Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules Regarding the Position and Exercise Limits for Options on the Grayscale Bitcoin Mini Trust BTC and the Bitwise Bitcoin ETF and To Permit Flexible Exchange Options on the Grayscale Bitcoin Mini Trust BTC and the Bitwise Bitcoin ETF, 10518-10524 [2025-02943]

Download as PDF 10518 Federal Register / Vol. 90, No. 35 / Monday, February 24, 2025 / Notices by the Postal Service for each request. For each such request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 and 39 CFR 3000.114 (Public Representative). Section II also establishes comment deadline(s) pertaining to each such request. The Commission invites comments on whether the Postal Service’s request(s) identified in Section II, if any, are consistent with the policies of title 39. Applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3035, and 39 CFR part 3041. Comment deadline(s) for each such request, if any, appear in Section II. Section III identifies the docket number(s) associated with each Postal Service request, if any, to add a standardized distinct product to the Competitive product list or to amend a standardized distinct product, the title of each such request, the request’s acceptance date, and the authority cited by the Postal Service for each request. Standardized distinct products are negotiated service agreements that are variations of one or more Competitive products, and for which financial models, minimum rates, and classification criteria have undergone advance Commission review. See 39 CFR 3041.110(n); 39 CFR 3041.205(a). Such requests are reviewed in summary proceedings pursuant to 39 CFR 3041.325(c)(2) and 39 CFR 3041.505(f)(1). Pursuant to 39 CFR 3041.405(c)–(d), the Commission does not appoint a Public Representative or request public comment in proceedings to review such requests. ddrumheller on DSK120RN23PROD with NOTICES1 II. Public Proceeding(s) 1. Docket No(s).: MC2025–1188 and K2025–1188; Filing Title: USPS Request to Add Priority Mail Express, Priority Mail & USPS Ground Advantage Contract 1333 to the Competitive Product List and Notice of Filing Materials Under Seal; Filing Acceptance Date: February 18, 2025; Filing Authority: 39 U.S.C. 3642, 39 CFR 3035.105, and 39 CFR 3041.310; Public Representative: Kenneth Moeller; Comments Due: February 26, 2025. III. Summary Proceeding(s) None. See Section II for public proceedings. This Notice will be published in the Federal Register. Erica A. Barker, Secretary. [FR Doc. 2025–03003 Filed 2–21–25; 8:45 am] BILLING CODE 7710–FW–P VerDate Sep<11>2014 19:10 Feb 21, 2025 Jkt 265001 SECURITIES AND EXCHANGE COMMISSION [Release No. 102436; File No. SR–OCC– 2024–017] Self-Regulatory Organizations; the Options Clearing Corporation; Notice of Withdrawal of a Proposed Rule Change To Update the Options Clearing Corporation’s Schedule of Fees February 18, 2025. On December 19, 2024, the Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to increase the per contract clearing fee from $0.02 to $0.025 and to remove the flat per transaction fee (currently $55.00 for transactions of 2,751 or more contracts) entirely (‘‘Proposed Rule Change’’).3 The Proposed Rule Change was published for comment in the Federal Register on December 27, 2024.4 The Commission has received comments regarding the proposed rule change.5 On February 14, 2025, OCC withdrew the Proposed Rule Change (SR–OCC– 2024–017). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–02942 Filed 2–21–25; 8:45 am] BILLING CODE 8011–01–P 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Notice of Filing infra note 4, at 89 FR 105645. 4 See Securities Exchange Act Release No. 102013 (Dec. 20, 2024), 89 FR 105645 (Dec. 27, 2024) (File No. SR–OCC–2024–017). 5 Comments on the proposed rule change are available at https://www.sec.gov/comments/sr-occ2024-017/srocc2024017.htm. 6 17 CFR 200.30–3(a)(12). 2 17 PO 00000 Frm 00048 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102441; File No. SR– NYSEARCA–2025–10] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules Regarding the Position and Exercise Limits for Options on the Grayscale Bitcoin Mini Trust BTC and the Bitwise Bitcoin ETF and To Permit Flexible Exchange Options on the Grayscale Bitcoin Mini Trust BTC and the Bitwise Bitcoin ETF February 18, 2025. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on February 3, 2025, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. On February 14, 2025, the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend certain rules in order to increase the position and exercise limits for options on the Grayscale Bitcoin Mini Trust BTC and the Bitwise Bitcoin ETF, and to permit Flexible Exchange (‘‘FLEX’’) Options on such funds. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, 1 15 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 E:\FR\FM\24FEN1.SGM 24FEN1 Federal Register / Vol. 90, No. 35 / Monday, February 24, 2025 / Notices set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend certain rules in order to increase the position and exercise limits for options on the Grayscale Bitcoin Mini Trust BTC (‘‘BTC’’) and the Bitwise Bitcoin ETF (‘‘BITB’’) (each a ‘‘Fund’’ and, collectively, the ‘‘Funds’’), and to permit options on the Funds to trade as FLEX Equity Options (‘‘FLEX Fund options’’) as described herein. Specifically, the Exchange proposes to (1) amend Commentary .06(f) to Rule 6.8–O (Position Limits) to increase the position limits for Fund options from 25,000 contracts to 250,000 contracts, and (2) amend Rules 5.32–O(f)(1) (Terms of FLEX) and 5.36–O(b) (Position Limits) to permit FLEX trading of Fund options and, for each Fund, to aggregate FLEX positions with nonFLEX positions on the same underlying Fund.4 The Exchange notes that this proposal is competitive. Nasdaq ISE, LLC (‘‘ISE’’) recently filed a substantively identical proposal to increase the position and exercise limits for options on the iShares Bitcoin Trust ETF (‘‘IBIT’’) from 25,000 to 250,000 contracts and permit trading of FLEX options on IBIT.5 ddrumheller on DSK120RN23PROD with NOTICES1 Background Each Fund is an ETF that holds bitcoin and is listed on the Exchange.6 4 The Exchange notes that it recently submitted a substantively identical filing to increase the aggregated position and exercise limits for, and to permit FLEX trading of options on, the Grayscale Bitcoin Trust (BTC) (‘‘GBTC’’), which filing is pending with the Commission. See SR– NYSEARCA–2025–07, filed Jan. 29, 2025. Like the Funds, GBTC is currently subject to a 25,000contract position and exercise limit and is not eligible for FLEX trading. See Rules 6.8–O, Commentary .06(f); and 5.32–O(f)(1). 5 See Securities Exchange Act Release No. 102065 (December 31, 2024) 90 FR 704 (January 6, 2025) (SR–ISE–2024–62) (notice of proposal to modify Options 9, Sections 13 and 15, to increase the IBIT options position and exercise limits from 25,000 to 250,000 contracts) (the ‘‘IBIT Proposal’’). Although the IBIT Proposal focuses on position limits, ISE proposes to modify its rules in Options 3A, FLEX Options Trading Rules, Section 18, to aggregate ‘‘position limits on FLEX Equity Options for [IBIT]’’ with non-FLEX IBIT options. See id. 6 NYSE Arca received approval to list and trade Bitcoin-Based Commodity-Based Trust Shares in BTC and BITB pursuant to NYSE Arca Rule 8.201– E(c)(1). See Securities Exchange Act Release Nos. 100610 (July 26, 2024) (order approving listing and trading of Commodity-Based Trust Shares of BTC, among other ETFs), 89 FR 62821 (August 1, 2024) (SR–NYSEARCA–2023–45); 99306 (January 10, VerDate Sep<11>2014 19:10 Feb 21, 2025 Jkt 265001 On October 18, 2024, the Commission approved the listing and trading of Fund options on NYSE American, LLC (‘‘NYSE American’’).7 On November 22, 2024, the Exchange obtained rule authority to trade options on BTC and BITB.8 For each Fund, the position and exercise limits are 25,000 contracts, as set forth in Rule 6.8–O, Commentary .06(f), the lowest available limit.9 FLEX Equity Options are not generally subject to position or exercise limits.10 Today, pursuant to Rule 5.32– O(f)(1), Fund options are not approved for FLEX trading.11 Therefore, the 25,000-contract limit applicable to each Fund currently applies solely to nonFLEX Fund options. Per the Commission, ‘‘rules regarding position and exercise limits 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 positions.’’ 12 For this reason, the Commission requires that ‘‘position and exercise limits must be sufficient to prevent investors from disrupting the market for the underlying security by acquiring and exercising a number of options contracts disproportionate to the deliverable supply and average trading volume of the underlying security.’’ 13 Based on its review of the data and analysis provided by NYSE American, the Commission concluded that the proposed 25,000contract position limit for options on BTC and BITB satisfied these objectives.14 The Exchange adopted the 2024), 89 FR 3008 (January 17, 2024) (order approving listing and trading of Commodity-Based Trust Shares of BITB, among other ETFs) (SR– NYSEARCA–2021–90). 7 See Securities Exchange Act Release No. 101386 (October 18, 2024), 89 FR 84960 (October 24, 2024) (SR–NYSEAMER–2024–49) (order approving rules to permit the listing and trading of options on BTC and BITB, among others) (the ‘‘Fund Options Approval Order’’). 8 See Securities Exchange Act Release No. 101713 (November 22, 2024), 89 FR 94839 (November 29, 2024) (SR–NYSEARCA–2024–101) (notice of immediately effective rule change to permit BTC and BITB options trading, based on the alreadyapproved NYSE American rules) (the ‘‘Arca Fund Options Notice’’). 9 See also Rule 6.9–O (Exercise Limits). Pursuant to Rule 6.8–O, Commentary .06(f), the following ETFs are also subject to a 25,000-contract position and exercise limit: IBIT, Fidelity Wise Origin Bitcoin Fund (‘‘FBTC’’), and ARK 21Shares Bitcoin (‘‘ARKB’’). 10 See Rule 5.35–O(b) (subject to the exceptions enumerated in the rule ‘‘there shall be no position limits’’ for FLEX Equity Options). 11 Pursuant to Rule 5.32–O(f)(1), FLEX trading is also not available for options on IBIT, FBTC, and ARKB. 12 See Fund Options Approval Order, 89 FR at 84971. 13 See id. 14 See id. PO 00000 Frm 00049 Fmt 4703 Sfmt 4703 10519 already-approved 25,000-contract limit for BTC and BITB options.15 For the reasons discussed below, the Exchange proposes to increase the position (and exercise) limits for BTC and BITB from 25,000 to 250,000 contracts; to allow FLEX trading of options on each Fund; and to aggregate non-FLEX and FLEX positions in the same underlying Fund for purposes of calculating the proposed 250,000contract limit.16 Increased Position Limits While NYSE American proposed an aggregated 25,000 contract position limit for options on BTC and BITB, it nonetheless believed that evidence existed to support a much higher position limit.17 Specifically, in approving the NYSE American proposal for options on each Fund, the Commission considered and reviewed NYSE American’s analysis that the exercisable risk associated with a position limit of 25,000 contracts represented only 0.7% and 3.6% of the outstanding shares of BTC and BITB, respectively.18 The Commission also considered and reviewed NYSE American’s arguments that with a 25,000-contract limit for each Fund: (i) the 366,950,100 BTC shares outstanding, meant that 147 market participants would have to simultaneously exercise their same-side positions to place BTC under stress; and (ii) the 68,690,000 BITB shares outstanding, meant that 27 market participants would have to simultaneously exercise their same-side 15 See Arca Fund Options Notice, 89 FR at 94842. See also Rule 6.8–O, Commentary .06(f). 16 See proposed Rules 6.8–O, Commentary .06(f) (removing the 25,000 contract position limit currently applicable to options on BTC and BITB); Rule 5.32–O(f)(1) (excluding BTC and BITB options from prohibition against FLEX trading); and 5.35– O(b)(iii) (adopting requirement that, for each Fund, FLEX and non-FLEX positions on the same underlying Fund be aggregated for purposes of calculating position and exercise limits as set forth in Rules 6.8–O and 6.9–O). Absent the current limit of 25,000 contracts, the position limit for options on BTC and BITB will be determined pursuant to Rule 6.8–O, Commentary .06(a)-(e). As discussed herein, based on the most recent trading data for BTC and BITB, each Fund currently qualifies for position (and exercise) limits of 250,000 contracts per Rule 6.8–O, Commentary .06(e)(i). 17 See Fund Options Approval Order, 89 FR, at 84970 (referring to NYSE American’s argument that, as of Sept. 30, 2024, BTC traded 335,492,930 shares and BITB traded 263,965,870 shares in the most recent six months of trading, which would qualify each Fund for a 250,000-contract position limit per NYSE American Rule 904, Commentary .07(a), which is identical to Arca Rule 6.8–O Commentary .06(e)). The Exchange notes that, as of September 30, 2024, BTC had been trading for only two months. See id. 18 See id. Data represents figures from FactSet as of August 30, 2024. E:\FR\FM\24FEN1.SGM 24FEN1 10520 Federal Register / Vol. 90, No. 35 / Monday, February 24, 2025 / Notices positions to place BITB under stress.19 Based on the Commission’s review of this information and analysis, the Commission concluded that the 25,000contract position limit for BTC and BITB would address concerns related to manipulation and investor protection and deemed this limit conservative and therefore appropriate given the liquidity of each Fund.20 Now that options on BTC and BITB have been trading for more than two months, the Exchange proposes to increase the aggregated position and exercise limits for each Fund to 250,000 contracts. BTC and BITB currently qualify for this increased limit pursuant to Rule 6.8–O Commentary .06(e), which requires that, for the most recent six-month period, trading volume for the underlying security is at least 100,000,000 shares.21 As of November 25, 2024, during the most recent sixmonth period, trading volume for BTC was 163,712,700 shares. During the same period, trading volume for BITB was 288,800,860 shares. In addition, as of November 25, 2024, the market capitalization for BTC was $3,496,748,882 22 with an average daily volume (‘‘ADV’’) for the preceding three months of 2,036,369 shares, and the market capitalization of BITB was 4,095,157,000 23 with an ADV for the three prior months of 2,480.478. Also, as of November 25, 2024, there were 19,787,762 bitcoins in circulation.24 At a price of $94,830 per bitcoin,25 that equates to a market capitalization of greater than $1.876 trillion. If a position limit of 250,000 contracts were considered for each Fund, the exercisable risk would represent 19 Id., 89 FR, at 84971. ddrumheller on DSK120RN23PROD with NOTICES1 20 Id. 21 See Rule 6.8–O Commentary .06(e) (providing at subparagraph (e) that the position limit shall be 250,000 contracts for options: (i) on underlying stock or Exchange-Traded Fund Share that had trading volume of at least 100,000,000 shares during the most recent six-month trading period; or (ii) on an underlying stock or Exchange-Traded Fund Share that had trading volume of at least 75,000,000 shares during the most recent six-month trading period and has at least 300,000,000 shares currently outstanding). 22 The market capitalization of BTC was determined by multiplying a settlement price ($42.16) by the number of shares outstanding (82,939,964). Data represents figures from FactSet as of November 25, 2024. 23 The market capitalization of BITB was determined by multiplying a settlement price ($51.70) by the number of shares outstanding (79,950,100). Data represents figures from FactSet as of November 25, 2024. 24 See https://www.coingecko.com/en/coins/ bitcoin. 25 This is the approximate price of bitcoin from 4:00 p.m. ET on November 25, 2024. VerDate Sep<11>2014 19:10 Feb 21, 2025 Jkt 265001 30.14 %26 of BTC shares outstanding; and 31.27 %27 of BITB shares outstanding. Given the liquidity of BTC and BITB, the current 25,000 position limit appears extremely conservative. As noted above, position and exercise limits are designed to limit the number of options contracts traded on an exchange in an underlying security that an investor, acting alone or in concert with others directly or indirectly, may control. These limits, as described in Rules 6.8–O and 6.9–O, are intended to address potential manipulative schemes and adverse market impact surrounding the use of options, such as disrupting the market in the security underlying the options. Position and exercise limits must balance concerns regarding mitigating potential manipulation and the cost of inhibiting potential hedging activity that could be used for legitimate economic purposes. To achieve this balance, the Exchange proposes to increase the position and exercise limits for options on BTC and BITB from 25,000 contracts to 250,000 contracts and to apply this aggregated limit to FLEX and non-FLEX options in the same underlying Fund. The Exchange believes this proposed aggregated limit for options on each Fund is appropriate for the reasons set forth below. First, the Exchange reviewed the Funds’ data relative to the market capitalization of the entire bitcoin market in terms of exercise risk and availability of deliverables. As noted above, as of November 25, 2024, there were 19,787,762 bitcoins in circulation.28 At a price of $94,830 per bitcoin,29 that equates to a market capitalization of greater than $1.876 trillion. If the proposed aggregated position limit of 250,000 contracts were considered, the exercisable risk would represent 30.14% of BTC shares outstanding 30 and 31.27% of BITB shares outstanding.31 Since each Fund has a creation and redemption process managed through the issuer (whereby bitcoin is used to create BTC or BITB shares, as applicable), the position limit can be compared to the total market capitalization of the entire bitcoin market, and in that case, the exercisable risk for options on each Fund would represent less than 0.06% (BTC) or 0.07% (BITB) of all bitcoin outstanding.32 Assuming a scenario where all options on BTC or BITB shares were exercised, given the proposed 250,000-contract position and exercise limit, this would have a virtually unnoticed impact on the entire bitcoin market. This analysis demonstrates that the proposed 250,000 per same side position and exercise limit for options on BTC and BITB is appropriate given the high levels of liquidity of each Fund. Next, the Exchange reviewed the proposed position limit by comparing it to position limits for derivative products regulated by the Commodity Futures Trading Commission (‘‘CFTC’’). While the CFTC, through the relevant Designated Contract Markets, only regulates options positions based upon delta equivalents (creating a less stringent standard), the Exchange examined equivalent bitcoin futures position limits. In particular, the Exchange looked to the CME bitcoin futures contract 33 that has a position limit of 8,000 futures. On October 22, 2024, CME bitcoin futures settled at $94,945.34 On October 22, 2024, BTC settled at $29.90, which would equate to greater than 31,754,180 shares of BTC if the CME notional position limit was utilized. As of the same date, BITB settled at $36.74, which would equate to greater than 25,842,406 shares of BITB if the CME notional position limit was utilized.35 Since substantial portions of any distributed options portfolio is likely to be out of the money on expiration, an options position limit equivalent to the CME position limit for bitcoin futures (considering that all options deltas are ≤1.00) should be a bit higher than the CME implied 175,578 limit. Of note, unlike options contracts, CME position limits are calculated on a net futures-equivalent basis by contract and include contracts that aggregate into one or more base contracts according to 26 This percentage is arrived at with this equation: (250,000 contract limit * 100 shares per option/ 82,939,964 BTC shares outstanding). 27 This percentage is arrived at with this equation: (250,000 contract limit * 100 shares per option/ 79,950,100 BITB shares outstanding). 28 See https://www.coingecko.com/en/coins/ bitcoin. 29 This is the approximate price of bitcoin from 4:00 p.m. ET on November 25, 2024. 30 This percentage is arrived at with this equation: (250,000 contract limit * 100 shares per option/ 82,939,964 BTC shares outstanding). 31 This percentage is arrived at with this equation: (250,000 contract limit * 100 shares per option/ 79,950,100 BITB shares outstanding). 32 For BTC, this number was arrived at with this calculation: ((250,000 limit * 100 shares per option * $42.16 settle)/(19,787,762 bitcoin outstanding * $94,830 bitcoin price)); and for BITB, this number was arrived at with this calculation: ((250,000 limit * 100 shares per option * $51.70 settle)/(19,787,762 bitcoin outstanding * $94,830 bitcoin price)). 33 CME Bitcoin Futures are described in Chapter 350 of CME’s Rulebook. 34 See the Position Accountability and Reportable Level Table in the Interpretations & Special Notices Section of Chapter 5 of CME’s Rulebook. 35 2,000 futures at a 5-bitcoin multiplier (per the contract specifications) equates to $949,450,000 (2000 contracts * 5 bitcoin per contract * $94,945 price of November bitcoin future) of notional value. PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 E:\FR\FM\24FEN1.SGM 24FEN1 Federal Register / Vol. 90, No. 35 / Monday, February 24, 2025 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 an aggregation ratio(s).36 Therefore, if a portfolio includes positions in options on futures, CME would aggregate those positions into the underlying futures contracts in accordance with a table published by CME on a delta equivalent value for the relevant spot month, subsequent spot month, single month and all month position limits.37 If a position exceeds position limits because of an option assignment, CME permits market participants to liquidate the excess position within one business day without being considered in violation of its rules. Additionally, if at the close of trading, a position that includes options exceeds position limits for futures contracts, when evaluated using the delta factors as of that day’s close of trading but does not exceed the limits when evaluated using the previous day’s delta factors, then the position shall not constitute a position limit violation. Based on this analysis, the Exchange believes that the proposed 250,000-contract position and exercise limit for options on each Fund is appropriate. Finally, the Exchange analyzed a position and exercise limit of 250,000 for BTC and BITB against other options on commodity ETFs, namely SPDR Gold Shares (‘‘GLD’’) and iShares Silver Trust (‘‘SLV’’).38 GLD has a float of 306.1 million shares 39 and a position limit of 250,000 contract. SLV has a float of 520.7 million shares 40 and a position limit of 250,000 contracts. As previously noted, position and exercise limits are designed to limit the number of options contracts traded on the exchange in an underlying security that an investor, acting alone or in concert with others directly or indirectly, may control. A position limit exercise in GLD would represent 8.17% of the float of GLD; and a position limit exercise in SLV would represent 4.8% of the float of SLV. In comparison, a 250,000-contract position limit would represent 30.14% of the BTC float and 31.27% of the BITB float. The proposed 250,000 position and exercise limit for options on each Fund is comparable with the standard applied to GLD and SLV and is therefore appropriate. The Exchange believes that the trading data for BTC and BITB has demonstrated that each Fund has more than sufficient liquidity to garner an 36 See https://www.cmegroup.com/education/ courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm. 37 Id. 38 Like BTC and BITB, GLD and SLV each hold one asset in trust. 39 See https://www.ssga.com/us/en/intermediary/ etfs/spdr-gold-shares-gld. 40 See https://www.ishares.com/us/products/ 239855/ishares-silver-trust-fund. VerDate Sep<11>2014 19:10 Feb 21, 2025 Jkt 265001 increased position and exercise limit of 250,000 contracts. The Exchange believes that the significant liquidity present in each Fund mitigates against the potential for manipulation. The Exchange believes that increasing the position and exercise limits, as proposed, would lead to a more liquid and competitive market environment for Fund options, which will benefit customers that trade these options. Further, the reporting requirement for such options would remain unchanged. Thus, the Exchange will still require that each member that maintains sameside positions in Fund options, for its own account or for the account of a customer, report certain information to the Exchange. This information includes, but would not be limited to, the options positions, whether such positions are hedged and, if so, a description of the hedge(s). Market Makers would continue to be exempt from this reporting requirement, however, the Exchange may access Market Maker position information.41 Moreover, the Exchange’s requirement that members file reports with the Exchange for any customer who held aggregate large long- or short-positions on the same side of the market of 200 or more option contracts of any single class for the previous day will remain at this level.42 The Exchange anticipates that trading volume in Fund options will increase as opportunities for investors to participate in the options markets increase and evolve. The Exchange believes that the current position and exercise limits in Fund options are restrictive and will hamper the listed options markets from being able to compete fairly and effectively with the over-the-counter (‘‘OTC’’) markets. OTC transactions occur through bilateral agreements, the terms of which are not publicly disclosed to the marketplace. As such, OTC transactions do not contribute to the price discovery process on a public exchange or other lit markets. The Exchange believes that without the proposed changes to position and exercise limits for options on BTC and BITB, market participants will find the 25,000-contract position limit an impediment to their business and 41 The Options Clearing Corporation (‘‘OCC’’) through the Large option Position Reporting (‘‘LOPR’’) system acts as a centralized service provider for OTP Holder compliance with position reporting requirements by collecting data from each OTP Holder or OTP Firm, consolidating the information, and ultimately providing detailed listings of each TPH’s report to the Exchange, as well as Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), acting as its agent pursuant to a regulatory services agreement (‘‘RSA’’). 42 See Rule 6.6–O. Reporting of Options Positions. PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 10521 investment objectives as well as an impediment to efficient pricing. As a result, market participants may find the less transparent OTC markets a more attractive alternative to achieve their investment and hedging objectives, leading to a retreat from the listed options markets, where trades are subject to reporting requirements and daily surveillance. The Exchange believes that the existing surveillance procedures and reporting requirements at the Exchange are capable of properly identifying disruptive and/or manipulative trading activity. The Exchange also represents that it has adequate surveillances in place to detect potential manipulation, as well as reviews in place to identify continued compliance with the Exchange’s listing standards. These procedures monitor market activity to identify unusual activity in both options and the underlying equities. FLEX Fund Options The Exchange also proposes to permit BTC and BITB to trade as ‘‘FLEX Fund options,’’ which would be subject to aggregated position and exercise limits of 250,000 contracts on all such options—both FLEX and non-FLEX Fund options. This proposed aggregated limit effectively restricts a market participant from holding positions that could result in the receipt of more than 25,000,000 shares (if that market participant exercised all its options on the same underlying Fund). The share creation and redemption process available to each Fund is designed to ensure that an ETF’s price closely tracks the value of its underlying asset. For example, if a market participant exercised a long call position for 25,000 contracts and purchased 2,500,000 shares of BTC and this purchase resulted in the value of BTC shares to trade at a premium to the value of the (underlying) bitcoin held by BTC, the Exchange believes that other market participants would attempt to arbitrage this price difference by selling short BTC shares while concurrently purchasing bitcoin. Those market participants (arbitrageurs) would then deliver cash to BTC and receive shares of BTC, which would be used to close out any previously established short position in BTC. Thus, this creation and redemptions process would significantly reduce the potential risk of price dislocation between the value of BTC shares and the value of bitcoin holdings. The Exchange understands that FLEX Options on ETFs are currently traded in the OTC market by a variety of market participants, e.g., hedge funds, E:\FR\FM\24FEN1.SGM 24FEN1 ddrumheller on DSK120RN23PROD with NOTICES1 10522 Federal Register / Vol. 90, No. 35 / Monday, February 24, 2025 / Notices proprietary trading firms, and pension funds, to name a few. The Exchange believes there is room for significant growth if a comparable product were introduced for trading on a regulated market. The Exchange expects that users of these OTC products would be among the primary users of FLEX options on BTC and BITB. The Exchange also believes that the trading of such FLEX Fund options would allow these same market participants to better manage the risk associated with the volatility of BTC or BITB (the underlying ETF) positions given the enhanced liquidity that an exchange-traded product would bring. Additionally, the Exchange believes that FLEX Fund options traded on the Exchange would have three important advantages over the contracts that are traded in the OTC market. First, because of greater standardization of contract terms, exchange-traded contracts should develop more liquidity. Second, counter-party credit risk would be mitigated by the fact that the contracts are issued and guaranteed by OCC. Finally, the price discovery and dissemination provided by the Exchange and its members would lead to more transparent markets. The Exchange believes that its ability to offer FLEX Fund options would aid it in competing with the OTC market and at the same time expand the universe of products available to interested market participants. The Exchange believes that an exchange-traded alternative may provide a useful risk management and trading vehicle for market participants and their customers. The Exchange has analyzed its capacity and represents that it and The Options Price Reporting Authority (‘‘OPRA’’) have the necessary systems capacity to handle the additional traffic associated with the listing of FLEX Fund options. The Exchange believes any additional traffic that would be generated from the trading of FLEX Fund options would be manageable. The Exchange believes OTP Holders will not have a capacity issue as a result of this proposed rule change. The Exchange also represents that it does not believe this proposed rule change will cause fragmentation of liquidity. The Exchange will monitor the trading volume associated with the additional options series listed as a result of this proposed rule change and the effect (if any) of these additional series on market fragmentation and on the capacity of the Exchange’s automated systems. The Exchange represents that the same surveillance procedures applicable to the Exchange’s other options products listed and traded on the VerDate Sep<11>2014 19:10 Feb 21, 2025 Jkt 265001 Exchange, including non-FLEX Fund options, will apply to FLEX Fund options, and that it has the necessary systems capacity to support such options. FLEX options products (and their respective symbols) are integrated into the Exchange’s existing surveillance system architecture and are thus subject to the relevant surveillance processes. The Exchange’s market surveillance staff (including staff of FINRA who perform surveillance and investigative work on behalf of the Exchange pursuant to a regulatory services agreement) conducts surveillances with respect to BTC and BITB (the underlying ETFs) and, as appropriate, would review activity in BTC and BITB when conducting surveillances for market abuse or manipulation in the FLEX options on each Fund.43 The Exchange does not believe that allowing FLEX Fund options would render the marketplace for non-FLEX Fund options, or equity options in general, more susceptible to manipulative practices. The Exchange represents that its existing trading surveillances are adequate to monitor the trading in BTC and BITB and subsequent trading of the proposed FLEX Fund options on the Exchange. 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. For surveillance purposes, the Exchange would therefore have access to information regarding trading activity in the pertinent underlying securities. In addition, as referenced above, the Exchange has a regulatory services agreement with FINRA, pursuant to which FINRA conducts certain surveillances on behalf of the Exchange. Further, pursuant to a multi-party 17d– 2 joint plan, all options exchanges allocate regulatory responsibilities to FINRA to conduct certain optionsrelated market surveillances.44 The Exchange will implement any additional surveillance procedures it deems necessary to effectively monitor the trading of options on BTC and BITB. The proposed rule change is designed to allow investors seeking to trade options on each Fund to utilize FLEX Fund options. The Exchange believes that offering innovative products flows to the benefit of the investing public. A robust and competitive market requires that exchanges respond to member’s evolving needs by constantly improving their offerings. Such efforts would be stymied if exchanges were prohibited from offering innovative products such as the proposed FLEX Fund options. The Exchange believes that introducing FLEX Fund options would further broaden the base of investors that use FLEX Options (and options on BTC or BITB, in general) to manage their trading and investment risk, including investors that currently trade in the OTC market for customized options. The proposed rule change is also designed to encourage Market Makers to shift liquidity from the OTC market on the Exchange, which, it believes, will enhance the process of price discovery conducted on the Exchange through increased order flow. Implementation The Exchange will announce the implementation date by Trader Update within sixty (60) days of rule approval. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’),45 in general, and furthers the objectives of Section 6(b)(5) of the Act,46 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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. Increased Position Limits 43 See supra note 8, Fund Options Approval Order, 89 FR at 84966–68 (regarding surveillance procedures applicable to BTC, BITB, and other funds that hold bitcoin). 44 Section 19(g)(1) of the Act, among other things, requires every SRO registered as a national securities exchange or national securities association to comply with the Act, the rules and regulations thereunder, and the SRO’s own rules, and, absent reasonable justification or excuse, enforce compliance by its members and persons associated with its members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d–2. Section 17(d)(1) of the Act allows the Commission to relieve an SRO of certain responsibilities with respect to members of the SRO who are also members of another SRO. Specifically, Section 17(d)(1) allows the PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 The Exchange believes increasing the aggregated position and exercise limits for BTC and BITB options from 25,000 contracts to 250,000 contracts will remove impediments to and perfect 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. 45 15 U.S.C. 78f(b). 46 15 U.S.C. 78f(b)(5). E:\FR\FM\24FEN1.SGM 24FEN1 ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 90, No. 35 / Monday, February 24, 2025 / Notices mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest, because it will provide market participants with the ability to more effectively execute their trading and hedging activities. Also, increasing the aggregated position and exercise limits for Fund options may allow Market Makers to maintain their liquidity in these options in amounts commensurate with the continued demand in such options. The proposed higher position and exercise limit may also encourage other liquidity providers to continue to trade on the Exchange rather than shift their volume to OTC markets, which will enhance the process of price discovery conducted on the Exchange through increased order flow. The Exchange notes that a higher position and exercise limit would further allow institutional investors to utilize options on BTC and BITB for prudent risk management purposes. The Exchange analyzed several data points that supported the appropriateness of the proposed aggregated 250,000-contract position and exercise limit on Fund options. As noted above, a comparison of each Fund’s market capitalization to the bitcoin market in terms of exercise risk and availability of deliverables revealed that the exercisable risk of the proposed 250,000-contract limit represented 30.14% of BTC shares outstanding 47 and 31.27% of BITB shares outstanding.48 Further, since each Fund has a creation and redemption process managed through the issuer (whereby bitcoin is used to create BTC or BITB shares, as applicable), the proposed position limit as compared to the market capitalization of the bitcoin market, indicated that the exercisable risk for options on each Fund represented less than 0.06% (BTC) or 0.07% (BITB) of all bitcoin outstanding. Moreover, for each Fund, a comparison of the proposed position limit to the (actual) position limits for equivalent bitcoin futures revealed that the proposed 250,000contract limit for Fund options is appropriate. Finally, the Exchange’s comparison of the proposed position limit against current position limits on commodity-based ETFs, namely GLD and SLV, revealed a position and exercise limit in GLD represents 8.17% of its float and a position and exercise limit in SLV represents 4.8% of its float. By comparison, a 250,000-contract 47 This percentage is arrived at with this equation: (250,000 contract limit * 100 shares per option/ 82,939,964 BTC shares outstanding). 48 This percentage is arrived at with this equation: (250,000 contract limit * 100 shares per option/ 79,950,100 BITB shares outstanding). VerDate Sep<11>2014 19:10 Feb 21, 2025 Jkt 265001 position and contact limit in options on each Fund would represent 30.14% of the BTC float and 31.27% of the BITB float. As noted above, although, the proposed 250,000-contract limit on BTC and BITB options is not as conservative as the standard applied to GLD and SLV, it is comparable and is therefore appropriate. FLEX Fund Options The Exchange believes that the proposal to permit FLEX options on BTC and BITB would remove impediments to and perfect the mechanism of a free and open market. The Exchange believes that offering such FLEX Fund options will benefit investors by providing them with an additional, relatively lower cost investing tool to gain exposure to the price of bitcoin and provide a hedging vehicle to meet their investment needs in connection with a bitcoin-related product. Moreover, the proposal would broaden the base of investors that use FLEX Options to manage their trading and investment risk, including investors that currently trade in the OTC market for customized options. By trading a product in an exchange-traded environment (that is currently being used in the OTC market), the Exchange would be able to compete more effectively with the OTC market. The Exchange believes the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that it would lead to the migration of options currently trading in the OTC market to trading to the Exchange. Also, any migration to the Exchange from the OTC market would result in increased market transparency and enhance the process of price discovery conducted on the Exchange through increased order flow. The Exchange also believes that offering the proposed FLEX Fund options may open up the market for options on these Funds to more retail investors. Additionally, the Exchange believes the proposed rule change is designed to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest because FLEX Fund options are designed to create greater trading and hedging opportunities and flexibility. The proposed rule change should also result in enhanced efficiency in initiating and closing out positions and heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of FLEX Fund options. Further, the proposed rule change would result in increased competition by permitting the Exchange PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 10523 to offer products that are currently used in the OTC market. The Exchange believes that offering innovative products flows to the benefit of the investing public. A robust and competitive market requires that exchanges respond to member’s evolving needs by constantly improving their offerings. Such efforts would be stymied if exchanges were prohibited from offering innovative products such as the proposed FLEX Fund options. The Exchange does not believe that allowing FLEX Fund options would render the marketplace for equity options more susceptible to manipulative practices. Finally, the Exchange represents that it has an adequate surveillance program in place to detect manipulative trading in FLEX Fund options. Regarding the proposed FLEX Fund options, the Exchange would use the same surveillance procedures currently utilized for FLEX Options listed on the Exchange (as well as for non-FLEX Fund options). For surveillance purposes, the Exchange would have access to information regarding trading activity in BTC and BITB (the underlying ETF).49 In light of surveillance measures related to options trading on each Fund and to trading of shares of BTC and BITB (the underlying ETFs), 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 FLEX 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. Increased Position Limits. The Exchange believes that its proposal to increase the aggregated position limit for options on BTC and BITB will not burden intra-market competition because the increased limit would be available to all similarly-situated market participants and would provide additional opportunities for market participants to continue to efficiently achieve their investment and trading objectives for equity options on the Exchange. The proposed rule change will not impose any burden on intermarket competition as the proposal is not competitive in nature. The Exchange expects that all option exchanges will 49 See supra note 8, Fund Options Approval Order, 89 FR at 84966–68 (regarding surveillance procedures applicable to BTC, BITB, and other funds that hold bitcoin). E:\FR\FM\24FEN1.SGM 24FEN1 10524 Federal Register / Vol. 90, No. 35 / Monday, February 24, 2025 / Notices adopt substantively similar proposals to increase position and exercise limits for options on each Fund, such that the Exchange’s proposal would benefit competition. For these reasons, the Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. FLEX Fund Options. The Exchange believes that the proposal to permit FLEX Fund options will not impose any burden on intra-market competition as all market participants can opt to utilize this product or not. The proposed rule change is designed to allow investors seeking option exposure to bitcoin to trade FLEX Fund options. Moreover, the Exchange believes that the proposal to permit FLEX Fund options would broaden the base of investors that use FLEX Options to manage their trading and investment risk, including investors that currently trade in the OTC market for customized options. The Exchange believes that the proposed FLEX Fund options will not impose any burden on inter-market competition but will instead encourage competition by increasing the variety of options products available for trading on the Exchange, which products will provide a valuable tool for investors to manage risk. Should this proposal be approved, competing options exchanges will be free to offer products like the proposed FLEX Fund options. ddrumheller on DSK120RN23PROD with NOTICES1 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) by order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, VerDate Sep<11>2014 19:10 Feb 21, 2025 Jkt 265001 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– NYSEARCA–2025–10 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–NYSEARCA–2025–10. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSEARCA–2025–10 and should be submitted on or before March 17, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.50 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–02943 Filed 2–21–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–291, OMB Control No. 3235–0328] Submission for OMB Review; Comment Request; Extension: Form ID—Application for EDGAR Access Upon Written Request Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget this request for extension of the previously approved collection of information discussed below. Form ID (OMB Control No. 3235– 0328) must be completed and submitted to the Commission by individuals, companies, and other organizations that seek access to file electronically on the Commission’s Electronic Data Gathering, Analysis, and Retrieval system (‘‘EDGAR’’). Those seeking access to file on EDGAR typically include those who are required to make certain disclosures pursuant to the federal securities laws. The information provided on Form ID is an essential part of the security of EDGAR. Form ID must be submitted whenever an applicant seeks an EDGAR identification number (Central Index Key or CIK) and/or access codes to file on EDGAR. The currently approved burden includes an estimate of 73,600 Form ID filings annually and a further estimate that it takes approximately 0.6 hours per response for a total annual burden of 44,160 hours. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The public may view and comment on this information collection request at: https://www.reginfo.gov/public/do/ PRAViewICR?ref_nbr=202502-3235-002 or send an email comment to MBX.OMB.OIRA.SEC_desk_ officer@omb.eop.gov within 30 days of the day after publication of this notice by March 27, 2025. Dated: February 19, 2025. Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–02985 Filed 2–21–25; 8:45 am] 50 17 PO 00000 CFR 200.30–3(a)(12). Frm 00054 Fmt 4703 Sfmt 9990 BILLING CODE 8011–01–P E:\FR\FM\24FEN1.SGM 24FEN1

Agencies

[Federal Register Volume 90, Number 35 (Monday, February 24, 2025)]
[Notices]
[Pages 10518-10524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-02943]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102441; File No. SR-NYSEARCA-2025-10]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules 
Regarding the Position and Exercise Limits for Options on the Grayscale 
Bitcoin Mini Trust BTC and the Bitwise Bitcoin ETF and To Permit 
Flexible Exchange Options on the Grayscale Bitcoin Mini Trust BTC and 
the Bitwise Bitcoin ETF

February 18, 2025.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on February 3, 2025, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. On February 14, 2025, the Exchange filed Amendment No. 1 
to the proposed rule change. The Commission is publishing this notice 
to solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain rules in order to increase 
the position and exercise limits for options on the Grayscale Bitcoin 
Mini Trust BTC and the Bitwise Bitcoin ETF, and to permit Flexible 
Exchange (``FLEX'') Options on such funds. The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries,

[[Page 10519]]

set forth in sections A, B, and C below, of the most significant parts 
of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend certain rules in order to increase 
the position and exercise limits for options on the Grayscale Bitcoin 
Mini Trust BTC (``BTC'') and the Bitwise Bitcoin ETF (``BITB'') (each a 
``Fund'' and, collectively, the ``Funds''), and to permit options on 
the Funds to trade as FLEX Equity Options (``FLEX Fund options'') as 
described herein. Specifically, the Exchange proposes to (1) amend 
Commentary .06(f) to Rule 6.8-O (Position Limits) to increase the 
position limits for Fund options from 25,000 contracts to 250,000 
contracts, and (2) amend Rules 5.32-O(f)(1) (Terms of FLEX) and 5.36-
O(b) (Position Limits) to permit FLEX trading of Fund options and, for 
each Fund, to aggregate FLEX positions with non-FLEX positions on the 
same underlying Fund.\4\
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    \4\ The Exchange notes that it recently submitted a 
substantively identical filing to increase the aggregated position 
and exercise limits for, and to permit FLEX trading of options on, 
the Grayscale Bitcoin Trust (BTC) (``GBTC''), which filing is 
pending with the Commission. See SR-NYSEARCA-2025-07, filed Jan. 29, 
2025. Like the Funds, GBTC is currently subject to a 25,000-contract 
position and exercise limit and is not eligible for FLEX trading. 
See Rules 6.8-O, Commentary .06(f); and 5.32-O(f)(1).
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    The Exchange notes that this proposal is competitive. Nasdaq ISE, 
LLC (``ISE'') recently filed a substantively identical proposal to 
increase the position and exercise limits for options on the iShares 
Bitcoin Trust ETF (``IBIT'') from 25,000 to 250,000 contracts and 
permit trading of FLEX options on IBIT.\5\
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    \5\ See Securities Exchange Act Release No. 102065 (December 31, 
2024) 90 FR 704 (January 6, 2025) (SR-ISE-2024-62) (notice of 
proposal to modify Options 9, Sections 13 and 15, to increase the 
IBIT options position and exercise limits from 25,000 to 250,000 
contracts) (the ``IBIT Proposal''). Although the IBIT Proposal 
focuses on position limits, ISE proposes to modify its rules in 
Options 3A, FLEX Options Trading Rules, Section 18, to aggregate 
``position limits on FLEX Equity Options for [IBIT]'' with non-FLEX 
IBIT options. See id.
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Background
    Each Fund is an ETF that holds bitcoin and is listed on the 
Exchange.\6\ On October 18, 2024, the Commission approved the listing 
and trading of Fund options on NYSE American, LLC (``NYSE 
American'').\7\ On November 22, 2024, the Exchange obtained rule 
authority to trade options on BTC and BITB.\8\ For each Fund, the 
position and exercise limits are 25,000 contracts, as set forth in Rule 
6.8-O, Commentary .06(f), the lowest available limit.\9\
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    \6\ NYSE Arca received approval to list and trade Bitcoin-Based 
Commodity-Based Trust Shares in BTC and BITB pursuant to NYSE Arca 
Rule 8.201-E(c)(1). See Securities Exchange Act Release Nos. 100610 
(July 26, 2024) (order approving listing and trading of Commodity-
Based Trust Shares of BTC, among other ETFs), 89 FR 62821 (August 1, 
2024) (SR-NYSEARCA-2023-45); 99306 (January 10, 2024), 89 FR 3008 
(January 17, 2024) (order approving listing and trading of 
Commodity-Based Trust Shares of BITB, among other ETFs) (SR-
NYSEARCA-2021-90).
    \7\ See Securities Exchange Act Release No. 101386 (October 18, 
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (order 
approving rules to permit the listing and trading of options on BTC 
and BITB, among others) (the ``Fund Options Approval Order'').
    \8\ See Securities Exchange Act Release No. 101713 (November 22, 
2024), 89 FR 94839 (November 29, 2024) (SR-NYSEARCA-2024-101) 
(notice of immediately effective rule change to permit BTC and BITB 
options trading, based on the already-approved NYSE American rules) 
(the ``Arca Fund Options Notice'').
    \9\ See also Rule 6.9-O (Exercise Limits). Pursuant to Rule 6.8-
O, Commentary .06(f), the following ETFs are also subject to a 
25,000-contract position and exercise limit: IBIT, Fidelity Wise 
Origin Bitcoin Fund (``FBTC''), and ARK 21Shares Bitcoin (``ARKB'').
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    FLEX Equity Options are not generally subject to position or 
exercise limits.\10\ Today, pursuant to Rule 5.32-O(f)(1), Fund options 
are not approved for FLEX trading.\11\ Therefore, the 25,000-contract 
limit applicable to each Fund currently applies solely to non-FLEX Fund 
options.
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    \10\ See Rule 5.35-O(b) (subject to the exceptions enumerated in 
the rule ``there shall be no position limits'' for FLEX Equity 
Options).
    \11\ Pursuant to Rule 5.32-O(f)(1), FLEX trading is also not 
available for options on IBIT, FBTC, and ARKB.
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    Per the Commission, ``rules regarding position and exercise limits 
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 positions.'' \12\ For 
this reason, the Commission requires that ``position and exercise 
limits must be sufficient to prevent investors from disrupting the 
market for the underlying security by acquiring and exercising a number 
of options contracts disproportionate to the deliverable supply and 
average trading volume of the underlying security.'' \13\ Based on its 
review of the data and analysis provided by NYSE American, the 
Commission concluded that the proposed 25,000-contract position limit 
for options on BTC and BITB satisfied these objectives.\14\ The 
Exchange adopted the already-approved 25,000-contract limit for BTC and 
BITB options.\15\
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    \12\ See Fund Options Approval Order, 89 FR at 84971.
    \13\ See id.
    \14\ See id.
    \15\ See Arca Fund Options Notice, 89 FR at 94842. See also Rule 
6.8-O, Commentary .06(f).
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    For the reasons discussed below, the Exchange proposes to increase 
the position (and exercise) limits for BTC and BITB from 25,000 to 
250,000 contracts; to allow FLEX trading of options on each Fund; and 
to aggregate non-FLEX and FLEX positions in the same underlying Fund 
for purposes of calculating the proposed 250,000-contract limit.\16\
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    \16\ See proposed Rules 6.8-O, Commentary .06(f) (removing the 
25,000 contract position limit currently applicable to options on 
BTC and BITB); Rule 5.32-O(f)(1) (excluding BTC and BITB options 
from prohibition against FLEX trading); and 5.35-O(b)(iii) (adopting 
requirement that, for each Fund, FLEX and non-FLEX positions on the 
same underlying Fund be aggregated for purposes of calculating 
position and exercise limits as set forth in Rules 6.8-O and 6.9-O). 
Absent the current limit of 25,000 contracts, the position limit for 
options on BTC and BITB will be determined pursuant to Rule 6.8-O, 
Commentary .06(a)-(e). As discussed herein, based on the most recent 
trading data for BTC and BITB, each Fund currently qualifies for 
position (and exercise) limits of 250,000 contracts per Rule 6.8-O, 
Commentary .06(e)(i).
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Increased Position Limits
    While NYSE American proposed an aggregated 25,000 contract position 
limit for options on BTC and BITB, it nonetheless believed that 
evidence existed to support a much higher position limit.\17\ 
Specifically, in approving the NYSE American proposal for options on 
each Fund, the Commission considered and reviewed NYSE American's 
analysis that the exercisable risk associated with a position limit of 
25,000 contracts represented only 0.7% and 3.6% of the outstanding 
shares of BTC and BITB, respectively.\18\ The Commission also 
considered and reviewed NYSE American's arguments that with a 25,000-
contract limit for each Fund: (i) the 366,950,100 BTC shares 
outstanding, meant that 147 market participants would have to 
simultaneously exercise their same-side positions to place BTC under 
stress; and (ii) the 68,690,000 BITB shares outstanding, meant that 27 
market participants would have to simultaneously exercise their same-
side

[[Page 10520]]

positions to place BITB under stress.\19\ Based on the Commission's 
review of this information and analysis, the Commission concluded that 
the 25,000-contract position limit for BTC and BITB would address 
concerns related to manipulation and investor protection and deemed 
this limit conservative and therefore appropriate given the liquidity 
of each Fund.\20\
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    \17\ See Fund Options Approval Order, 89 FR, at 84970 (referring 
to NYSE American's argument that, as of Sept. 30, 2024, BTC traded 
335,492,930 shares and BITB traded 263,965,870 shares in the most 
recent six months of trading, which would qualify each Fund for a 
250,000-contract position limit per NYSE American Rule 904, 
Commentary .07(a), which is identical to Arca Rule 6.8-O Commentary 
.06(e)). The Exchange notes that, as of September 30, 2024, BTC had 
been trading for only two months. See id.
    \18\ See id. Data represents figures from FactSet as of August 
30, 2024.
    \19\ Id., 89 FR, at 84971.
    \20\ Id.
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    Now that options on BTC and BITB have been trading for more than 
two months, the Exchange proposes to increase the aggregated position 
and exercise limits for each Fund to 250,000 contracts. BTC and BITB 
currently qualify for this increased limit pursuant to Rule 6.8-O 
Commentary .06(e), which requires that, for the most recent six-month 
period, trading volume for the underlying security is at least 
100,000,000 shares.\21\ As of November 25, 2024, during the most recent 
six-month period, trading volume for BTC was 163,712,700 shares. During 
the same period, trading volume for BITB was 288,800,860 shares. In 
addition, as of November 25, 2024, the market capitalization for BTC 
was $3,496,748,882 \22\ with an average daily volume (``ADV'') for the 
preceding three months of 2,036,369 shares, and the market 
capitalization of BITB was 4,095,157,000 \23\ with an ADV for the three 
prior months of 2,480.478. Also, as of November 25, 2024, there were 
19,787,762 bitcoins in circulation.\24\ At a price of $94,830 per 
bitcoin,\25\ that equates to a market capitalization of greater than 
$1.876 trillion. If a position limit of 250,000 contracts were 
considered for each Fund, the exercisable risk would represent 30.14 
%\26\ of BTC shares outstanding; and 31.27 %\27\ of BITB shares 
outstanding. Given the liquidity of BTC and BITB, the current 25,000 
position limit appears extremely conservative.
---------------------------------------------------------------------------

    \21\ See Rule 6.8-O Commentary .06(e) (providing at subparagraph 
(e) that the position limit shall be 250,000 contracts for options: 
(i) on underlying stock or Exchange-Traded Fund Share that had 
trading volume of at least 100,000,000 shares during the most recent 
six-month trading period; or (ii) on an underlying stock or 
Exchange-Traded Fund Share that had trading volume of at least 
75,000,000 shares during the most recent six-month trading period 
and has at least 300,000,000 shares currently outstanding).
    \22\ The market capitalization of BTC was determined by 
multiplying a settlement price ($42.16) by the number of shares 
outstanding (82,939,964). Data represents figures from FactSet as of 
November 25, 2024.
    \23\ The market capitalization of BITB was determined by 
multiplying a settlement price ($51.70) by the number of shares 
outstanding (79,950,100). Data represents figures from FactSet as of 
November 25, 2024.
    \24\ See https://www.coingecko.com/en/coins/bitcoin.
    \25\ This is the approximate price of bitcoin from 4:00 p.m. ET 
on November 25, 2024.
    \26\ This percentage is arrived at with this equation: (250,000 
contract limit * 100 shares per option/82,939,964 BTC shares 
outstanding).
    \27\ This percentage is arrived at with this equation: (250,000 
contract limit * 100 shares per option/79,950,100 BITB shares 
outstanding).
---------------------------------------------------------------------------

    As noted above, position and exercise limits are designed to limit 
the number of options contracts traded on an exchange in an underlying 
security that an investor, acting alone or in concert with others 
directly or indirectly, may control. These limits, as described in 
Rules 6.8-O and 6.9-O, are intended to address potential manipulative 
schemes and adverse market impact surrounding the use of options, such 
as disrupting the market in the security underlying the options. 
Position and exercise limits must balance concerns regarding mitigating 
potential manipulation and the cost of inhibiting potential hedging 
activity that could be used for legitimate economic purposes. To 
achieve this balance, the Exchange proposes to increase the position 
and exercise limits for options on BTC and BITB from 25,000 contracts 
to 250,000 contracts and to apply this aggregated limit to FLEX and 
non-FLEX options in the same underlying Fund. The Exchange believes 
this proposed aggregated limit for options on each Fund is appropriate 
for the reasons set forth below.
    First, the Exchange reviewed the Funds' data relative to the market 
capitalization of the entire bitcoin market in terms of exercise risk 
and availability of deliverables. As noted above, as of November 25, 
2024, there were 19,787,762 bitcoins in circulation.\28\ At a price of 
$94,830 per bitcoin,\29\ that equates to a market capitalization of 
greater than $1.876 trillion. If the proposed aggregated position limit 
of 250,000 contracts were considered, the exercisable risk would 
represent 30.14% of BTC shares outstanding \30\ and 31.27% of BITB 
shares outstanding.\31\ Since each Fund has a creation and redemption 
process managed through the issuer (whereby bitcoin is used to create 
BTC or BITB shares, as applicable), the position limit can be compared 
to the total market capitalization of the entire bitcoin market, and in 
that case, the exercisable risk for options on each Fund would 
represent less than 0.06% (BTC) or 0.07% (BITB) of all bitcoin 
outstanding.\32\ Assuming a scenario where all options on BTC or BITB 
shares were exercised, given the proposed 250,000-contract position and 
exercise limit, this would have a virtually unnoticed impact on the 
entire bitcoin market. This analysis demonstrates that the proposed 
250,000 per same side position and exercise limit for options on BTC 
and BITB is appropriate given the high levels of liquidity of each 
Fund.
---------------------------------------------------------------------------

    \28\ See https://www.coingecko.com/en/coins/bitcoin.
    \29\ This is the approximate price of bitcoin from 4:00 p.m. ET 
on November 25, 2024.
    \30\ This percentage is arrived at with this equation: (250,000 
contract limit * 100 shares per option/82,939,964 BTC shares 
outstanding).
    \31\ This percentage is arrived at with this equation: (250,000 
contract limit * 100 shares per option/79,950,100 BITB shares 
outstanding).
    \32\ For BTC, this number was arrived at with this calculation: 
((250,000 limit * 100 shares per option * $42.16 settle)/(19,787,762 
bitcoin outstanding * $94,830 bitcoin price)); and for BITB, this 
number was arrived at with this calculation: ((250,000 limit * 100 
shares per option * $51.70 settle)/(19,787,762 bitcoin outstanding * 
$94,830 bitcoin price)).
---------------------------------------------------------------------------

    Next, the Exchange reviewed the proposed position limit by 
comparing it to position limits for derivative products regulated by 
the Commodity Futures Trading Commission (``CFTC[hairsp]''). While the 
CFTC, through the relevant Designated Contract Markets, only regulates 
options positions based upon delta equivalents (creating a less 
stringent standard), the Exchange examined equivalent bitcoin futures 
position limits. In particular, the Exchange looked to the CME bitcoin 
futures contract \33\ that has a position limit of 8,000 futures. On 
October 22, 2024, CME bitcoin futures settled at $94,945.\34\ On 
October 22, 2024, BTC settled at $29.90, which would equate to greater 
than 31,754,180 shares of BTC if the CME notional position limit was 
utilized. As of the same date, BITB settled at $36.74, which would 
equate to greater than 25,842,406 shares of BITB if the CME notional 
position limit was utilized.\35\ Since substantial portions of any 
distributed options portfolio is likely to be out of the money on 
expiration, an options position limit equivalent to the CME position 
limit for bitcoin futures (considering that all options deltas are 
<=1.00) should be a bit higher than the CME implied 175,578 limit. Of 
note, unlike options contracts, CME position limits are calculated on a 
net futures-equivalent basis by contract and include contracts that 
aggregate into one or more base contracts according to

[[Page 10521]]

an aggregation ratio(s).\36\ Therefore, if a portfolio includes 
positions in options on futures, CME would aggregate those positions 
into the underlying futures contracts in accordance with a table 
published by CME on a delta equivalent value for the relevant spot 
month, subsequent spot month, single month and all month position 
limits.\37\ If a position exceeds position limits because of an option 
assignment, CME permits market participants to liquidate the excess 
position within one business day without being considered in violation 
of its rules. Additionally, if at the close of trading, a position that 
includes options exceeds position limits for futures contracts, when 
evaluated using the delta factors as of that day's close of trading but 
does not exceed the limits when evaluated using the previous day's 
delta factors, then the position shall not constitute a position limit 
violation. Based on this analysis, the Exchange believes that the 
proposed 250,000-contract position and exercise limit for options on 
each Fund is appropriate.
---------------------------------------------------------------------------

    \33\ CME Bitcoin Futures are described in Chapter 350 of CME's 
Rulebook.
    \34\ See the Position Accountability and Reportable Level Table 
in the Interpretations & Special Notices Section of Chapter 5 of 
CME's Rulebook.
    \35\ 2,000 futures at a 5-bitcoin multiplier (per the contract 
specifications) equates to $949,450,000 (2000 contracts * 5 bitcoin 
per contract * $94,945 price of November bitcoin future) of notional 
value.
    \36\ See https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm.
    \37\ Id.
---------------------------------------------------------------------------

    Finally, the Exchange analyzed a position and exercise limit of 
250,000 for BTC and BITB against other options on commodity ETFs, 
namely SPDR Gold Shares (``GLD'') and iShares Silver Trust 
(``SLV'').\38\ GLD has a float of 306.1 million shares \39\ and a 
position limit of 250,000 contract. SLV has a float of 520.7 million 
shares \40\ and a position limit of 250,000 contracts. As previously 
noted, position and exercise limits are designed to limit the number of 
options contracts traded on the exchange in an underlying security that 
an investor, acting alone or in concert with others directly or 
indirectly, may control. A position limit exercise in GLD would 
represent 8.17% of the float of GLD; and a position limit exercise in 
SLV would represent 4.8% of the float of SLV. In comparison, a 250,000-
contract position limit would represent 30.14% of the BTC float and 
31.27% of the BITB float. The proposed 250,000 position and exercise 
limit for options on each Fund is comparable with the standard applied 
to GLD and SLV and is therefore appropriate. The Exchange believes that 
the trading data for BTC and BITB has demonstrated that each Fund has 
more than sufficient liquidity to garner an increased position and 
exercise limit of 250,000 contracts. The Exchange believes that the 
significant liquidity present in each Fund mitigates against the 
potential for manipulation.
---------------------------------------------------------------------------

    \38\ Like BTC and BITB, GLD and SLV each hold one asset in 
trust.
    \39\ See https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld.
    \40\ See https://www.ishares.com/us/products/239855/ishares-silver-trust-fund.
---------------------------------------------------------------------------

    The Exchange believes that increasing the position and exercise 
limits, as proposed, would lead to a more liquid and competitive market 
environment for Fund options, which will benefit customers that trade 
these options. Further, the reporting requirement for such options 
would remain unchanged. Thus, the Exchange will still require that each 
member that maintains same-side positions in Fund options, for its own 
account or for the account of a customer, report certain information to 
the Exchange. This information includes, but would not be limited to, 
the options positions, whether such positions are hedged and, if so, a 
description of the hedge(s). Market Makers would continue to be exempt 
from this reporting requirement, however, the Exchange may access 
Market Maker position information.\41\ Moreover, the Exchange's 
requirement that members file reports with the Exchange for any 
customer who held aggregate large long- or short-positions on the same 
side of the market of 200 or more option contracts of any single class 
for the previous day will remain at this level.\42\
---------------------------------------------------------------------------

    \41\ The Options Clearing Corporation (``OCC'') through the 
Large option Position Reporting (``LOPR'') system acts as a 
centralized service provider for OTP Holder compliance with position 
reporting requirements by collecting data from each OTP Holder or 
OTP Firm, consolidating the information, and ultimately providing 
detailed listings of each TPH's report to the Exchange, as well as 
Financial Industry Regulatory Authority, Inc. (``FINRA''), acting as 
its agent pursuant to a regulatory services agreement (``RSA'').
    \42\ See Rule 6.6-O. Reporting of Options Positions.
---------------------------------------------------------------------------

    The Exchange anticipates that trading volume in Fund options will 
increase as opportunities for investors to participate in the options 
markets increase and evolve. The Exchange believes that the current 
position and exercise limits in Fund options are restrictive and will 
hamper the listed options markets from being able to compete fairly and 
effectively with the over-the-counter (``OTC'') markets. OTC 
transactions occur through bilateral agreements, the terms of which are 
not publicly disclosed to the marketplace. As such, OTC transactions do 
not contribute to the price discovery process on a public exchange or 
other lit markets. The Exchange believes that without the proposed 
changes to position and exercise limits for options on BTC and BITB, 
market participants will find the 25,000-contract position limit an 
impediment to their business and investment objectives as well as an 
impediment to efficient pricing. As a result, market participants may 
find the less transparent OTC markets a more attractive alternative to 
achieve their investment and hedging objectives, leading to a retreat 
from the listed options markets, where trades are subject to reporting 
requirements and daily surveillance.
    The Exchange believes that the existing surveillance procedures and 
reporting requirements at the Exchange are capable of properly 
identifying disruptive and/or manipulative trading activity. The 
Exchange also represents that it has adequate surveillances in place to 
detect potential manipulation, as well as reviews in place to identify 
continued compliance with the Exchange's listing standards. These 
procedures monitor market activity to identify unusual activity in both 
options and the underlying equities.
FLEX Fund Options
    The Exchange also proposes to permit BTC and BITB to trade as 
``FLEX Fund options,'' which would be subject to aggregated position 
and exercise limits of 250,000 contracts on all such options--both FLEX 
and non-FLEX Fund options. This proposed aggregated limit effectively 
restricts a market participant from holding positions that could result 
in the receipt of more than 25,000,000 shares (if that market 
participant exercised all its options on the same underlying Fund).
    The share creation and redemption process available to each Fund is 
designed to ensure that an ETF's price closely tracks the value of its 
underlying asset. For example, if a market participant exercised a long 
call position for 25,000 contracts and purchased 2,500,000 shares of 
BTC and this purchase resulted in the value of BTC shares to trade at a 
premium to the value of the (underlying) bitcoin held by BTC, the 
Exchange believes that other market participants would attempt to 
arbitrage this price difference by selling short BTC shares while 
concurrently purchasing bitcoin. Those market participants 
(arbitrageurs) would then deliver cash to BTC and receive shares of 
BTC, which would be used to close out any previously established short 
position in BTC. Thus, this creation and redemptions process would 
significantly reduce the potential risk of price dislocation between 
the value of BTC shares and the value of bitcoin holdings.
    The Exchange understands that FLEX Options on ETFs are currently 
traded in the OTC market by a variety of market participants, e.g., 
hedge funds,

[[Page 10522]]

proprietary trading firms, and pension funds, to name a few. The 
Exchange believes there is room for significant growth if a comparable 
product were introduced for trading on a regulated market. The Exchange 
expects that users of these OTC products would be among the primary 
users of FLEX options on BTC and BITB. The Exchange also believes that 
the trading of such FLEX Fund options would allow these same market 
participants to better manage the risk associated with the volatility 
of BTC or BITB (the underlying ETF) positions given the enhanced 
liquidity that an exchange-traded product would bring.
    Additionally, the Exchange believes that FLEX Fund options traded 
on the Exchange would have three important advantages over the 
contracts that are traded in the OTC market. First, because of greater 
standardization of contract terms, exchange-traded contracts should 
develop more liquidity. Second, counter-party credit risk would be 
mitigated by the fact that the contracts are issued and guaranteed by 
OCC. Finally, the price discovery and dissemination provided by the 
Exchange and its members would lead to more transparent markets. The 
Exchange believes that its ability to offer FLEX Fund options would aid 
it in competing with the OTC market and at the same time expand the 
universe of products available to interested market participants. The 
Exchange believes that an exchange-traded alternative may provide a 
useful risk management and trading vehicle for market participants and 
their customers.
    The Exchange has analyzed its capacity and represents that it and 
The Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to handle the additional traffic associated with the 
listing of FLEX Fund options. The Exchange believes any additional 
traffic that would be generated from the trading of FLEX Fund options 
would be manageable. The Exchange believes OTP Holders will not have a 
capacity issue as a result of this proposed rule change. The Exchange 
also represents that it does not believe this proposed rule change will 
cause fragmentation of liquidity. The Exchange will monitor the trading 
volume associated with the additional options series listed as a result 
of this proposed rule change and the effect (if any) of these 
additional series on market fragmentation and on the capacity of the 
Exchange's automated systems.
    The Exchange represents that the same surveillance procedures 
applicable to the Exchange's other options products listed and traded 
on the Exchange, including non-FLEX Fund options, will apply to FLEX 
Fund options, and that it has the necessary systems capacity to support 
such options. FLEX options products (and their respective symbols) are 
integrated into the Exchange's existing surveillance system 
architecture and are thus subject to the relevant surveillance 
processes. The Exchange's market surveillance staff (including staff of 
FINRA who perform surveillance and investigative work on behalf of the 
Exchange pursuant to a regulatory services agreement) conducts 
surveillances with respect to BTC and BITB (the underlying ETFs) and, 
as appropriate, would review activity in BTC and BITB when conducting 
surveillances for market abuse or manipulation in the FLEX options on 
each Fund.\43\ The Exchange does not believe that allowing FLEX Fund 
options would render the marketplace for non-FLEX Fund options, or 
equity options in general, more susceptible to manipulative practices.
---------------------------------------------------------------------------

    \43\ See supra note 8, Fund Options Approval Order, 89 FR at 
84966-68 (regarding surveillance procedures applicable to BTC, BITB, 
and other funds that hold bitcoin).
---------------------------------------------------------------------------

    The Exchange represents that its existing trading surveillances are 
adequate to monitor the trading in BTC and BITB and subsequent trading 
of the proposed FLEX Fund options on the Exchange. 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. For surveillance 
purposes, the Exchange would therefore have access to information 
regarding trading activity in the pertinent underlying securities. In 
addition, as referenced above, the Exchange has a regulatory services 
agreement with FINRA, pursuant to which FINRA conducts certain 
surveillances on behalf of the Exchange. Further, pursuant to a multi-
party 17d-2 joint plan, all options exchanges allocate regulatory 
responsibilities to FINRA to conduct certain options-related market 
surveillances.\44\ The Exchange will implement any additional 
surveillance procedures it deems necessary to effectively monitor the 
trading of options on BTC and BITB.
---------------------------------------------------------------------------

    \44\ Section 19(g)(1) of the Act, among other things, requires 
every SRO registered as a national securities exchange or national 
securities association to comply with the Act, the rules and 
regulations thereunder, and the SRO's own rules, and, absent 
reasonable justification or excuse, enforce compliance by its 
members and persons associated with its members. See 15 U.S.C. 
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows 
the Commission to relieve an SRO of certain responsibilities with 
respect to members of the SRO who are also members of another SRO. 
Specifically, Section 17(d)(1) allows the Commission to relieve an 
SRO of its responsibilities to: (i) receive regulatory reports from 
such members; (ii) examine such members for compliance with the Act 
and the rules and regulations thereunder, and the rules of the SRO; 
or (iii) carry out other specified regulatory responsibilities with 
respect to such members.
---------------------------------------------------------------------------

    The proposed rule change is designed to allow investors seeking to 
trade options on each Fund to utilize FLEX Fund options. The Exchange 
believes that offering innovative products flows to the benefit of the 
investing public. A robust and competitive market requires that 
exchanges respond to member's evolving needs by constantly improving 
their offerings. Such efforts would be stymied if exchanges were 
prohibited from offering innovative products such as the proposed FLEX 
Fund options. The Exchange believes that introducing FLEX Fund options 
would further broaden the base of investors that use FLEX Options (and 
options on BTC or BITB, in general) to manage their trading and 
investment risk, including investors that currently trade in the OTC 
market for customized options. The proposed rule change is also 
designed to encourage Market Makers to shift liquidity from the OTC 
market on the Exchange, which, it believes, will enhance the process of 
price discovery conducted on the Exchange through increased order flow.
Implementation
    The Exchange will announce the implementation date by Trader Update 
within sixty (60) days of rule approval.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\45\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\46\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78f(b).
    \46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Increased Position Limits
    The Exchange believes increasing the aggregated position and 
exercise limits for BTC and BITB options from 25,000 contracts to 
250,000 contracts will remove impediments to and perfect the

[[Page 10523]]

mechanism of a free and open market and a national market system, and, 
in general, protect investors and the public interest, because it will 
provide market participants with the ability to more effectively 
execute their trading and hedging activities. Also, increasing the 
aggregated position and exercise limits for Fund options may allow 
Market Makers to maintain their liquidity in these options in amounts 
commensurate with the continued demand in such options. The proposed 
higher position and exercise limit may also encourage other liquidity 
providers to continue to trade on the Exchange rather than shift their 
volume to OTC markets, which will enhance the process of price 
discovery conducted on the Exchange through increased order flow. The 
Exchange notes that a higher position and exercise limit would further 
allow institutional investors to utilize options on BTC and BITB for 
prudent risk management purposes.
    The Exchange analyzed several data points that supported the 
appropriateness of the proposed aggregated 250,000-contract position 
and exercise limit on Fund options. As noted above, a comparison of 
each Fund's market capitalization to the bitcoin market in terms of 
exercise risk and availability of deliverables revealed that the 
exercisable risk of the proposed 250,000-contract limit represented 
30.14% of BTC shares outstanding \47\ and 31.27% of BITB shares 
outstanding.\48\ Further, since each Fund has a creation and redemption 
process managed through the issuer (whereby bitcoin is used to create 
BTC or BITB shares, as applicable), the proposed position limit as 
compared to the market capitalization of the bitcoin market, indicated 
that the exercisable risk for options on each Fund represented less 
than 0.06% (BTC) or 0.07% (BITB) of all bitcoin outstanding. Moreover, 
for each Fund, a comparison of the proposed position limit to the 
(actual) position limits for equivalent bitcoin futures revealed that 
the proposed 250,000-contract limit for Fund options is appropriate. 
Finally, the Exchange's comparison of the proposed position limit 
against current position limits on commodity-based ETFs, namely GLD and 
SLV, revealed a position and exercise limit in GLD represents 8.17% of 
its float and a position and exercise limit in SLV represents 4.8% of 
its float. By comparison, a 250,000-contract position and contact limit 
in options on each Fund would represent 30.14% of the BTC float and 
31.27% of the BITB float. As noted above, although, the proposed 
250,000-contract limit on BTC and BITB options is not as conservative 
as the standard applied to GLD and SLV, it is comparable and is 
therefore appropriate.
---------------------------------------------------------------------------

    \47\ This percentage is arrived at with this equation: (250,000 
contract limit * 100 shares per option/82,939,964 BTC shares 
outstanding).
    \48\ This percentage is arrived at with this equation: (250,000 
contract limit * 100 shares per option/79,950,100 BITB shares 
outstanding).
---------------------------------------------------------------------------

FLEX Fund Options
    The Exchange believes that the proposal to permit FLEX options on 
BTC and BITB would remove impediments to and perfect the mechanism of a 
free and open market. The Exchange believes that offering such FLEX 
Fund options will benefit investors by providing them with an 
additional, relatively lower cost investing tool to gain exposure to 
the price of bitcoin and provide a hedging vehicle to meet their 
investment needs in connection with a bitcoin-related product. 
Moreover, the proposal would broaden the base of investors that use 
FLEX Options to manage their trading and investment risk, including 
investors that currently trade in the OTC market for customized 
options. By trading a product in an exchange-traded environment (that 
is currently being used in the OTC market), the Exchange would be able 
to compete more effectively with the OTC market. The Exchange believes 
the proposed rule change is designed to prevent fraudulent and 
manipulative acts and practices in that it would lead to the migration 
of options currently trading in the OTC market to trading to the 
Exchange. Also, any migration to the Exchange from the OTC market would 
result in increased market transparency and enhance the process of 
price discovery conducted on the Exchange through increased order flow. 
The Exchange also believes that offering the proposed FLEX Fund options 
may open up the market for options on these Funds to more retail 
investors.
    Additionally, the Exchange believes the proposed rule change is 
designed to remove impediments to and to perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest because FLEX Fund options are 
designed to create greater trading and hedging opportunities and 
flexibility. The proposed rule change should also result in enhanced 
efficiency in initiating and closing out positions and heightened 
contra-party creditworthiness due to the role of OCC as issuer and 
guarantor of FLEX Fund options. Further, the proposed rule change would 
result in increased competition by permitting the Exchange to offer 
products that are currently used in the OTC market.
    The Exchange believes that offering innovative products flows to 
the benefit of the investing public. A robust and competitive market 
requires that exchanges respond to member's evolving needs by 
constantly improving their offerings. Such efforts would be stymied if 
exchanges were prohibited from offering innovative products such as the 
proposed FLEX Fund options. The Exchange does not believe that allowing 
FLEX Fund options would render the marketplace for equity options more 
susceptible to manipulative practices.
    Finally, the Exchange represents that it has an adequate 
surveillance program in place to detect manipulative trading in FLEX 
Fund options. Regarding the proposed FLEX Fund options, the Exchange 
would use the same surveillance procedures currently utilized for FLEX 
Options listed on the Exchange (as well as for non-FLEX Fund options). 
For surveillance purposes, the Exchange would have access to 
information regarding trading activity in BTC and BITB (the underlying 
ETF).\49\ In light of surveillance measures related to options trading 
on each Fund and to trading of shares of BTC and BITB (the underlying 
ETFs), 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 FLEX Fund 
options.
---------------------------------------------------------------------------

    \49\ See supra note 8, Fund Options Approval Order, 89 FR at 
84966-68 (regarding surveillance procedures applicable to BTC, BITB, 
and other funds that hold bitcoin).
---------------------------------------------------------------------------

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.
    Increased Position Limits. The Exchange believes that its proposal 
to increase the aggregated position limit for options on BTC and BITB 
will not burden intra-market competition because the increased limit 
would be available to all similarly-situated market participants and 
would provide additional opportunities for market participants to 
continue to efficiently achieve their investment and trading objectives 
for equity options on the Exchange. The proposed rule change will not 
impose any burden on inter-market competition as the proposal is not 
competitive in nature. The Exchange expects that all option exchanges 
will

[[Page 10524]]

adopt substantively similar proposals to increase position and exercise 
limits for options on each Fund, such that the Exchange's proposal 
would benefit competition. For these reasons, the Exchange does not 
believe that the proposed rule change will impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.
    FLEX Fund Options. The Exchange believes that the proposal to 
permit FLEX Fund options will not impose any burden on intra-market 
competition as all market participants can opt to utilize this product 
or not. The proposed rule change is designed to allow investors seeking 
option exposure to bitcoin to trade FLEX Fund options. Moreover, the 
Exchange believes that the proposal to permit FLEX Fund options would 
broaden the base of investors that use FLEX Options to manage their 
trading and investment risk, including investors that currently trade 
in the OTC market for customized options. The Exchange believes that 
the proposed FLEX Fund options will not impose any burden on inter-
market competition but will instead encourage competition by increasing 
the variety of options products available for trading on the Exchange, 
which products will provide a valuable tool for investors to manage 
risk. Should this proposal be approved, competing options exchanges 
will be free to offer products like the proposed FLEX Fund options.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2025-10 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-NYSEARCA-2025-10. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2025-10 and should 
be submitted on or before March 17, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
---------------------------------------------------------------------------

    \50\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02943 Filed 2-21-25; 8:45 am]
BILLING CODE 8011-01-P
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