, the Exchange believes
that the proposal to list and trade
options on the Bitcoin Funds will
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, protect investors because
offering options on the Bitcoin Funds
will provide investors with an
opportunity to realize the benefits of
utilizing options on a Bitcoin Fund,
including cost efficiencies and
45 15
46 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
47 Id.
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increased hedging strategies. The
Exchange believes that offering options
on a competitively priced ETF based on
spot Bitcoin will benefit investors by
providing them with an additional,
relatively lower-cost risk management
tool, allowing them to manage, more
easily, their positions and associated
risks in their portfolios in connection
with exposure to spot Bitcoin. Today,
the Exchange lists options on other
commodity (including Bitcoin) ETFs
structured as a trust, which essentially
offer the same objectives and benefits to
investors, and for which the Exchange
has not identified any issues with the
continued listing and trading of options
on those ETFs.
The Exchange also believes the
proposal to permit options on the
Bitcoin Funds will remove impediments
to and perfect the mechanism of a free
and open market and a national market
system, because options on the Bitcoin
Funds will comply with current
Exchange Rules. Options on the Bitcoin
Funds must satisfy the initial listing
standards and continued listing
standards currently in the Rules,
applicable to options on all ETFs,
including options on other commodity
ETFs already deemed appropriate for
options trading on the Exchange
pursuant to Rule 19.3(i). Additionally,
as demonstrated above, the Bitcoin
Funds are characterized by a substantial
number of shares that are widely held
and actively traded. Further, Rules that
currently govern the listing and trading
of options on ETFs, including
permissible expirations, strike prices,
minimum increments, position and
exercise limits (as proposed herein), and
margin requirements, will govern the
listing and trading of options on the
Bitcoin Funds.
The proposed position and exercise
limits for options on each of the Bitcoin
Funds is 25,000 contracts. These
position and exercise limits are the
lowest position and exercise limits
available in the options industry, are
extremely conservative and more than
appropriate given Bitcoin Fund’s market
capitalization, ADV, and high number of
outstanding shares. The proposed
position limit, and exercise limit, is
consistent with the Act as it addresses
concerns related to manipulation and
protection of investors because, as
demonstrated above, the position limit
(and exercise limit) is extremely
conservative and more than appropriate
given the Bitcoin Funds are actively
traded. In support of the proposed
position and exercise limits for options
on the Bitcoin Funds of 25,000
contracts, the Exchange is citing the in
depth analysis NYSE American did in
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its filing. As noted above, NYSE
American considered: (1) the applicable
Bitcoin Fund’s market capitalization
and ADV, and proposed position limit
in relation to other securities; (2) the
market capitalization of the entire
Bitcoin market in terms of exercise risk
and availability of deliverables; (3) the
proposed position limit by comparing it
to position limits for derivative products
regulated by the CFTC; and (4) the
supply of Bitcoin. Based on the
Exchange’s review of this analysis, the
Exchange believes that setting position
and exercise limits for options on each
of the Bitcoin Funds of 25,000 contracts
is more than appropriate. The proposed
position and exercise limits reasonably
and appropriately balance the liquidity
provisioning in the market against the
prevention of manipulation. The
Exchange believes these proposed limits
are effectively designed to prevent an
individual customer or entity from
establishing options positions that could
be used to manipulate the market of the
underlying as well as the Bitcoin
market.48
The Exchange represents that it has
the necessary systems capacity to
support the new Bitcoin Fund options.
As discussed above, the Exchange
believes that its existing surveillance
and reporting safeguards are designed to
deter and detect possible manipulative
behavior which might arise from listing
and trading Fund Share options,
including Bitcoin Fund options.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose any
burden on intramarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
as the Bitcoin Fund options will be
equally available to all market
participants who wish to trade such
options and will trade generally in the
same manner as other options. The
Rules that currently apply to the listing
and trading of all Fund Share options on
the Exchange, including, for example,
Rules that govern listing criteria,
expirations, exercise prices, minimum
increments, margin requirements,
customer accounts, and trading halt
procedures will apply to the listing and
trading of Bitcoin Funds options on the
48 See Securities Exchange Act Release No. 39489
(December 24, 1997), 63 FR 276 (January 5, 1998)
(SR–CBOE–1997–11).
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Exchange in the same manner as they
apply to other options on all other Fund
Shares that are listed and traded on the
Exchange. Also, and as stated above, the
Exchange already lists options on other
commodity-based Fund Shares
(including Bitcoin-based [sic]).49
Further, the Bitcoin Funds would need
to satisfy the maintenance listing
standards set forth in the Exchange
Rules in the same manner as any other
Fund Share for the Exchange to
continue listing options on them.
The Exchange does not believe that
the proposal to list and trade options on
Bitcoin Funds will impose any burden
on intermarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. To the extent
that the advent of Bitcoin Fund options
trading on the Exchange may make the
Exchange a more attractive marketplace
to market participants at other
exchanges, such market participants are
free to elect to become market
participants on the Exchange. The
Commission recently approved a rule
filing of another exchange to permit the
listing and trading of options on the
Bitcoin Funds.50 The Exchange notes
that listing and trading Bitcoin Fund
options on the Exchange will subject
such options to transparent exchangebased rules as well as price discovery
and liquidity, as opposed to
alternatively trading such options in the
OTC market.
The Exchange believes that the
proposed rule change may relieve any
burden on, or otherwise promote,
competition, as it is designed to increase
competition for order flow on the
Exchange in a manner that is beneficial
to investors by providing them with a
lower-cost option to hedge their
investment portfolios. The Exchange
notes that it operates in a highly
competitive market in which market
participants can readily direct order
flow to competing venues that offer
similar products. Ultimately, the
Exchange believes that offering Bitcoin
Fund options for trading on the
Exchange will promote competition by
providing investors with an additional,
relatively low-cost means to hedge their
portfolios and meet their investment
needs in connection with Bitcoin prices
and Bitcoin-related products and
positions on a listed options exchange.
49 See
50 See
Rule 19.3(i).
NYSE American Approval.
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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 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 51 and Rule 19b–
4(f)(6) thereunder.52
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) 53 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
Bitcoin Funds.54 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 options on
the Bitcoin Funds. 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
51 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 Exchange
has satisfied this requirement.
53 17 CFR 240.19b–4(f)(6)(iii).
54 See supra note 4.
52 17
PO 00000
Frm 00187
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Sfmt 4703
105151
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change operative upon
filing.55
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–
MEMX–2024–47 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–MEMX–2024–47. 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
55 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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will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–MEMX–2024–47 and should be
submitted on or before January 16, 2025.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.56
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024–30779 Filed 12–23–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–586, OMB Control No.
3235–0647]
ddrumheller on DSK120RN23PROD with NOTICES1
Submission for OMB Review;
Comment Request; Extension: Rule
204
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’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) a request for approval of
extension of the previously approved
collection of information provided for in
Rule 204 (17 CFR 242.204), under the
Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.).
Rule 204(a) provides that a participant
of a registered clearing agency must
deliver securities to a registered clearing
agency for clearance and settlement on
a long or short sale in any equity
security by settlement date, or if a
participant of a registered clearing
agency has a fail to deliver position at
a registered clearing agency in any
equity security for a long or short sale
transaction in the equity security, the
participant shall, by no later than the
beginning of regular trading hours on
the applicable close-out date,
immediately close out its fail to deliver
positions by borrowing or purchasing
securities of like kind and quantity. For
a short sale transaction, the participant
56 17
CFR 200.30–3(a)(12), (59).
VerDate Sep<11>2014
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must close out a fail to deliver by no
later than the beginning of regular
trading hours on the settlement day
following the settlement date. If a
participant has a fail to deliver that the
participant can demonstrate on its books
and records resulted from a long sale, or
that is attributable to bona-fide market
making activities, the participant must
close out the fail to deliver by no later
than the beginning of regular trading
hours on the third consecutive
settlement day following the settlement
date. Rule 204 is intended to help
further the Commission’s goal of
reducing fails to deliver by maintaining
the reductions in fails to deliver
achieved by the adoption of temporary
Rule 204T, as well as other actions
taken by the Commission. In addition,
Rule 204 is intended to help further the
Commission’s goal of addressing
potentially abusive ‘‘naked’’ short
selling in all equity securities.
The information collected under Rule
204 will continue to be retained and/or
provided to other entities pursuant to
the specific rule provisions and will be
available to the Commission and selfregulatory organization (‘‘SRO’’)
examiners upon request. The
information collected will continue to
aid the Commission and SROs in
monitoring compliance with these
requirements. In addition, the
information collected will aid those
subject to Rule 204 in complying with
its requirements. These collections of
information are mandatory.
Several provisions under Rule 204
will impose a ‘‘collection of
information’’ within the meaning of the
Paperwork Reduction Act.
Allocation Notification Requirement:
As of quarter four of 2023, there were
3,429 registered broker-dealers.1 Each of
these broker-dealers could clear trades
through a participant of a registered
clearing agency and, therefore, become
subject to the notification requirements
of Rule 204(d). If a participant allocates
a fail to deliver position to a broker or
dealer pursuant to Rule 204(d), the
broker or dealer that has been allocated
the fail to deliver position in an equity
security must determine whether such
fail to deliver position was closed out in
accordance with Rule 204(a). If such
broker or dealer does not comply with
the provisions of Rule 204(a), such
broker or dealer must immediately
notify the participant that it has become
subject to the requirements of Rule
204(b). The Commission estimates that
1 The Commission’s Division of Economic and
Risk Analysis (‘‘DERA’’) estimates that there were
approximately 3,429 registered broker-dealers as of
quarter four of 2023, based on FOCUS filings data.
PO 00000
Frm 00188
Fmt 4703
Sfmt 4703
a broker or dealer could have to make
such determination and notification
with respect to approximately 2.44
equity securities per day.2 The
Commission estimates a total of
2,108,424 potential notifications in
accordance with Rule 204(d) across all
registered broker-dealers that could be
allocated responsibility to close out a
fail to deliver position per year (3,429
registered broker-dealers notifying
participants once per day 3 on 2.44
equity securities, multiplied by 252
trading days in 2023). The total
estimated annual burden hours per year
will be approximately 337,348 burden
hours (2,108,424 multiplied by 0.16
hours/notification 4).
Demonstration Requirement for Fails
to Deliver on Long Sales: As of
December 29, 2023, there were 129
participants of NSCC that were
registered as broker-dealers. If a
participant of a registered clearing
agency has a fail to deliver position in
an equity security at a registered
clearing agency and determined that
such fail to deliver position resulted
from a long sale, the Commission
estimates that a participant of a
registered clearing agency will have to
make such a determination with respect
to approximately 30 securities per day.5
The Commission estimates a total of
975,240 potential demonstrations in
accordance with Rule 204(a)(1) across
all broker-dealer participants per year
(129 participants checking for
compliance once per day on 30
securities, multiplied by 252 trading
days in 2023). The total approximate
estimated annual burden hours per year
2 DERA estimates that there were approximately
8,378 average daily fail to deliver positions during
2023. Across 3,429 registered broker-dealers, the
number of securities per registered broker-dealer
per trading day is approximately 2.44 (8,378 ÷
3,429) equity securities.
3 Because failure to comply with the close-out
requirements of Rule 204(a) is a violation of the
rule, the Commission believes that a broker or
dealer would make the notification to a participant
that it is subject to the borrowing requirements of
Rule 204(b) at most once per day.
4 See Amendments to Regulation SHO, Exchange
Act Release No. 60388 (July 27, 2009), 74 FR 38265
(July 31, 2009) (‘‘Rule 204 Adopting Release’’) (July
27, 2009) (making permanent the amendments to
Regulation SHO contained in Interim Final
Temporary Rule 204T and incorporating by
reference the time estimates from the Rule 204T
Adopting Release for compliance with the
notification, demonstration, and certification
requirements of Rule 204).
5 DERA estimates that during 2023 approximately
46.6% of trade volume was long. DERA estimates
that there were approximately 8,378 average daily
fail to deliver positions during 2023. Across 129
broker-dealer participants of the NSCC, the number
of securities per participant per day is
approximately 65 (8,378 ÷ 129) equity securities.
46.64% of 65 equity securities per trading day
equals approximately 30 securities per day.
E:\FR\FM\26DEN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 247 (Thursday, December 26, 2024)]
[Notices]
[Pages 105143-105152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30779]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101973; File No. SR-MEMX-2024-47]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 19.3, Criteria for Underlying Securities, To List and Trade
Options on the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini
Trust, and the Bitwise Bitcoin ETF
December 19, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 12, 2024, MEMX LLC (``MEMX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\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 is filing with the Commission a proposed rule change
to amend Rule 19.3, Criteria for Underlying Securities. The text of the
proposed rule change is provided in Exhibit 5.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 19.3 regarding the criteria for
underlying securities. Specifically, the Exchange proposes to amend
Rule 19.3(i) to allow the Exchange to list and trade options on shares
or other securities (``Fund Shares'') that are principally traded on a
national securities exchange and are defined as an ``NMS stock'' under
Rule 600 of Regulation NMS and that represent interests in the
Grayscale Bitcoin Trust (the ``Grayscale Fund''), the Grayscale Bitcoin
Mini Trust (the ``Grayscale Mini Fund''), or the Bitwise Bitcoin ETF
(the ``Bitwise Fund'' and, together with the Grayscale Fund, and the
Grayscale Mini Fund, the ``Bitcoin Funds'').\3\ This is a
[[Page 105144]]
competitive filing based on a similar proposal submitted by NYSE
American, LLC (``NYSE American'') which was recently approved by the
Securities and Exchange Commission (the ``Commission'').\4\ Current
Rule 19.3(i) provides that, subject to certain other criteria set forth
in that Rule, securities deemed appropriate for options trading include
Fund Shares that represent certain types of interests,\5\ including
interests in certain specific trusts that hold financial instruments,
money market instruments, precious metals (which are deemed
commodities), or Bitcoin (which is deemed a commodity). In addition,
Rule 19.3(i)(1) requires that Fund Shares meet the criteria and
standards set forth in Rule 19.3(a) and (b) \6\ or (2) be available for
creation or redemption each business day from or through the issuer in
cash or in kind at a price related to net asset value, and the issuer
must be obligated to issue Fund Shares in a specified aggregate number
even if some or all of the investment assets required to be deposited
have not been received by the issuer, subject to the condition that the
person obligated to deposit the investments has undertaken to deliver
the investment assets as soon as possible and such undertaking is
secured by the delivery and maintenance of collateral consisting of
cash or cash equivalents satisfactory to the issuer, as provided in the
respective prospectus.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008, (January 17, 2024) (SR-NYSEArca-2021-90; SR-
NYSEArca-2023-44; SR-NYSEArca-2023-58; SRNASDAQ-2023-016; SR-NASDAQ-
2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-
040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; and SR-CboeBZX-2023-
072) (Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, to List and Trade Bitcoin-Based
Commodity-Based Trust Shares and Trust Units) (``Bitcoin ETP
Approval Order'').
\4\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (``NYSE
American Approval'').
\5\ See Rule 19.3(i) which permits options trading on Fund
Shares that (1) represent interests in registered investment
companies (or series thereof) organized as open-end management
investment companies, unit investment trusts or similar entities,
and that hold portfolios of securities comprising or otherwise based
on or representing investments in indexes or portfolios of
securities (or that hold securities in one or more other registered
investment companies that themselves hold such portfolios of
securities) (``Funds '') and/or financial instruments including, but
not limited to, stock index futures contracts, options on futures,
options on securities and indexes, equity caps, collars and floors,
swap agreements, forward contracts, repurchase agreements and
reverse repurchase agreements (the ``Financial Instruments''), and
money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements (the ``Money Market
Instruments'') constituting or otherwise based on or representing an
investment in an index or portfolio of securities and/or Financial
Instruments and Money Market Instruments, or (2) represent commodity
pool interests principally engaged, directly or indirectly, in
holding and/or managing portfolios or baskets of securities,
commodity futures contracts, options on commodity futures contracts,
swaps, forward 477 [sic] contracts and/or options on physical
commodities and/or non-U.S. currency (``Commodity Pool ETFs'') or
(3) represent interests in a trust or similar entity that holds a
specified non-U.S. currency or currencies deposited with the trust
or similar entity when aggregated in some specified minimum number
may be surrendered to the trust by the beneficial owner to receive
the specified non-U.S. currency or currencies and pays the
beneficial owner interest and other distributions on the deposited
non-U.S. currency or currencies, if any, declared and paid by the
trust (``Currency Trust Shares''), or (4) represent interests in the
SPDR Gold Trust or are issued by the iShares COMEX Gold Trust, the
iShares Silver Trust, or the iShares Bitcoin Trust.
\6\ Rule 19.3(a) and (b) sets forth the criteria that underlying
securities must satisfy for option contracts on those underlying
securities to be eligible for listing and trading on the Exchange.
---------------------------------------------------------------------------
The Bitcoin Funds are Bitcoin-backed commodity exchange-traded
funds (``ETFs'') structured as trusts. Similar to any Fund Share
currently deemed appropriate for options trading under Rule 19.3(i),
the investment objective of each Bitcoin Fund is for its shares to
reflect the performance of Bitcoin (less the expenses of the trust's
operations), offering investors an opportunity to gain exposure to
Bitcoin without the complexities of Bitcoin delivery. As is the case
for Fund Shares currently deemed appropriate for options trading, a
Bitcoin Fund's shares represent units of fractional undivided
beneficial interest in the trust, the assets of which consist
principally of Bitcoin and are designed to track Bitcoin or the
performance of the price of Bitcoin and offer access to the Bitcoin
market.\7\ The Bitcoin Funds provide investors with cost-efficient
alternatives that allow a level of participation in the Bitcoin market
through the securities market. The primary substantive difference
between Bitcoin Funds and Fund Shares currently deemed appropriate for
options trading is that Fund Shares may hold securities, certain
financial instruments, and specified precious metals (which are deemed
commodities), while Bitcoin Funds hold Bitcoin (which is also deemed a
commodity). The Bitcoin Funds are similar to the iShares Bitcoin Trust,
which is already eligible for options trading on the Exchange.\8\
---------------------------------------------------------------------------
\7\ The trust may include minimal cash.
\8\ See Rule 19.3(i).
---------------------------------------------------------------------------
The Exchange's initial listing standards for Fund Shares on which
options may be listed and traded on the Exchange will apply to the
Bitcoin Funds. Pursuant to Rule 19.3(a), a security (which includes a
Fund Share) on which options may be listed and traded on the Exchange
must be registered with the Commission and be an ``NMS stock'' as
defined in Rule 600 of Regulation NMS under the Act; and the security
shall be characterized by a substantial number of outstanding shares
that are widely held and actively traded. Rule 19.3(i)(1) requires that
Fund Shares either (1) meet the criteria and standards set forth in
Rule 19.3(a) and (b),\9\ or (2) are available for creation or
redemption each business day in cash or in kind from the investment
company, commodity pool or other entity at a price related to net asset
value, and the investment company, commodity pool or other entity is
obligated to provide that Fund Shares may be created even if some or
all of the securities and/or cash required to be deposited have not
been received by the Fund, the unit investment trust or the management
investment company, provided the authorized creation participant has
undertaken to deliver the securities and/or cash as soon as possible
and such undertaking is secured by the delivery and maintenance of
collateral consisting of cash or cash equivalents satisfactory to the
Fund, all as described in the Fund's or unit trust's prospectus. Each
Bitcoin Fund satisfies Rule 19.3(i)(1)(B) as each is subject to this
creation and redemption process.
---------------------------------------------------------------------------
\9\ Rule 19.3(a) and (b) sets forth the criteria an underlying
security must meet for the Exchange to be able to list options on
the underlying.
---------------------------------------------------------------------------
Options on the Bitcoin Funds will be subject to the Exchange's
continued listing standards set forth in Rule 19.4(g) for Fund Shares
deemed appropriate for options trading pursuant to Rule 19.3(i).
Specifically, 19.4(g) provides that Fund Shares that were initially
approved for options trading pursuant to Rule 19.3 will not be deemed
to meet the requirements for continued approval, and the Exchange shall
not open for trading any additional series of option contracts of the
class covering such Fund Shares if the security ceases to be an NMS
stock (see Rule 19.4(b)(4)). Additionally, the Exchange will not open
for trading any additional series of option contracts of the class
covering Fund Shares in any of the following circumstances: (1) in the
case of options covering Fund Shares approved for trading under Rule
19.3(i)(4)(A), in accordance with the terms of Rule 19.4(b)(1), (2) and
(3); (2) in the case of options covering Fund Shares approved pursuant
to Rule 19.3(i)(4)(B), following the initial 12-month period beginning
upon the commencement of trading in the Fund Shares on a national
securities exchange and are defined as NMS stock under Rule 600 of
Regulation NMS, there were fewer than 50 record and/or beneficial
holders of such Fund Shares for 30 consecutive days; (3) the value of
the index, non-U.S. currency, portfolio
[[Page 105145]]
of commodities including commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options on
physical commodities and/or Financial Instruments or Money Market
Instruments, or portfolio of securities on which the Fund Shares are
based is no longer calculated or available; or (4) such other event
occurs or condition exists that in the opinion of the Exchange makes
further dealing in such options on the Exchange inadvisable.
Options on each Bitcoin Fund will be physically settled contracts
with American-style exercise.\10\ Consistent with current Rule 19.5,
which governs the opening of options series on a specific underlying
security (including Fund Shares), the Exchange will open at least one
expiration month for options on each Bitcoin Fund \11\ at the
commencement of trading on the Exchange and may also list series of
options on each Bitcoin Fund for trading on a weekly,\12\ monthly,\13\
or quarterly \14\ basis.
---------------------------------------------------------------------------
\10\ See Rule 19.2, which provides that the rights and
obligations of holders and writers are set forth in the Rules of the
Options Clearing Corporation (``OCC''); see also OCC Rules, Chapters
VIII (which governs exercise and assignment) and Chapter IX (which
governs the discharge of delivery and payment obligations arising
out of the exercise of physically settled stock option contracts).
\11\ See Rule 19.5(b). The monthly expirations are subject to
certain listing criteria for underlying securities described within
Rule 19.3. Monthly listings expire the third Friday of the month.
The term ``expiration date'' (unless separately defined elsewhere in
the OCC By-Laws), when used in respect of an option contract
(subject to certain exceptions), means the third Friday of the
expiration month of such option contract, or if such Friday is a day
on which the exchange on which such option is listed is not open for
business, the preceding day on which such exchange is open for
business. See OCC By-Laws Article I, Section 1. Pursuant to Rule
19.5(c), additional series of options of the same class may be
opened for trading on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying stock moves more than five
strike prices from the initial exercise price or prices. New series
of options on an individual stock may be added until the beginning
of the month in which the options contract will expire. Due to
unusual market conditions, the Exchange, in its discretion, may add
a new series of options on an individual stock until the close of
trading on the business day prior to expiration.
\12\ See Rule 19.5, Interpretation and Policy .05.
\13\ See Rule 19.5, Interpretation and Policy .08.
\14\ See Rule 19.5, Interpretation and Policy .04.
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Pursuant to Rule 19.5, Interpretation and Policy .01, which governs
strike prices of series of options on Fund Shares, the interval of
strikes prices for series of options on Bitcoin Funds will be $1 or
greater when the strike price is $200 or less and $5 or greater where
the strike price is over $200.\15\ Additionally, the Exchange may list
series of options pursuant to the $1 Strike Price Interval Program,\16\
the $0.50 Strike Program,\17\ the $2.50 Strike Price Program,\18\ and
the $5 Strike Program.\19\ Pursuant to Rule 21.5, where the price of a
series of a Bitcoin Fund option is less than $3.00, the minimum
increment will be $0.05, and where the price is $3.00 or higher, the
minimum increment will be $0.10.\20\ Any and all new series of Bitcoin
Fund options that the Exchange lists will be consistent and comply with
the expirations, strike prices, and minimum increments set forth in
Rules 19.5 and 21.5, as applicable.
---------------------------------------------------------------------------
\15\ The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Monthly Options Series
Program, and the Quarterly Options Series Program, Rule 19.5,
Interpretations and Policies .05, .08, and .04 specifically sets
forth intervals between strike prices on Quarterly Options Series,
Short Term Option Series, and Monthly Options Series, respectively.
\16\ See Rule 19.5, Interpretation and Policy .02.
\17\ See Rule 19.5, Interpretation and Policy .06.
\18\ See Rule 19.5, Interpretation and Policy .03.
\19\ See Rule 19.5(d)(5).
\20\ If options on a Bitcoin Fund are eligible to participate in
the Penny Interval Program, the minimum increment will be $0.01 for
series with a price below $3.00 and $0.05 for series with a price at
or above $3.00. See Rule 21.5(d) (which describes the requirements
for the Penny Interval Program).
---------------------------------------------------------------------------
Bitcoin Fund options will trade in the same manner as any other
Fund Share options on the Exchange. The Exchange Rules that currently
apply to the listing and trading of all Fund Share options on the
Exchange, including, for example, Rules that govern listing criteria,
expirations, exercise prices, minimum increments, margin requirements,
customer accounts, and trading halt procedures will apply to the
listing and trading of Bitcoin Funds options on the Exchange in the
same manner as they apply to other options on all other Fund Shares
that are listed and traded on the Exchange, including the precious-
metal backed commodity Fund Shares and the Fidelity and Ark 21 Funds
already deemed appropriate for options trading [sic] on the Exchange
pursuant to current already deemed appropriate for options trading
[sic] on the Exchange pursuant to current Rule 19.3(i).
Pursuant to Rules 18.7 \21\ and 18.9, the position and exercise
limits, respectively, for each Bitcoin Fund option will be 25,000 same
side option contracts. In considering the appropriate position and
exercise limits for the Bitcoin Funds, the Exchange reviewed the data
presented by NYSE American in its filing.\22\ NYSE American aggregated
market capitalization, volume, and shares outstanding data of the
Bitcoin Funds and compared that data to those of other ETFs, and
compared the proposed position limit of the Bitcoin Funds to the
position limits of the options overlying those other ETFs. The Exchange
reviewed NYSE American's data that demonstrated that each of these
three Bitcoin Funds would easily qualify for the 250,000-contract
position limit available to other ETFs and ETPs.\23\
---------------------------------------------------------------------------
\21\ See Regulatory Notice 23-12, available at: https://info.memxtrading.com/wp-content/uploads/2023/09/RegNotice-23-12-Options-Position-Limits.pdf, which informed Exchange members of the
specific position limits applicable to options trading on MEMX
Options, pursuant to Rule 18.7, as those position limits calculated
and disseminated by the OCC, published daily and which can be found
at: https://www.theocc.com/market-data/market-data-reports/series-and-trading-data/position-limits.
\22\ See NYSE American Approval.
\23\ To be eligible for the 250,000 option contract limit,
either the most recent six-month trading volume of the underlying
security must have totaled at least 100,000,000 shares; or the most
recent six-month trading volume of the underlying security must have
totaled at least 75,000,000 shares and the underlying security must
have at least 300,000,000 currently outstanding.
[[Page 105146]]
------------------------------------------------------------------------
Total volume
(shares) (as of
Bitcoin Fund September 30,
2024)
------------------------------------------------------------------------
Grayscale Fund........................................ 723,758,100
Grayscale Mini Fund................................... 335,492,930
Bitwise Fund.......................................... 263,965,870
------------------------------------------------------------------------
Based on this trading volume,\24\ each Bitcoin Fund exceeded the
requisite 100,000,000 shares necessary to qualify for the 250,000-
contract position and exercise limits. By comparison, the underlying of
other options with six-month trading volume less than the volumes in
the table above are eligible for position and exercise limits of at
least 250,000.\25\
---------------------------------------------------------------------------
\24\ See FactSet, 9/30/2024, https://www.factset.com/data-attribution. Bitwise Fund shares began trading on July 31, 2024, and
therefore the data in the above table has only two months of trading
data available.
\25\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/SeriesSearch (including the following
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR,
SGOL).
---------------------------------------------------------------------------
Second, with respect to the outstanding shares of these three
Bitcoin Funds, the Exchange reviewed NYSE American's data regarding the
outstanding shares of each of these Bitcoin Funds. NYSE American
performed an exercise to demonstrate that if a market participant held
the maximum number of contracts possible pursuant to the proposed
position and exercise limits (25,000 contracts), the equivalent shares
represented by the proposed position and exercise limits (2,500,000
shares) would represent the following approximate percentage of
outstanding shares as of August 30, 2024:
----------------------------------------------------------------------------------------------------------------
Percentage of
Bitcoin Fund Proposed position/exercise Outstanding outstanding
limits in equivalent shares shares shares (%)
----------------------------------------------------------------------------------------------------------------
Grayscale Fund.................................... 2,500,000 284,570,100 0.9
Grayscale Mini Fund............................... 2,500,000 366,950,100 0.7
Bitwise Fund...................................... 2,500,000 68,690,000 3.6
----------------------------------------------------------------------------------------------------------------
As this table demonstrates, if a market participant held the
maximum permissible options positions in one of the Bitcoin Fund
options and exercised all of them at the same time, that market
participant would control a small percentage of the outstanding shares
of the underlying Bitcoin Fund. For example, as noted above, a position
limit of 25,000 same side contracts effectively restricts a market
participant from holding positions that could result in the receipt of
no more than 2,500,000 shares of the applicable Bitcoin Fund (if that
market participant exercised all its options). NYSE American used the
number of shares outstanding for each Bitcoin Fund as of August 30,
2024, and calculated the approximate number of market participants that
could hold the maximum of 25,000 same side positions in each Bitcoin
Fund that would equate to the number of shares outstanding of that
Bitcoin Fund:
------------------------------------------------------------------------
Number of market
Outstanding participants with
Bitcoin Fund shares 25,000 same side
positions
------------------------------------------------------------------------
Grayscale Fund.............. 284,570,100 114
Grayscale Mini Fund......... 366,950,100 147
Bitwise Fund................ 68,690,000 27
------------------------------------------------------------------------
This means if 114 market participants had 25,000 same side
positions in options on the Grayscale Fund, each of them would have to
simultaneously exercise all of those options to create a scenario that
may put the underlying security under stress. Similarly, this means if
147 market participants had 25,000 same side positions in options on
the Grayscale Mini Fund, each of them would have to simultaneously
exercise all of those options to create a scenario that may put the
underlying security under stress. Finally, this means if 27 market
participants had 25,000 same side positions in options on the Bitwise
Fund, each of them would have to simultaneously exercise all of those
options to create a scenario that may put the underlying security under
stress. The Exchange believes it is highly unlikely for this to occur;
however, even if such event did occur, the Exchange would not expect
any of the Bitcoin Fund to be under stress because such an event would
merely induce the creation of more shares through the trust's creation
and redemption process.
NYSE American also performed an exercise to compare the size of the
proposed position limit to the market capitalization of the Bitcoin
market given that the issuer of each of these three Bitcoin Funds may
create and redeem shares that represent an interest in Bitcoin. NYSE
American took the global supply of Bitcoin, which was 19,747,066, and
the price of one Bitcoin, which was approximately $59,108.23, as of
August 30, 2024, which equates to a market capitalization of
approximately
[[Page 105147]]
$1.167 trillion.\26\ Consider the proposed position and exercise limit
of 25,000 option contracts for each Bitcoin Fund option. A position and
exercise limit of 25,000 same side contracts effectively restricts a
market participant from holding positions that could result in the
receipt of no more than 2,500,000 shares of the Grayscale Fund, the
Grayscale Mini Fund, or the Bitwise Fund, as applicable (if that market
participant exercised all its options). NYSE American considered the
share price of each Bitcoin Fund on August 30, 2024 and calculated the
value of 2,500,000 shares of the Bitcoin Fund at that price, and the
approximate percentage of that value of the size of the Bitcoin market:
---------------------------------------------------------------------------
\26\ See https://www.blockchain.com/explorer/charts/total-bitcoins.
----------------------------------------------------------------------------------------------------------------
Value of
Bitcoin Fund Share price 2,500,000 Percentage of
($) shares bitcoin market
----------------------------------------------------------------------------------------------------------------
Grayscale Fund.................................................. 46.75 116,875,000 0.010
Grayscale Mini Fund............................................. 5.20 13,000,000 0.001
Bitwise Fund.................................................... 31.95 79,875,000 0.007
----------------------------------------------------------------------------------------------------------------
Therefore, if a market participant with the maximum 25,000 same
side contracts in options on the Grayscale Fund, the Grayscale Mini
Fund, or the Bitwise Fund exercised all positions at one time, such an
event would have no practical impact on the Bitcoin market.
The Exchange also reviewed NYSE American's data regarding the
market capitalization of each of these three Bitcoin Funds relative to
the market capitalization of the entire Bitcoin market, as of August
30, 2024: \27\
---------------------------------------------------------------------------
\27\ See id.
----------------------------------------------------------------------------------------------------------------
Bitcoin/shares % of total
outstanding Market value ($) Bitcoin market
----------------------------------------------------------------------------------------------------------------
Total Bitcoin Market................................ 19,747,066 1,167,214,096,788 100
Grayscale Fund...................................... 284,570,100 13,443,091,524 1.15
Grayscale Mini Fund................................. 366,950,100 1,930,157,526 0.17
Bitwise Fund........................................ 68,690,000 2,221,640,670 0.19
----------------------------------------------------------------------------------------------------------------
As this data gathered by NYSE American demonstrates, none of these
three Bitcoin Funds represent more than 1.2% of the global supply of
Bitcoin (19,747,066). Based on the $46.75 price of a Grayscale Fund
share on August 30, 2024, a market participant could have redeemed one
Bitcoin for approximately 1,264 Grayscale Fund shares. Another
24,967,146,455 Grayscale Fund shares could be created before the supply
of Bitcoin was exhausted. As a result, 9,987 market participants would
have to simultaneously exercise 25,000 same side positions in Grayscale
Fund options to receive shares of the Grayscale Fund holding the entire
global supply of Bitcoin. Similarly, based on the $5.20 price of a
Grayscale Mini Fund share on August 30, 2024, a market participant
could have redeemed one Bitcoin for approximately 11,367 Grayscale Mini
Fund shares. Another 224,464,249,382 Grayscale Mini Fund shares could
be created before the supply of Bitcoin was exhausted. As a result,
89,786 market participants would have to simultaneously exercise 25,000
same side positions in Grayscale Mini Fund options to receive shares of
Grayscale Mini Fund holding the entire global supply of Bitcoin.
Similarly, based on the $31.95 price of a Bitwise Fund share on August
30, 2024, a market participant could have redeemed one Bitcoin for
approximately 1,850 Bitwise Fund shares. Another 36,532,522,591 Bitwise
Fund shares could be created before the supply of Bitcoin was
exhausted. As a result, 14,613 market participants would have to
simultaneously exercise 25,000 same side positions in Bitwise Fund
options to receive shares of Bitwise Fund holding the entire global
supply of Bitcoin.
NYSE American also compared the proposed position limits to the
position limit of CME Bitcoin futures, which as noted above is 2,000
futures. On August 28, 2024, CME Aug 24 Bitcoin Futures settled at
$58,950. A position of 2,000 CME Bitcoin futures, therefore, would have
a notional value of $589,500,000. The following table shows the share
price of each Bitcoin Fund on August 28, 2024, and the approximate
number of option contracts that equates to that notional value:
------------------------------------------------------------------------
Share price Number of option
Bitcoin Fund ($) contracts
------------------------------------------------------------------------
Grayscale Fund...................... 46.94 125,585
Grayscale Mini Fund................. 5.23 1,127,151
Bitwise Fund........................ 32.08 183,759
------------------------------------------------------------------------
The approximate number of option contracts for each Bitcoin Fund
that equate to the notional value of CME Bitcoin futures is
significantly higher than the proposed limit of 25,000 options
contracts for each Bitcoin Fund option. As noted above, the fact that
many options ultimately expire out-of-the-money and thus are not
exercised for shares of the underlying, while the delta of a Bitcoin
Future is 1, further demonstrates how conservative the proposed limits
of 25,000 options contracts are for the Bitcoin Fund options.
The Exchange notes, again, unlike options contracts, CME position
limits are calculated on a net futures-
[[Page 105148]]
equivalent basis by contract and include contracts that aggregate into
one or more base contracts according to an aggregation ratio(s).\28\
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.\29\ 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
Grayscale Fund, Grayscale Mini Fund, and Bitwise Fund options.
---------------------------------------------------------------------------
\28\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\29\ Id.
---------------------------------------------------------------------------
While the supply of Bitcoin is limited to 21,000,000, it is
believed that it will take more than 100 years to fully mine the
remaining Bitcoin.\30\ The Exchange notes that Bitcoin is a viable
economic alternative to traditional assets. The price of goods
denominated by Bitcoin has actually declined. This dynamic not only
makes a fixed supply desirable, but a necessary condition of the value
added by this asset in the broader economy. Unlike the Bitcoin Funds,
the number of shares that corporations may issue is limited. However,
like corporations, which authorize additional shares, repurchase
shares, or split their shares, the Bitcoin Funds may create, redeem, or
split shares in response to demand. Given the significant unlikelihood
of any of events described above ever occurring, the Exchange does not
believe options on the Bitcoin Funds should be subject to position and
exercise limits even lower than those proposed (which are already equal
to the lowest available limit for equity options in the industry) to
protect the supply of Bitcoin.
---------------------------------------------------------------------------
\30\ See https://www.blockchain.com/explorer/assets/btc (citing
21 million as the ``total supply'' of bitcoin).
---------------------------------------------------------------------------
Importantly, because the supply of Bitcoin is much larger than the
available supply of most securities and the proposed 25,000 contract
position limit is so conservative, the Exchange believes that
evaluating the available supply of Bitcoin in establishing a position
limit for options on each of the Bitcoin Funds would demonstrate that
the proposed limit is safe for investors and the market.\31\ Each
Bitcoin Fund represents less than 2% of the entire Bitcoin supply. When
comparing the market capitalization of bitcoin against the largest
securities, Bitcoin would rank 7th among those securities.\32\ Further,
the Exchange believes that its proposal to list options on the Bitcoin
Funds each with a position limit of 25,000 on the same side is a
conservative position limit that does not lend itself to manipulation
in the market given the ample market capitalization and liquidity in
each Bitcoin Fund. If we look to the liquidity statistics of similar
instruments and their concomitant position limits, we are able to
extrapolate a reasonable standard for arriving at a position limit for
a new product. In this case we can look to GLD, SLV, and the ProShares
Bitcoin Strategy ETF. These products have volume statistics and
``float'' statistics, which gauge liquidity, which are in line, yet
slightly lower than the Bitcoin Funds. All three of these reference
products have position limits of 250,000 contracts. These reference
products are remarkably similar in nature to the Bitcoin Funds; they
are exchange-traded products (``ETPs'') holding one asset in a trust.
---------------------------------------------------------------------------
\31\ A supply consideration would likely be valuable for an
option symbol that had far less liquidity than the Trust.
\32\ See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
---------------------------------------------------------------------------
The Exchange believes the available supply of Bitcoin is not
relevant to the determination of position and exercise limits for
options overlying the Bitcoin Funds.\33\ Position and exercise limits
are not a tool that should be used to address a potential limited
supply of the underlying of an underlying. Position and exercise limits
do not limit the total number of options that may be held, but rather
they limit the number of positions a single customer may hold or
exercise at one time.\34\ ``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.'' \35\ 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.''
\36\
---------------------------------------------------------------------------
\33\ 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'').
\34\ 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.
\35\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\36\ See id.
---------------------------------------------------------------------------
The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each Bitcoin Fund, each of which
described the supply of Bitcoin as being limited to 21,000,000 (of
which approximately 90% had already been mined), and that the limit
would be reached around the year 2140.\37\ Each Registration Statement
permits an unlimited number of shares of the applicable Bitcoin Fund to
be created. Further, the Commission approved proposed rule changes that
permitted the listing and trading of shares of each Bitcoin Fund, which
approval did not comment on the sufficient supply of Bitcoin or address
whether there was a risk that permitting an unlimited number of shares
for a Bitcoin Fund would impact the supply
[[Page 105149]]
of Bitcoin.\38\ Therefore, the Exchange believes the Commission had
ample time and opportunity to consider whether the supply of Bitcoin
was sufficient to permit the creation of unlimited Bitcoin Fund shares,
and does not believe considering this supply with respect to the
establishment of position and exercise limits is appropriate given its
lack of relevance to the purpose of position and exercise limits.
However, given the significant size of the Bitcoin supply, the proposed
positions limits are more than sufficient to protect investors and the
market.
---------------------------------------------------------------------------
\37\ See iShares Fund Form S-1 Registration Statement, at p. 25
https://www.sec.gov/Archives/edgar/data/1980994/000143774923017574/bit20230608_s1.htm; Grayscale Fund Form S-1 Registration Statement,
at p. 17, https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm; Grayscale Mini Fund, Form S-1
Registration Statement, at p. 21, https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm; and Bitwise
Amendment No 2. to S-1, at p. 47, https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm.
\38\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------
All of the above information demonstrates that the proposed
position and exercise limits for the Bitcoin Fund options are more than
reasonable and appropriate. The trading volume, ADV, and outstanding
shares of each Bitcoin Fund demonstrate that these funds are actively
traded and widely held, and proposed position and exercise limits are
well below those of other ETFs with similar market characteristics. The
proposed position and exercise limits are the lowest position and
exercise limits available for equity options in the industry, are
extremely conservative, and are more than appropriate given each
Bitcoin Fund's market capitalization and ADV.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options on the Bitcoin Funds that it applies to the
Exchange's other options products.\39\ The Exchange's market
surveillance staff would have access to the surveillances conducted by
the Exchange and its affiliate exchange, MEMX Equities, with respect to
the Bitcoin Funds, trading in the shares of the underlying Bitcoin
Funds, and would review activity in the underlying Bitcoin Funds when
conducting surveillances for market abuse or manipulation in the
options on the Bitcoin Funds. Additionally, the Exchange is a member of
the Intermarket Surveillance Group (``ISG'') under the Intermarket
Surveillance Group Agreement. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. In addition to obtaining information from
its affiliated market, the Exchange would be able to obtain information
regarding trading in shares of the Bitcoin Funds from their primary
listing market, NYSE Arca, and from other markets that trades shares of
the Bitcoin Funds through ISG. In addition, the Exchange has a
Regulatory Services Agreement with the Financial Industry Regulatory
Authority (``FINRA'') for certain market surveillance, investigation
and examinations functions. Pursuant to a multi-party 17d-2 joint plan,
all options exchanges allocate amongst themselves and FINRA
responsibilities to conduct certain options-related market surveillance
that are common to rules of all options exchanges.\40\
---------------------------------------------------------------------------
\39\ 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).
\40\ Section 19(g)(1) of the Act, among other things, requires
every self-regulatory organization (``SRO'') registered as a
national securities exchange or national securities association to
comply with the Act, the rules and regulations thereunder, and the
SRO's own rules, and, absent reasonable justification or excuse,
enforce compliance by its members and persons associated with its
members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section
17(d)(1) of the Act allows the Commission to relieve an SRO of
certain responsibilities with respect to members of the SRO who are
also members of another SRO (``common members''). Specifically,
Section 17(d)(1) allows the Commission to relieve an SRO of its
responsibilities to: (i) receive regulatory reports from such
members; (ii) examine such members for compliance with the Act and
the rules and regulations thereunder, and the rules of the SRO; or
(iii) carry out other specified regulatory responsibilities with
respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot bitcoin exchange-traded products
(``ETPs''), including the Bitcoin Funds, are also subject to safeguards
related to addressing market abuse and manipulation. As the Commission
stated in its order approving proposals of several exchanges to list
and trade shares of spot bitcoin-based ETPs, ``[e]ach Exchange has a
comprehensive surveillance-sharing agreement with the CME via their
common membership in the Intermarket Surveillance Group. This
facilitates the sharing of information that is available to the CME
through its surveillance of its markets, including its surveillance of
the CME bitcoin futures market.\41\ The Exchange states that, given the
consistently high correlation between the CME Bitcoin futures market
and the spot bitcoin market, as confirmed by the Commission through
robust correlation analysis, the Commission was able to conclude that
such surveillance sharing agreements could reasonably be ``expected to
assist in surveilling for fraudulent and manipulative acts and
practices in the specific context of the [Bitcoin ETPs].'' \42\ In
light of surveillance measures related to both options and futures as
well as the underlying Bitcoin Funds,\43\ 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.
---------------------------------------------------------------------------
\41\ See Bitcoin ETP Approval Order.
\42\ See Bitcoin ETP Approval Order, 89 FR at 3010-11.
\43\ See Amendment No. 2 to Proposed Rule Change to List and
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90),
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf; Amendment No. 2
to Proposed Rule Change to List and Trade Shares of the Bitwise
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 2024, available at
https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf; and Notice of Filing of Proposed Rule Change, as
Modified by Amendment No. 1, To List and Trade Shares of the
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E,
CommodityBased Trust Shares, Securities Exchange Act Release No.
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
---------------------------------------------------------------------------
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,\44\ 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
[[Page 105150]]
all listed options. The Exchange believes that listing Bitcoin Fund
options may cause investors to bring this liquidity to the Exchange,
would increase market transparency and enhance the process of price
discovery conducted on the Exchange through increased order flow. The
Fund Shares that hold financial instruments, money market instruments,
or precious metal commodities on which the Exchange may already list
and trade options are trusts structured in substantially the same
manner as Bitcoin Funds and essentially offer the same objectives and
benefits to investors, just with respect to different assets. The
Exchange notes that it has not identified any issues with the continued
listing and trading of any Fund Share options, including Fund Shares
that hold commodities (i.e., precious metals) that it currently lists
and trades on the Exchange.
---------------------------------------------------------------------------
\44\ The Exchange understands from customers that investors have
historically transacted in options on Fund Shares in the OTC options
market if such options were not available for trading in a listed
environment.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\45\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \46\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \47\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\45\ 15 U.S.C. 78f(b).
\46\ 15 U.S.C. 78f(b)(5).
\47\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Bitcoin Funds will remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, protect investors because offering options on
the Bitcoin Funds will provide investors with an opportunity to realize
the benefits of utilizing options on a Bitcoin Fund, including cost
efficiencies and increased hedging strategies. The Exchange believes
that offering options on a competitively priced ETF based on spot
Bitcoin will benefit investors by providing them with an additional,
relatively lower-cost risk management tool, allowing them to manage,
more easily, their positions and associated risks in their portfolios
in connection with exposure to spot Bitcoin. Today, the Exchange lists
options on other commodity (including Bitcoin) ETFs structured as a
trust, which essentially offer the same objectives and benefits to
investors, and for which the Exchange has not identified any issues
with the continued listing and trading of options on those ETFs.
The Exchange also believes the proposal to permit options on the
Bitcoin Funds will remove impediments to and perfect the mechanism of a
free and open market and a national market system, because options on
the Bitcoin Funds will comply with current Exchange Rules. Options on
the Bitcoin Funds must satisfy the initial listing standards and
continued listing standards currently in the Rules, applicable to
options on all ETFs, including options on other commodity ETFs already
deemed appropriate for options trading on the Exchange pursuant to Rule
19.3(i). Additionally, as demonstrated above, the Bitcoin Funds are
characterized by a substantial number of shares that are widely held
and actively traded. Further, Rules that currently govern the listing
and trading of options on ETFs, including permissible expirations,
strike prices, minimum increments, position and exercise limits (as
proposed herein), and margin requirements, will govern the listing and
trading of options on the Bitcoin Funds.
The proposed position and exercise limits for options on each of
the Bitcoin Funds is 25,000 contracts. These position and exercise
limits are the lowest position and exercise limits available in the
options industry, are extremely conservative and more than appropriate
given Bitcoin Fund's market capitalization, ADV, and high number of
outstanding shares. The proposed position limit, and exercise limit, is
consistent with the Act as it addresses concerns related to
manipulation and protection of investors because, as demonstrated
above, the position limit (and exercise limit) is extremely
conservative and more than appropriate given the Bitcoin Funds are
actively traded. In support of the proposed position and exercise
limits for options on the Bitcoin Funds of 25,000 contracts, the
Exchange is citing the in depth analysis NYSE American did in its
filing. As noted above, NYSE American considered: (1) the applicable
Bitcoin Fund's market capitalization and ADV, and proposed position
limit in relation to other securities; (2) the market capitalization of
the entire Bitcoin market in terms of exercise risk and availability of
deliverables; (3) the proposed position limit by comparing it to
position limits for derivative products regulated by the CFTC; and (4)
the supply of Bitcoin. Based on the Exchange's review of this analysis,
the Exchange believes that setting position and exercise limits for
options on each of the Bitcoin Funds of 25,000 contracts is more than
appropriate. The proposed position and exercise limits reasonably and
appropriately balance the liquidity provisioning in the market against
the prevention of manipulation. The Exchange believes these proposed
limits are effectively designed to prevent an individual customer or
entity from establishing options positions that could be used to
manipulate the market of the underlying as well as the Bitcoin
market.\48\
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\48\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
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The Exchange represents that it has the necessary systems capacity
to support the new Bitcoin Fund options. As discussed above, the
Exchange believes that its existing surveillance and reporting
safeguards are designed to deter and detect possible manipulative
behavior which might arise from listing and trading Fund Share options,
including Bitcoin Fund options.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act as the Bitcoin Fund options will
be equally available to all market participants who wish to trade such
options and will trade generally in the same manner as other options.
The Rules that currently apply to the listing and trading of all Fund
Share options on the Exchange, including, for example, Rules that
govern listing criteria, expirations, exercise prices, minimum
increments, margin requirements, customer accounts, and trading halt
procedures will apply to the listing and trading of Bitcoin Funds
options on the
[[Page 105151]]
Exchange in the same manner as they apply to other options on all other
Fund Shares that are listed and traded on the Exchange. Also, and as
stated above, the Exchange already lists options on other commodity-
based Fund Shares (including Bitcoin-based [sic]).\49\ Further, the
Bitcoin Funds would need to satisfy the maintenance listing standards
set forth in the Exchange Rules in the same manner as any other Fund
Share for the Exchange to continue listing options on them.
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\49\ See Rule 19.3(i).
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The Exchange does not believe that the proposal to list and trade
options on Bitcoin Funds will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. To the extent that the advent of Bitcoin Fund
options trading on the Exchange may make the Exchange a more attractive
marketplace to market participants at other exchanges, such market
participants are free to elect to become market participants on the
Exchange. The Commission recently approved a rule filing of another
exchange to permit the listing and trading of options on the Bitcoin
Funds.\50\ The Exchange notes that listing and trading Bitcoin Fund
options on the Exchange will subject such options to transparent
exchange-based rules as well as price discovery and liquidity, as
opposed to alternatively trading such options in the OTC market.
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\50\ See NYSE American Approval.
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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 the Exchange in a manner that is
beneficial to investors by providing them with a lower-cost option to
hedge their investment portfolios. The Exchange notes that it operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues that offer similar products.
Ultimately, the Exchange believes that offering Bitcoin Fund options
for trading on the Exchange will promote competition by providing
investors with an additional, relatively low-cost means to hedge their
portfolios and meet their investment needs in connection with Bitcoin
prices and Bitcoin-related products and positions on a listed options
exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received 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 \51\ and Rule 19b-
4(f)(6) thereunder.\52\
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\51\ 15 U.S.C. 78s(b)(3)(A).
\52\ 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 Exchange has satisfied 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) \53\ 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 Bitcoin Funds.\54\ 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 options on the Bitcoin Funds. 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.\55\
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\53\ 17 CFR 240.19b-4(f)(6)(iii).
\54\ See supra note 4.
\55\ 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-MEMX-2024-47 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-MEMX-2024-47. 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
[[Page 105152]]
will be available for inspection and copying at the principal office of
the Exchange. Do not include personal identifiable information in
submissions; you should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection. All submissions should refer to file number SR-MEMX-2024-47
and should be submitted on or before January 16, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-30779 Filed 12-23-24; 8:45 am]
BILLING CODE 8011-01-P
