Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Options on the Grayscale Ethereum Trust ETF, the Grayscale Ethereum Mini Trust ETF, and the Bitwise Ethereum ETF, 10759-10769 [2025-03065]

Download as PDF Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices SECURITIES AND EXCHANGE COMMISSION the most significant aspects of such statements. [Release No. 34–102456; File No. SR– CboeBZX–2025–018] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Options on the Grayscale Ethereum Trust ETF, the Grayscale Ethereum Mini Trust ETF, and the Bitwise Ethereum ETF February 20, 2025. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 5, 2025, Cboe BZX Exchange, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On February 6, 2025, the Exchange filed Amendment No. 1 to the proposal. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. khammond on DSK9W7S144PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX Options’’) proposes to amend Rule 19.3, to allow the Exchange to list and trade options on the Grayscale Ethereum Trust ETF, the Grayscale Ethereum Mini Trust ETF, and the Bitwise Ethereum ETF. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 1. Purpose The Exchange proposes to amend Rule 19.3 regarding the criteria for underlying securities. Specifically, the Exchange proposes to amend Rule 19.3(i)(4) to allow the Exchange to list and trade options on shares or other securities (‘‘Fund Shares’’) that are principally traded on a national securities exchange and are defined as an ‘‘NMS stock’’ under Rule 600 of Regulation NMS and that represent interests in the Grayscale Ethereum Trust ETF (the ‘‘Grayscale Fund’’), the Grayscale Ethereum Mini Trust ETF (the ‘‘Grayscale Mini Fund’’), and the Bitwise Ethereum ETF (the ‘‘Bitwise Fund’’ and, collectively, the ‘‘Ethereum Funds’’).3 This is a competitive filing based on a similar proposal submitted by NYSE American, LLC (‘‘NYSE American’’), which is currently pending with the Securities and Exchange Commission (the ‘‘Commission’’).4 Current Rule 19.3(i) provides that, subject to certain other criteria set forth in that Rule, securities deemed appropriate for options trading include Fund Shares that represent certain types of interests,5 including interests in 3 See Securities Exchange Act Release Nos. 100224 (May 23, 2024), 89 FR 46937 (May 30, 2024) (SR–NYSEArca–2023–70; SR–NYSEArca–2024–31; SR–NASDAQ–2023–045; SR–CboeBZX–2023–069; SR–CboeBZX–2023–070; SR–CboeBZX–2023–087; SR–CboeBZX–2023–095; and SR–CboeBZX–2024– 018) (Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, to List and Trade Shares of Ether-Based Exchange-Traded Products) (‘‘Ethereum ETP Approval Order’’); and 100541 (July 17, 2024), 89 FR 59786 (July 23, 2024) (SR– NYSEArca–2024–44; and SR–NYSEArca–2024–53) (Order Granting Approval of Proposed Rule Changes To List and Trade Shares of the Grayscale Ethereum Mini Trust and ProShares Ethereum ETF). 4 See Securities Exchange Act Release Nos. 99306 (August 7, 2024), 89 FR 65957 (August 13, 2024) (SR–NYSEAMER–2024–45), as amended by Amendment No. 1 (February 5, 2025) (‘‘NYSE American Proposal’’). 5 See Rule 19.3(i), which permits options trading on Fund Shares that (1) represent interests in registered investment companies (or series thereof) organized as open-end management investment companies, unit investment trusts or similar entities, and that hold portfolios of securities comprising or otherwise based on or representing investments in indexes or portfolios of securities (or that hold securities in one or more other registered investment companies that themselves hold such portfolios of securities) (‘‘Funds’’) and/or financial instruments including, but not limited to, stock index futures contracts, options on futures, options on securities and indexes, equity caps, collars and floors, swap agreements, forward contracts, PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 10759 certain specific trusts that hold financial instruments, money market instruments, precious metals (which are deemed commodities), or Bitcoin (which is another crypto currency and deemed a commodity). In addition, Rule 19.3(i) requires that Fund Shares meet the criteria and standards set forth in Rule 19.3(a) and (b),6 or (2) be available for creation or redemption each business day from or through the issuer in cash or in kind at a price related to net asset value, and the issuer must be obligated to issue Fund Shares in a specified aggregate number even if some or all of the investment assets required to be deposited have not been received by the issuer, subject to the condition that the person obligated to deposit the investments has undertaken to deliver the investment assets as soon as possible and such undertaking is secured by the delivery and maintenance of collateral consisting of cash or cash equivalents satisfactory to the issuer, as provided in the respective prospectus. The Ethereum Funds are Ethereumbacked commodity ETFs structured as trusts. Similar to any Fund Share currently deemed appropriate for options trading under Rule 19.3(i), the investment objective of each Ethereum Fund is for its shares to reflect the repurchase agreements and reverse repurchase agreements (the ‘‘Financial Instruments’’), and money market instruments, including, but not limited to, U.S. government securities and repurchase agreements (the ‘‘Money Market Instruments’’) constituting or otherwise based on or representing an investment in an index or portfolio of securities and/or Financial Instruments and Money Market Instruments, or (2) represent commodity pool interests principally engaged, directly or indirectly, in holding and/or managing portfolios or baskets of securities, commodity futures contracts, options on commodity futures contracts, swaps, forward contracts and/or options on physical commodities and/or non-U.S. currency (‘‘Commodity Pool ETFs’’) or (3) represent interests in a trust or similar entity that holds a specified non-U.S. currency or currencies deposited with the trust or similar entity when aggregated in some specified minimum number may be surrendered to the trust by the beneficial owner to receive the specified non-U.S. currency or currencies and pays the beneficial owner interest and other distributions on the deposited non-U.S. currency or currencies, if any, declared and paid by the trust (‘‘Currency Trust Shares’’), or (4) represent interests in the SPDR Gold Trust or are issued by the iShares COMEX Gold Trust or iShares Silver Trust, the Aberdeen Standard Physical Silver Trust, the Aberdeen Standard Physical Gold Trust, the Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard Physical Platinum Trust, the Sprott Physical Gold Trust, the Goldman Sachs Physical Gold ETF, or the Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, or the Bitwise Bitcoin ETF. 6 Rule 19.3(a) and (b) sets forth the criteria that underlying securities must satisfy for option contracts on those underlying securities to be eligible for listing and trading on the Exchange. E:\FR\FM\26FEN1.SGM 26FEN1 10760 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices performance of Ethereum (less the expenses of the trust’s operations), offering investors an opportunity to gain exposure to Ethereum without the complexities of Ethereum delivery. As is the case for Fund Shares currently deemed appropriate for options trading, a Ethereum Fund’s shares represent units of fractional undivided beneficial interest in the trust, the assets of which consist principally of Ethereum and are designed to track Ethereum or the performance of the price of Ethereum and offer access to the Ethereum market.7 The Ethereum Funds provide investors with cost-efficient alternatives that allow a level of participation in the Ethereum market through the securities market. The Ethereum Funds are similar to the Bitcoin Funds, except that those funds hold Bitcoin (another cryptocurrency) rather than Ethereum, which are already eligible for options trading on the Exchange (i.e., the Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, or the Bitwise Bitcoin ETF). The Exchange’s initial listing standards for Fund Shares on which options may be listed and traded on the Exchange will apply to the Ethereum Funds. Pursuant to Rule 19.3(a), a security (which includes a Fund Share) on which options may be listed and traded on the Exchange must be registered (with the Commission) and be an NMS stock (as defined in Rule 600 of Regulation NMS under the Securities Exchange Act of 1934, as amended (the ‘‘Act’’)), and be characterized by a substantial number of outstanding shares that are widely held and actively traded.8 Additionally, Rule 19.3(i)(1) requires that Fund Shares either (1) meet the criteria and standards set forth in Rule 19.3(a) and (b),9 or (2) are available for creation or redemption each business day in cash or in kind from the investment company, commodity pool or other entity at a price related to net asset value, and the investment company, commodity pool or other entity is obligated to provide that Fund Shares may be created even if some or all of the securities and/or cash required to be deposited have not been received by the Fund, the unit investment trust or the management investment company, provided the authorized creation participant has undertaken to deliver the securities and/ or cash as soon as possible and such undertaking is secured by the delivery and maintenance of collateral consisting of cash or cash equivalents satisfactory to the Fund, all as described in the Fund’s or unit trust’s prospectus. Each Ethereum Fund satisfies Rule 19.3(i)(1)(B), as each is subject to this creation and redemption process. While not required by the Rules for purposes of options listings, the Exchange believes the Ethereum Funds satisfy the criteria and guidelines set forth in Rule 19.3(a) and (b). Pursuant to Rule 19.3(a), a security (which includes a Fund Share) on which options may be listed and traded on the Exchange must be duly registered (with the Commission) and be an NMS stock (as defined in Rule 600 of Regulation NMS under the Act, and be characterized by a substantial number of outstanding shares that are widely held and actively traded.10 Each of the Ethereum Funds is an NMS Stock as defined in Rule 600 of Regulation NMS under the Act.11 Further, the Exchange believes each Ethereum Fund is characterized by a substantial number of outstanding shares that are widely held and actively traded. With respect to the Grayscale Fund, the Grayscale Mini Fund, and the Bitwise Fund, the Exchange reviewed the data presented by NYSE American in its filing with respect to shares outstanding (and corresponding market capitalization), number of beneficial holders, and trading volume. As of November 29, 2024, the Ethereum Funds had the following number of shares outstanding (and corresponding market capitalization): Ethereum Fund Grayscale Fund ....................................................................................................................................... Grayscale Mini Fund ................................................................................................................................ Bitwise Fund ............................................................................................................................................ As shown above, each of the Ethereum Funds had significantly more than 7,000,000 shares outstanding, which is the minimum number of shares of a corporate stock that the Exchange generally requires to list options on that stock pursuant to Rule 19.3(b).12 The Exchange believes this demonstrates that each Ethereum Fund is characterized by a substantial number of 177,838,500 45,220,787 16,600,000 Beneficial holders (as of 12/31/24) khammond on DSK9W7S144PROD with NOTICES Grayscale Fund ....................................................................................................................................................................... Grayscale Mini Fund ................................................................................................................................................................ Bitwise Fund ............................................................................................................................................................................ trust may include minimal cash. criteria and guidelines for a security to be considered widely held and actively traded are set forth in Rule 19.3(b), subject to exceptions. 9 Rule 19.3(a) and (b) sets forth the criteria an underlying security must meet for the Exchange to be able to list options on the underlying. 8 The VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 10 The criteria and guidelines for a security to be considered widely held and actively traded are set forth in Rule 19.3(b), subject to exceptions. 11 An ‘‘NMS stock’’ means any NMS security other than an option, and an ‘‘NMS security’’ means any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan (or an effective national market PO 00000 Frm 00051 Fmt 4703 $5,425,852,635 1,547,003,157 430,886,200 outstanding shares. Further, the below table contains information regarding the number of beneficial holders of the Ethereum Funds as of December 31, 2024. Ethereum Fund 7 The Market value (11/29/24) Shares outstanding Sfmt 4703 112,320 17,396 5,992 system plan for reporting transaction in listed options). See 17 CFR 242.600(b)(64) (definition of ‘‘NMS security’’) and (65) (definition of ‘‘NMS stock’’). 12 The Exchange notes that on November 19, 2024, the Grayscale Mini Fund underwent a reverse stock split, reducing the number of shares outstanding—and increasing the share price— tenfold. E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices As this table shows, each Ethereum Fund has significantly more than 2,000 beneficial holders (approximately 56, 9, and 3 times more, respectively), which is the minimum number of holders the Exchange generally requires for corporate stock in order to list options on that stock pursuant to pursuant to Rule 19.3(b).13 Therefore, the Exchange Trading volume (shares) Grayscale Fund ................................................................................................................... Grayscale Mini Fund ............................................................................................................ Bitwise Fund ........................................................................................................................ khammond on DSK9W7S144PROD with NOTICES Fund and the Grayscale Mini Fund) or December 31, 2024 (for the Bitwise Fund). In addition, the below table illustrates the average daily volume (‘‘ADV’’) over the 30-day period of either October 29, 2024–through November 29, 2024 (for the Grayscale Fund and the Grayscale Mini Fund) or November 29, 2024–through December 31, 2024 (for the Bitwise Fund).14 believes the shares of each Ethereum Fund are widely held. The Exchange also believes that, based on trading volume since the Ethereum Funds began trading on July 23, 2024, shares of the Ethereum Funds are actively traded. In particular, the table below sets forth the total trading volume (by shares and notional) from the inception of trading through either November 29, 2024 (for the Grayscale Ethereum Fund 10761 427,312,540 172,400,020 44,477,060 Trading volume (notional $) $10,289,781,199 4,614,428,230 959,491,343 ADV (shares) 4,237,811 3,065,796 291,627 As demonstrated above, even though the Ethereum Funds have been trading for less than one year, the trading volume for each Ethereum Fund is substantially higher than 2,400,000 shares (roughly 178, 72, and 16 times that amount), which is the minimum 12month volume the Exchange generally requires for a security in order to list options on that security as set forth in Rule 19.3(b). The Exchange believes this data demonstrates each Ethereum Fund is characterized by a substantial number of outstanding shares that are actively traded. Options on the Ethereum Funds will be subject to the Exchange’s continued listing standards set forth in Rule 19.4(g) for Fund Shares deemed appropriate for options trading pursuant to Rule 19.3(i). Specifically, 19.4(g) provides that Fund Shares that were initially approved for options trading pursuant to Rule 19.3 will not be deemed to meet the requirements for continued approval, and the Exchange shall not open for trading any additional series of option contracts of the class covering such Fund Shares if the security ceases to be an NMS stock (see Rule 19.4(b)(4)). Additionally, the Exchange will not open for trading any additional series of option contracts of the class covering Fund Shares in any of the following circumstances: (1) in the case of options covering Fund Shares approved for trading under Rule 19.3(i)(4)(A), in accordance with the terms of Rule 19.4(b)(1), (2) and (3); (2) in the case of options covering Fund Shares approved pursuant to Rule 19.3(i)(4)(B), following the initial 12-month period beginning upon the commencement of trading in the Fund Shares on a national securities exchange and are defined as NMS stock under Rule 600 of Regulation NMS, there were fewer than 50 record and/or beneficial holders of such Fund Shares for 30 consecutive days; (3) the value of the index, non-U.S. currency, portfolio of commodities including commodity futures contracts, options on commodity futures contracts, swaps, forward contracts and/or options on physical commodities and/or Financial Instruments or Money Market Instruments, or portfolio of securities on which the Fund Shares are based is no longer calculated or available; or (4) such other event occurs or condition exists that in the opinion of the Exchange makes further dealing in such options on the Exchange inadvisable. Options on each Ethereum Fund will be physically settled contracts with American-style exercise.15 Consistent with current Rule 19.6, which governs the opening of options series on a specific underlying security (including Fund Shares), the Exchange will open at least one expiration month for options on Ethereum Funds 16 at the commencement of trading on the Exchange and may also list series of options on a Ethereum Fund for trading on a weekly,17 monthly,18 or quarterly 19 basis. The Exchange may also list longterm equity option series (‘‘LEAPS’’) that expire from 12 to 39 months from the time they are listed.20 Pursuant to Rule 19.6, Interpretation and Policy .01, which governs strike prices of series of options on Fund Shares, the interval of strikes prices for series of options on Ethereum Funds will be $1 or greater when the strike price is $200 or less and $5 or greater where the strike price is over $200.21 Additionally, the Exchange may list series of options pursuant to the $1 Strike Price Interval Program,22 the $0.50 Strike Program,23 the $2.50 Strike 13 The number of beneficial holders of the Grayscale Mini Fund may have been impacted by the 10:1 reverse stock split, as investors with fewer than 10 shares would have received a cash payout. See id. 14 See FactSet, 11/29/2024 and 12/31/24, https:// www.factset.com/data-attribution. 15 See Rule 19.2, which provides that the rights and obligations of holders and writers are set forth in the Rules of the Options Clearing Corporation (‘‘OCC’’); and Equity Options Product Specifications January 3, 2024), available at Equity Options Specifications (cboe.com); see also OCC Rules, Chapters VIII (which governs exercise and assignment) and Chapter IX (which governs the discharge of delivery and payment obligations arising out of the exercise of physically settled stock option contracts). 16 See Rule 19.6(b). The monthly expirations are subject to certain listing criteria for underlying securities described within Rule 19.3. Monthly listings expire the third Friday of the month. The term ‘‘expiration date’’ (unless separately defined elsewhere in the OCC By-Laws), when used in respect of an option contract (subject to certain exceptions), means the third Friday of the expiration month of such option contract, or if such Friday is a day on which the exchange on which such option is listed is not open for business, the preceding day on which such exchange is open for business. See OCC By-Laws Article I, Section 1. Pursuant to Rule 19.6(c), additional series of options of the same class may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market, to meet customer demand or when the market price of the underlying stock moves more than five strike prices from the initial exercise price or prices. New series of options on an individual stock may be added until the beginning of the month in which the options contract will expire. Due to unusual market conditions, the Exchange, in its discretion, may add a new series of options on an individual stock until the close of trading on the business day prior to expiration. 17 See Rule 19.6, Interpretation and Policy .05. 18 See Rule 19.6, Interpretation and Policy .08. 19 See Rule 19.6, Interpretation and Policy .04. 20 See Rule 19.8. 21 The Exchange notes that for options listed pursuant to the Short Term Option Series Program, the Monthly Options Series Program, and the Quarterly Options Series Program, Rule 19.6, Interpretations and Policies .05, .08, and .04 specifically sets forth intervals between strike prices on Quarterly Options Series, Short Term Option Series, and Monthly Options Series, respectively. 22 See Rule 19.6, Interpretation and Policy .02. 23 See Rule 19.6, Interpretation and Policy .06. VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 E:\FR\FM\26FEN1.SGM 26FEN1 10762 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices Price Program,24 and the $5 Strike Program.25 Pursuant to Rule 21.5, where the price of a series of an Ethereum Fund option is less than $3.00, the minimum increment will be $0.05, and where the price is $3.00 or higher, the minimum increment will be $0.10.26 Any and all new series of Ethereum Fund options that the Exchange lists will be consistent and comply with the expirations, strike prices, and minimum increments set forth in Rules 19.6 and 21.5, as applicable. Ethereum Fund options will trade in the same manner as any other Fund Share options on the Exchange. The Exchange Rules that currently apply to the listing and trading of all Fund Share options on the Exchange, including, for example, Rules that govern listing criteria, expirations, exercise prices, minimum increments, margin requirements, customer accounts, and trading halt procedures will apply to the listing and trading of Ethereum Funds options on the Exchange in the same manner as they apply to other options on all other Fund Shares that are listed and traded on the Exchange, including the precious-metal backed commodity Fund Shares and the Bitcoin Funds already deemed appropriate for options trading on the Exchange pursuant to current Rule 19.3(i).27 Position and exercise limits for options on ETFs, including options on Ethereum Funds, are determined pursuant to Rules 18.7 and 18.9.28 Pursuant to Rules 18.7 and 18.9, the position and exercise limits, respectively, for Ethereum Fund options will be 25,000 same side option contracts.29 The Exchange believes these proposed position and exercise limits are reasonable and appropriate. In considering the appropriate position and exercise limits for the Ethereum Funds, the Exchange reviewed the data presented by NYSE American in its filing with respect to the Bitwise Fund, the Grayscale Fund and the Grayscale Mini Fund.30 NYSE American aggregated market capitalization, volume, and shares outstanding data of the Ethereum Funds and compared that data to those of other ETFs, and Ethereum Fund Total volume Grayscale Fund ........................................................................................ Grayscale Mini Fund ................................................................................ Bitwise Fund ............................................................................................. Based on this trading volume, the most-recent trading volume in the Grayscale Fund and the Grayscale Mini Fund well exceeds the requisite minimum of 100,000,000 shares necessary to qualify for the 250,000contract position and exercise limits.34 By comparison, the underlying of other 24 See Rule 19.6, Interpretation and Policy .03. Rule 19.6(d)(5). 26 If options on an Ethereum Fund are eligible to participate in the Penny Interval Program, the minimum increment will be $0.01 for series with a price below $3.00 and $0.05 for series with a price at or above $3.00. See Rule 21.5(e) (which describes the requirements for the Penny Interval Program). 27 See, e.g., SPDR Gold Trust, iShares COMEX Gold Trust or iShares Silver Trust, the Aberdeen Standard Physical Silver Trust, the Aberdeen Standard Physical Gold Trust, the Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard Physical Platinum Trust, the Sprott Physical Gold Trust, the Goldman Sachs Physical Gold ETF or the Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, or the Bitwise Bitcoin ETF. 28 Rule 18.7(a)(1) provides that no Options Member shall make, for any account in which it has any interest or for the account of any Customer, an opening transaction on any exchange if the Options Member has reason to believe that as a result of such transaction the Options Member or its Customer would, acting alone or in concert with others, directly or indirectly, exceed the applicable position limit fixed by Cboe Exchange, Inc. (‘‘Cboe khammond on DSK9W7S144PROD with NOTICES 25 See VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 compared the proposed position limit of the Ethereum Funds to the position limits of the options overlying those other ETFs. The Exchange reviewed NYSE American’s data that demonstrated that each of these three Bitcoin [sic] Funds would easily qualify for much higher position limits available to other ETFs and ETPs pursuant to the criterion in Cboe Options Rule 8.30, Interpretation and Policy .02 (which governs position limits on the Exchange pursuant to Rule 18.7).31 Cboe Options Rule 8.30, Interpretation and Policy .02 sets forth position (and exercise) limits for options, which vary according to the number of shares outstanding and the amount of trading in underlying during the most recent six-month period.32 Although the Ethereum Funds have been trading for less than six months [sic], the trading volume in each Fund is sufficient to qualify the Funds for position limits in excess of the proposed 25,000-contract limit, as shown below.33 427,312,540 (7/23/24–11/29/24). 172,400,020 (7/23/24–11/29/24). 44,477,060 (7/23/24–12/31/24). options with six-month trading volume less than the volumes in the table above are eligible for position and exercise limits of at least 250,000.35 Further, the most-recent trading volume for the Bitwise Fund well exceeded the requisite minimum of 40,000,000 shares necessary to qualify for the 75,000- contract position (and exercise) limit, which is three times the proposed 25,000-contract limit.36 Finally, the proposed 25,000-contract position limit is the default for options that do not otherwise qualify for a higher limit and is therefore an adequate limit for each Ethereum Fund.37 Options’’). See also Cboe Options Rules 8.30 and 8.42. 29 Rule 18.7(a)(1) provides that no Options Member shall make, for any account in which it has any interest or for the account of any Customer, an opening transaction on any exchange if the Options Member has reason to believe that as a result of such transaction the Options Member or its Customer would, acting alone or in concert with others, directly or indirectly, exceed the applicable position limit fixed by Cboe Exchange, Inc. (‘‘Cboe Options’’). Cboe Options currently has a nearly identical rule filing pending with the Commission to amend Cboe Options Rule 8.30, Interpretation and Policy .10 (and Cboe Options Rule 8.42) to establish a position and exercise limit for Ethereum Fund options of 25,000. See SR–CBOE–2025–008, as amended by Amendment No. 1 (‘‘Cboe Ethereum Fund Proposal’’). If the Commission approves the Cboe Ethereum Fund Proposal, the position and exercise limits in that filing would then apply to the Exchange. 30 See NYSE American Proposal. 31 See Cboe Options Rule 8.30, Interpretation and Policy .02; Exchange Rule 18.7. 32 See Cboe Options Rule 8.30, Interpretation and Policy .02; Exchange Rule 18.7. 33 See FactSet, 11/29/2024 and 12/31,24, https:// www.factset.com/data-attribution. 34 Cboe Options Rule 8.30, Interpretation and Policy .02(e) states that to be eligible for the 250,000 option contract limit, either the most recent sixmonth trading volume of the underlying security must have totaled at least 100,000,000 shares; or the most recent six-month trading volume of the underlying security must have totaled at least 75,000,000 shares and the underlying security must have at least 300,000,000 currently outstanding. 35 See https://www.theocc.com/Market-Data/ Market-Data-Reports/Series-and-Trading-Data/ Series-Search (including the following symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR, SGOL). 36 Cboe Options Rule 8.30, Interpretation and Policy .02(c) states that to be eligible for the 75,000 option contract limit, either the most recent sixmonth trading volume of the underlying security must have totaled at least 40,000,000 shares; or the most recent six-month trading volume of the underlying security must have totaled at least 30,000,000 shares and the underlying security must have at least 120,000,000 currently outstanding. 37 Cboe Options Rule 8.30, Interpretation and Policy .02(a) states that the 25,000 option contract limit applies to those options having an underlying security that does not meet the requirements for a higher option contract limit. PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices Second, with respect to the outstanding shares of these three Ethereum Funds, the Exchange reviewed NYSE American’s data regarding the outstanding shares of each of these Ethereum Funds. NYSE American performed an exercise to demonstrate that if a market participant held the maximum number of contracts possible pursuant to the proposed position and exercise limits (25,000 contracts), the equivalent shares Grayscale Fund ..................................................................................................... Grayscale Mini Fund .............................................................................................. Bitwise Fund .......................................................................................................... As this table demonstrates, if a market participant held the maximum permissible options positions in one of the Ethereum Fund options and exercised all of them at the same time, that market participant would control a small percentage of the outstanding shares of the underlying Ethereum Fund. For example, as noted above, a represented by the proposed position and exercise limits (2,500,000 shares) would represent the following approximate percentage of outstanding shares as of November 29, 2024: Proposed position/exercise limits in equivalent shares Ethereum Fund 2,500,000 2,500,000 2,500,000 position limit of 25,000 same side contracts effectively restricts a market participant from holding positions that could result in the receipt of no more than 2,500,000 shares of the applicable Ethereum Fund (if that market participant exercised all its options). NYSE American used the number of shares outstanding for each Ethereum 177,838,500 45,220,787 16,600,000 Outstanding shares Grayscale Fund ............................................................................................................................................. Grayscale Mini Fund ...................................................................................................................................... Bitwise Fund .................................................................................................................................................. under stress. The Exchange believes it is highly unlikely for this to occur; however, even if such event did occur, the Exchange would not expect any of the Ethereum Fund [sic] to be under stress because such an event would merely induce the creation of more shares through the trust’s creation and redemption process. NYSE American also performed an exercise to compare the size of the proposed position limit to the market capitalization of the Ethereum market given that the issuer of each of these three Ethereum Funds may create and redeem shares that represent an interest in Ethereum. NYSE American took the global supply of Ethereum, which was 120.44 million and the price of one Ethereum, which was approximately $3,593.49,38 which equates to a market Share price ($) Bitcoin [sic] Fund khammond on DSK9W7S144PROD with NOTICES Outstanding shares Grayscale Fund ................................................................................................... Grayscale Mini Fund ............................................................................................ Bitwise Fund ........................................................................................................ 18:26 Feb 25, 2025 Jkt 265001 PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 1.4 5.5 15.1 Number of market participants with 25,000 same side positions 177,838,500 45,220,787 16,600,000 71 18 7 capitalization of approximately $439.78 billion. Consider the proposed position and exercise limit of 25,000 option contracts for each Ethereum Fund option. A position and exercise limit of 25,000 same side contracts effectively restricts a market participant from holding positions that could result in the receipt of no more than 2,500,000 shares of the Grayscale Fund, Grayscale Mini Fund, and Bitwise Fund, as applicable (if that market participant exercised all its options). NYSE American considered the share price of each Bitcoin [sic] Fund on November 29, 2024 and calculated the value of 2,500,000 shares of the Ethereum Fund at that price, and the approximate percentage of that value of the size of the Ethereum market: Value of 2,500,000 shares 30.15 33.84 25.80 75,250,000 84,600,000 64,500,000 38 See https://finance.yahoo.com/quote/ETHUSD/history. VerDate Sep<11>2014 Percentage of outstanding shares Fund as of November 29, 2024, and calculated the approximate number of market participants that could hold the maximum of 25,000 same side positions in each Ethereum Fund that would equate to the number of shares outstanding of that Ethereum Fund: Bitcoin [sic] Fund This means if 71 market participants had 25,000 same side positions in options on the Grayscale Fund, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security under stress. Similarly, this means if 18 market participants had 25,000 same side positions in options on the Grayscale Mini Fund, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security under stress. Finally, this means if 7 market participants had 25,000 same side positions in options on the Bitwise Fund, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security 10763 E:\FR\FM\26FEN1.SGM 26FEN1 Percentage of Bitcoin [sic] Market 0.017 0.020 0.015 10764 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices Therefore, if a market participant with the maximum 25,000 same side contracts in options on the Grayscale Fund, the Grayscale Mini Fund, or the Bitwise Fund exercised all positions at one time, such an event would have no practical impact on the Ethereum market. The Exchange also reviewed NYSE American’s data regarding the market capitalization of each of these three Ethereum Funds relative to the market capitalization of the entire Ethereum market, as of November 29, 2024: Ethereum/shares outstanding Total Ethereum Market ................................................................................................ Grayscale Fund ........................................................................................................... Grayscale Mini Fund .................................................................................................... Bitwise Fund ................................................................................................................ As this data gathered by NYSE American demonstrates, the Ethereum Funds collectively represent approximately 1.71% of the global supply of Ethereum (120,440,000).39 Based on the $30.15 price of a Grayscale Fund share on November 29, 2024, a market participant could have redeemed one Ethereum for approximately 119 Grayscale Fund shares. Another 14,354,890,070 Grayscale Fund shares could be created before the supply of Ethereum was exhausted. As a result, 5,742 market participants would have to simultaneously exercise 25,000 same side positions in Grayscale Fund options to receive shares of the Grayscale Fund holding the entire global supply of Ethereum. Similarly, based on the $33.84 price of a Grayscale Mini Fund share on November 29, 2024, a market participant could have redeemed one Ethereum for approximately 106 Grayscale Mini Fund shares. Another 12,789,596,206 Grayscale Mini Fund shares could be created before the supply of Ethereum was exhausted. As a result, 5,116 market 120,440,000 177,838,500 45,220,787 16,600,000 participants would have to simultaneously exercise 25,000 same side positions in Grayscale Mini Fund options to receive shares of Grayscale Mini Fund holding the entire global supply of Ethereum. Similarly, based on the $25.80 price of a Bitwise Fund share on November 29, 2024, a market participant could have redeemed one Ethereum for approximately 139 Bitwise Fund shares. Another 16,775,191,302 Bitwise Fund shares could be created before the supply of Ethereum was exhausted. As a result, 6,710 market participants would have to simultaneously exercise 25,000 same side positions in Bitwise Fund options to receive shares of Bitwise Fund holding the entire global supply of Ethereum. Unlike the Ethereum Funds, the number of shares that corporations may issue is limited. However, like corporations, which authorize additional shares, repurchase shares, or split their shares, the Ethereum Funds may create, redeem, or split shares in response to demand. The supply of Ethereum is larger than the available khammond on DSK9W7S144PROD with NOTICES id. market capitalization of ethereum would rank in the top 20 among securities. See https:// companiesmarketcap.com/usa/largest-companiesin-the-usa-by-market-cap/. 40 The VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 % of Total Bitcoin Market 100 1.25 0.36 0.10 supply of most securities.40 Given the significant unlikelihood of any of these events ever occurring, the Exchange does not believe options on the Ethereum Funds should be subject to position and exercise limits even lower than those proposed (which are already equal to the lowest available limit for equity options in the industry) to protect the supply of Ethereum. NYSE American compared the proposed position limits to the position limit of CME Ethereum futures. The Chicago Mercantile Exchange (‘‘CME’’) imposes a position limit of 8,000 futures (for the initial spot month) on its ethereum futures contract.41 On November 29, 2024, CME Jan 25 Ethereum Futures settled at $3,629.69. A position of 8,000 CME Ethereum futures, therefore, would have a notional value of $1,451,876,000. The following table shows the share price of each Ethereum Fund on November 29, 2024, and the approximate number of option contracts that equates to that notional value: Grayscale Fund ........................................................................................................................... Grayscale Mini Fund .................................................................................................................... Bitwise Fund ................................................................................................................................ 39 See 432,799,935,600 5,425,852,635 1,547,003,157 430,886,200 Share price ($) Ethereum Fund The approximate number of option contracts for each Ethereum Fund that would equate to the notional value of CME Ethereum futures is significantly higher than the proposed limit of 25,000 options contract for each Ethereum Fund option. The fact that many options ultimately expire out-of-the-money and thus are not exercised for shares of the underlying, while the delta of an Ethereum future is 1, further Market value ($) 30.15 33.84 25.80 Number of option contracts 481,551 429,041 562,743 demonstrates how conservative the proposed limits of 25,000 options contracts are for the Ethereum Fund options. The Exchange notes, again, unlike options contracts, CME position limits are calculated on a net futuresequivalent basis by contract and include contracts that aggregate into one or more base contracts according to an aggregation ratio(s).42 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.43 If a position exceeds position limits because of an option assignment, CME permits market participants to liquidate the 41 See CME Rulebook Chapter 349 (description of CME ether futures) and Chapter 5, Position Limit, Position Accountability and Reportable Level Table in the Interpretations & Special Notices. Each CME ether futures contract is valued at fifty ethers as defined by the CME CF Ether Reference Rate (‘‘ERR’’). See CME Rulebook Chapter 349. 42 See CME Rulebook Chapter 5, Position Limit, Position Accountability and Reportable Level Table in the Interpretations & Special Notices. 43 Id. PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices khammond on DSK9W7S144PROD with NOTICES excess position within one business day without being considered in violation of its rules. Additionally, if at the close of trading, a position that includes options exceeds position limits for futures contracts, when evaluated using the delta factors as of that day’s close of trading but does not exceed the limits when evaluated using the previous day’s delta factors, then the position shall not constitute a position limit violation. Considering CME’s position limits on futures for Ethereum, the Exchange believes that that the proposed same side position limits are more than appropriate for the Ethereum options. Consistent with its position regarding the irrelevance of bitcoin supply to position limits for options on bitcoin ETPs, the Exchange likewise believes the available supply of Ethereum is not relevant to the determination of position and exercise limits for Ethereum Fund options.44 Position and exercise limits are not a tool that should be used to address a potential limited supply of the underlying of an underlying. Position and exercise limits do not limit the total number of options that may be held, but rather they limit the number of positions a single customer may hold or exercise at one time.45 ‘‘Since the inception of standardized options trading, the options exchanges have had rules imposing limits on the aggregate number of options contracts that a member or customer could hold or 44 The Exchange is unaware of any proposed rule change related to position and exercise limits for any equity option (including commodity ETF options) for which the Commission required consideration of whether the available supply of an underlying (whether it be a corporate stock or an ETF) or the contents of an ETF (commodity or otherwise) should be considered when an exchange proposed to establish those limits. See, e.g., Securities Exchange Act Release No. 57894 (May 30, 2008), 73 FR 32061 (June 5, 2008) (SR–CBOE– 2005–11) (approval order in which the Commission stated that the ‘‘listing and trading of Gold Trust Options will be subject to the exchanges’ rules pertaining to position and exercise limits and margin’’). The Exchange notes when the Commission approved this filing, the position limits in Rule 8.30 were the same as they are today. For reference, the current position and exercise limits for options on SPDR Gold Shares ETF (‘‘GLD’’) and options on iShares Silver Trust (‘‘SLV’’) are 250,000 contracts, or 10 times that proposed position and exercise limit for the Bitcoin [sic] Fund options. 45 For example, suppose an option has a position limit of 25,000 option contracts and there are a total of 10 investors trading that option. If all 10 investors max out their positions, that would result in 250,000 option contracts outstanding at that time. However, suppose 10 more investors decide to begin trading that option and also max out their positions. This would result in 500,000 option contracts outstanding at that time. An increase in the number of investors could cause an increase in outstanding options even if position limits remain unchanged. VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 exercise.’’ 46 Position and exercise limit rules are intended ‘‘to prevent the establishment of options positions that can be used or might create incentives to manipulate or disrupt the underlying market so as to benefit the options position. In particular, position and exercise limits are designed to minimize the potential for mini-manipulations and for corners or squeezes of the underlying market. In addition, such limits serve to reduce the possibility for disruption of the options market itself, especially in illiquid options classes.’’ 47 The Exchange notes that a Registration Statement on Form S–1 was filed with the Commission for each Ethereum Fund, each of which described the supply of Ethereum as being unlimited.48 Each Registration Statement permits an unlimited number of shares of the applicable Ethereum Fund to be created. Further, the Commission approved proposed rule changes that permitted the listing and trading of shares of each Ethereum Fund, which approval did not comment on the sufficient supply of Ethereum or address whether there was a risk that permitting an unlimited number of shares for a Ethereum Fund would impact the supply of ether.49 Therefore, the Exchange believes the Commission had ample time and opportunity to consider whether the supply of ethereum was sufficient to permit the creation of unlimited Ethereum Fund shares, and does not believe considering this supply with respect to the establishment of position and exercise limits is appropriate given its lack of relevance to the purpose of position and exercise limits. However, given the significant size of the Ethereum supply, the proposed positions limits are more than sufficient to protect investors and the market. All of the above information demonstrates that the proposed position and exercise limits for the Ethereum Fund options are more than reasonable and appropriate. The trading volume, ADV, and outstanding shares of each Ethereum Fund demonstrate that these 46 See Securities Exchange Act Release No. 39489 (December 24, 1997), 63 FR 276 (January 5, 1998) (SR–CBOE–1997–11). 47 Id. 48 See, e.g., Grayscale Fund Form S–1 Registration Statement, at p. 77, https://www.sec.gov/Archives/ edgar/data/2020455/000119312524106957/ d756153ds1.htm; Grayscale Mini Fund Amendment No. 5 to Form S–1 Registration Statement, at p. 79, https://www.sec.gov/Archives/edgar/data/2020455/ 000119312524181081/d756153ds1a.htm; and Bitwise Fund Form S–1 Registration Statement 1, at p. 17, https://www.sec.gov/Archives/edgar/data/ 2013744/000199937124007581/bitwise-s1a_ 061824.htm (‘‘Ethereum Funds Reg. Stmts.’’). 49 See Ethereum ETP Approval Order. PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 10765 funds are actively traded and widely held, and proposed position and exercise limits are well below those of other ETFs with similar market characteristics. The proposed position and exercise limits are the lowest position and exercise limits available for equity options in the industry, are extremely conservative, and are more than appropriate given each Ethereum Fund’s market capitalization and ADV. The proposed position and exercise limits reasonably and appropriately balance the liquidity provisioning in the market against the prevention of manipulation. The Exchange believes these proposed limits are effectively designed to prevent an individual customer or entity from establishing options positions that could be used to manipulate the market of the underlying Ethereum Funds as well as the Ethereum market.50 Today, the Exchange has an adequate surveillance program in place for options. The Exchange intends to apply those same program procedures to options on the Ethereum Funds that it applies to the Exchange’s other options products, including options on the Bitcoin Funds.51 The Exchange’s market surveillance staff would have access to the surveillances conducted by Cboe BYX Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe Exchange, Inc.52 with respect to the Ethereum Funds and would review activity in the underlying Ethereum Funds when conducting surveillances for market abuse or manipulation in the options on the Ethereum Funds. Additionally, the Exchange is a member of the Intermarket Surveillance Group (‘‘ISG’’) under the Intermarket Surveillance Group Agreement. ISG members work together to coordinate surveillance and investigative information sharing in the stock, options, and futures markets. In addition to obtaining information from its affiliated markets, the Exchange would be able to obtain information regarding trading in shares of the Ethereum Funds from their primary listing markets and from other markets that trade shares of the Ethereum Funds through ISG. In addition, the Exchange has a Regulatory Services Agreement with the Financial Industry Regulatory 50 See Securities Exchange Act Release No. 39489 (December 24, 1997), 63 FR 276 (January 5, 1998) (SR–CBOE–1997–11). 51 The surveillance program includes surveillance patterns for price and volume movements as well as patterns for potential manipulation (e.g., spoofing and marking the close). 52 Cboe BYX Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe Exchange, Inc. are affiliated markets of the Exchange. E:\FR\FM\26FEN1.SGM 26FEN1 10766 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices khammond on DSK9W7S144PROD with NOTICES Authority (‘‘FINRA’’) for certain market surveillance, investigation and examinations functions. Pursuant to a multi-party 17d–2 joint plan, all options exchanges allocate amongst themselves and FINRA responsibilities to conduct certain options-related market surveillance that are common to rules of all options exchanges.53 The underlying shares of spot Ethereum exchange traded products (‘‘ETPs’’), including the Ethereum Funds, are also subject to safeguards related to addressing market abuse and manipulation. As the Commission stated in its order approving proposals of several exchanges to list and trade shares of spot Ethereum-based ETPs, ‘‘[e]ach Exchange has a comprehensive surveillance-sharing agreement with the [CME] via their common membership in the Intermarket Surveillance Group. This facilitates the sharing of information that is available to the CME through its surveillance of its markets, including its surveillance of the CME ethereum futures market.’’ 54 The Exchange states that, given the consistently high correlation between the CME Ethereum futures market and the spot bitcoin [sic] market, as confirmed by the Commission through robust correlation analysis, the Commission was able to conclude that such surveillance sharing agreements could reasonably be ‘‘expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the [Ethereum ETPs].’’ 55 In light of surveillance measures related to both options and futures as well as the underlying Ethereum Funds,56 the Exchange believes that existing surveillance procedures are designed to deter and detect possible manipulative behavior which might potentially arise from 53 Section 19(g)(1) of the Act, among other things, requires every self-regulatory organization (‘‘SRO’’) registered as a national securities exchange or national securities association to comply with the Act, the rules and regulations thereunder, and the SRO’s own rules, and, absent reasonable justification or excuse, enforce compliance by its members and persons associated with its members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d–2. Section 17(d)(1) of the Act allows the Commission to relieve an SRO of certain responsibilities with respect to members of the SRO who are also members of another SRO (‘‘common members’’). Specifically, Section 17(d)(1) allows the Commission to relieve an SRO of its responsibilities to: (i) receive regulatory reports from such members; (ii) examine such members for compliance with the Act and the rules and regulations thereunder, and the rules of the SRO; or (iii) carry out other specified regulatory responsibilities with respect to such members. 54 See Ethereum ETP Approval Order, at 46938 (footnotes excluded). 55 See id. 56 See id. VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 listing and trading the proposed options on the Ethereum Funds. Further, the Exchange will implement any new surveillance procedures it deems necessary to effectively monitor the trading of options on Ethereum ETPs. Finally, quotation and last sale information for ETFs is available via the Consolidated Tape Association (‘‘CTA’’) high speed line. Quotation and last sale information for such securities is also available from the exchange on which such securities are listed. Quotation and last sale information for options on Ethereum Funds will be available via OPRA and major market data vendors. The Exchange has also analyzed its capacity and represents that it believes the Exchange and OPRA have the necessary systems capacity to handle the additional traffic associated with the listing of new series that may result from the introduction of options on Ethereum Funds up to the number of expirations currently permissible under the Rules. Ethereum Fund options will trade in the same manner as any other Fund Share options on the Exchange. The Exchange Rules that currently apply to the listing and trading of all Fund Share options on the Exchange, including, for example, Rules that govern listing criteria, expirations, exercise prices, minimum increments, margin requirements, customer accounts, and trading halt procedures will apply to the listing and trading of Ethereum Funds options on the Exchange in the same manner as they apply to other options on all other Fund Shares that are listed and traded on the Exchange, including the precious-metal backed commodity Fund Shares and the Bitcoin Funds already deemed appropriate for options trading on the Exchange pursuant to current Rule 19.3(i).57 Position and exercise limits for options on ETFs, including options on Ethereum Funds, are determined pursuant to Rules 18.7 and 18.9.58 57 See, e.g., SPDR Gold Trust, iShares COMEX Gold Trust or iShares Silver Trust, the Aberdeen Standard Physical Silver Trust, the Aberdeen Standard Physical Gold Trust, the Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard Physical Platinum Trust, the Sprott Physical Gold Trust, the Goldman Sachs Physical Gold ETF or the Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, or the Bitwise Bitcoin ETF. 58 Rule 18.7(a)(1) provides that no Options Member shall make, for any account in which it has any interest or for the account of any Customer, an opening transaction on any exchange if the Options Member has reason to believe that as a result of such transaction the Options Member or its Customer would, acting alone or in concert with others, directly or indirectly, exceed the applicable position limit fixed by Cboe Exchange, Inc. (‘‘Cboe PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 The Exchange believes that offering options on Ethereum Funds will benefit investors by providing them with an additional, relatively lower cost investing tool to gain exposure to the price of Ethereum and hedging vehicle to meet their investment needs in connection with Ethereum-related products and positions. The Exchange expects investors will transact in options on Ethereum Funds in the unregulated over-the-counter (‘‘OTC’’) options market,59 but may prefer to trade such options in a listed environment to receive the benefits of trading listing options, including (1) enhanced efficiency in initiating and closing out positions; (2) increased market transparency; and (3) heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of all listed options. The Exchange believes that listing Ethereum Fund options may cause investors to bring this liquidity to the Exchange, would increase market transparency and enhance the process of price discovery conducted on the Exchange through increased order flow. The Fund Shares that hold financial instruments, money market instruments, or precious metal commodities on which the Exchange may already list and trade options are trusts structured in substantially the same manner as Ethereum Funds and essentially offer the same objectives and benefits to investors, just with respect to different assets. The Exchange notes that it has not identified any issues with the continued listing and trading of any Fund Share options, including Fund Shares that hold commodities (i.e., precious metals and Bitcoin) that it currently lists and trades on the Exchange. Finally, the Exchange notes that applicable Exchange rules will require that customers receive appropriate disclosure before trading options in Ethereum Funds.60 Further, brokers opening accounts and recommending options transactions must comply with relevant customer suitability standards.61 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange Options’’). See also Cboe Options Rules 8.30 and 8.42. 59 The Exchange understands from customers that investors have historically transacted in options on Fund Shares in the OTC options market if such options were not available for trading in a listed environment. 60 See Rules 26.2(b)) and (e). 61 See Rule 26.4. E:\FR\FM\26FEN1.SGM 26FEN1 khammond on DSK9W7S144PROD with NOTICES Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices and, in particular, the requirements of Section 6(b) of the Act.62 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 63 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 64 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, the Exchange believes that the proposal to list and trade options on the Ethereum Funds will remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, protect investors because offering options on the Ethereum Funds will provide investors with a greater opportunity to realize the benefits of utilizing options on an ETF based on spot Ethereum, including cost efficiencies and increased hedging strategies. The Exchange believes that offering options on a competitively priced ETF based on spot Ethereum will benefit investors by providing them with an additional, relatively lower-cost risk management tool, allowing them to manage, more easily, their positions and associated risks in their portfolios in connection with exposure to spot Ethereum. Today, the Exchange lists options on other commodity (including Ethereum [sic]) ETFs structured as a trust, which essentially offer the same objectives and benefits to investors, and for which the Exchange has not identified any issues with the continued listing and trading of options on those ETFs. The Exchange also believes the proposal to permit options on the Ethereum Funds will remove impediments to and perfect the mechanism of a free and open market and a national market system, because options on the Ethereum Funds will comply with current Exchange Rules as discussed herein. Options on the 62 15 63 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 64 Id. VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 Ethereum Funds must satisfy the initial listing standards and continued listing standards currently in the Rules, applicable to options on all ETFs, including options on other commodity ETFs already deemed appropriate for options trading on the Exchange pursuant to Rule 19.3(i). Additionally, as demonstrated above, the Ethereum Funds are characterized by a substantial number of shares that are widely held and actively traded. Further, Rules that currently govern the listing and trading of options on ETFs, including permissible expirations, strike prices, minimum increments, position and exercise limits, and margin requirements, will govern the listing and trading of options on Ethereum Funds. The Exchange believes the proposed position and exercise limits are designed to prevent fraudulent and manipulative acts and practices and promote just and equitable principles of trade, as they are designed to address potential manipulative schemes and adverse market impacts surrounding the use of options, such as disrupting the market in the security underlying the options. The proposed position and exercise limits for options on each of the Ethereum Funds is 25,000 contracts. These position and exercise limits are the lowest position and exercise limits available in the options industry, are extremely conservative and more than appropriate given each Ethereum Fund’s market capitalization, ADV, and high number of outstanding shares. The proposed position limit, and exercise limit, is consistent with the Act as it addresses concerns related to manipulation and protection of investors because, as demonstrated above, the position limit (and exercise limit) is extremely conservative and more than appropriate given the Ethereum Funds are actively traded. In support of the proposed position and exercise limits for options on the Ethereum Funds are 25,000 contracts, the Exchange is citing the in depth analysis NYSE American did in their filing. As noted above, in NYSE American Proposal, NYSE American considered the: (1) applicable Ethereum Fund’s market capitalization and ADV, and proposed position limit in relation to other securities; (2) market capitalization of the entire Ethereum market in terms of exercise risk and availability of deliverables; (3) proposed position limit by comparing it to position limits for derivative products regulated by the CFTC; and (4) supply of Ethereum. Based on the Exchange’s review of these analyses, the Exchange PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 10767 believes that the [sic] setting position and exercise limits for options on each of the Ethereum Funds is [sic] 25,000 contracts is more than appropriate. The proposed position and exercise limits reasonably and appropriately balance the liquidity provisioning in the market against the prevention of manipulation. The Exchange believes these proposed limits are effectively designed to prevent an individual customer or entity from establishing options positions that could be used to manipulate the market of the underlying as well as the Ethereum market.65 The Exchange represents that it has the necessary systems capacity to support the new Ethereum Fund options. As discussed above, the Exchange believes that its existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might arise from listing and trading Fund Share options, including Ethereum Fund options. The Exchange’s existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might arise from listing and trading options on ETFs and ETPs, such as (existing) precious metal-commodity backed ETP options as well as the proposed options on Ethereum Funds. The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of options on Ethereum Funds in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange’s market surveillance staff will have access to surveillances that it conducts, and that FINRA conducts on its behalf, with respect to the Ethereum Funds and, as appropriate, would review activity in the underlying Funds when conducting surveillances for market abuse or manipulation in the options on the Ethereum Funds. Additionally, the Exchange is a member of the ISG under the Intermarket Surveillance Group Agreement. ISG members work together to coordinate surveillance and investigative information sharing in the stock, options, and futures markets. In addition, the Exchange has a Regulatory Services Agreement with the FINRA and as noted herein, pursuant to a multiparty 17d–2 joint plan, all options exchanges allocate regulatory responsibilities to FINRA to conduct certain options-related market surveillances. Further, the Exchange will implement any new surveillance procedures it deems necessary to 65 See Securities Exchange Act Release No. 39489 (December 24, 1997), 63 FR 276 (January 5, 1998) (SR–CBOE–1997–11). E:\FR\FM\26FEN1.SGM 26FEN1 10768 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices khammond on DSK9W7S144PROD with NOTICES effectively monitor the trading of options on the Ethereum Funds. The underlying shares of spot Ethereum ETPs, including the Ethereum Funds, are also subject to safeguards related to addressing market abuse and manipulation. As the Commission stated in its order approving proposals of several exchanges to list and trade shares of spot Ethereum-based ETPs, ‘‘[e]ach Exchange has a comprehensive surveillance-sharing agreement with the CME via their common membership in the Intermarket Surveillance Group. This facilitates the sharing of information that is available to the CME through its surveillance of its markets, including its surveillance of the CME ether futures market.’’ 66 The Exchange states that, given the consistently high correlation between the CME ethereum futures market and the spot ethereum market, as confirmed by the Commission through robust correlation analysis, the Commission was able to conclude that such surveillance sharing agreements could reasonably be ‘‘expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the [Ether ETPs].’’ 67 In light of the foregoing, the Exchange believes that existing surveillance procedures are designed to deter and detect possible manipulative behavior which might potentially arise from listing and trading the proposed options on the Ethereum Funds. Further, the Exchange will implement any new surveillance procedures it deems necessary to effectively monitor the trading of options on Ethereum ETPs. Finally, the Exchange notes that this proposal will remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, protect investors because applicable Exchange rules will require that customers receive appropriate disclosure before trading options in Ethereum Funds 68 and will require that brokers opening accounts and recommending options transactions must comply with relevant customer suitability standards.69 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The 66 See Ethereum ETP Approval Order, 89 FR 46938. 67 See Ethereum ETP Approval Order, 89 FR 46941. 68 See Rules 26.2(b)) and (e). 69 See Rule 26.4. VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 Exchange does not believe that the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act as the Ethereum Fund options will be equally available to all market participants who wish to trade such options and will trade generally in the same manner as other options. The Rules that currently apply to the listing and trading of all Fund Share options on the Exchange, including, for example, Rules that govern listing criteria, expirations, exercise prices, minimum increments, margin requirements, customer accounts, and trading halt procedures will apply to the listing and trading of Ethereum Funds options on the Exchange in the same manner as they apply to other options on all other Fund Shares that are listed and traded on the Exchange. Also, and as stated above, the Exchange already lists options on other commodity-based Fund Shares (including Bitcoinbased).70 Further, the Ethereum Funds would need to satisfy the maintenance listing standards set forth in the Exchange Rules in the same manner as any other Fund Share for the Exchange to continue listing options on them. The Exchange does not believe that the proposal to list and trade options on Ethereum Funds will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. To the extent that the advent of Ethereum Fund options trading on the Exchange may make the Exchange a more attractive marketplace to market participants at other exchanges, such market participants are free to elect to become market participants on the Exchange. The Exchange notes that listing and trading Ethereum Fund options on the Exchange will subject such options to transparent exchangebased rules as well as price discovery and liquidity, as opposed to alternatively trading such options in the OTC market. The Exchange believes that the proposed rule change may relieve any burden on, or otherwise promote, competition, as it is designed to increase competition for order flow on the Exchange in a manner that is beneficial to investors by providing them with a lower-cost option to hedge their investment portfolios. The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues that offer similar products. Ultimately, the 70 See PO 00000 Rule 19.3(i)(4). Frm 00059 Fmt 4703 Sfmt 4703 Exchange believes that offering Ethereum Fund options for trading on the Exchange will promote competition by providing investors with an additional, relatively low-cost means to hedge their portfolios and meet their investment needs in connection with Ethereum prices and Ethereum-related products and positions on a listed options exchange. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 Exchange consents, the Commission will: A. by order approve or disapprove such 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, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– CboeBZX–2025–018 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–CboeBZX–2025–018. 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 E:\FR\FM\26FEN1.SGM 26FEN1 Federal Register / Vol. 90, No. 37 / Wednesday, February 26, 2025 / Notices 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–CboeBZX–2025–018 and should be submitted on or before March 19, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.71 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–03065 Filed 2–25–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102457; File No. SR– CboeBZX–2025–024] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule by Modifying Footnote 14 To Include Fee Code AN and Make Continuous Book Executions That Occur in the Opening and Closing Auctions Free for Lead Market Makers khammond on DSK9W7S144PROD with NOTICES February 20, 2025. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 12, 2025, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Item I below, which Item has been substantially 71 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:26 Feb 25, 2025 Jkt 265001 prepared by the Exchange. The Exchange has designated this proposal for immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) proposes to amend its Fee Schedule by modifying footnote 14 to include fee code AN and make continuous book executions that occur in the Opening and Closing Auctions free for Lead Market Makers. The proposed rule change, including the Exchange’s statement of the purpose of, and statutory basis for, the proposed rule change, is available on the Exchange’s website at https:// markets.cboe.com/us/equities/ regulation/rule_filings/BZX/, and on the Commission’s website at https:// www.sec.gov/rules-regulations/selfregulatory-organization-rulemaking/ national-securities-exchanges?file_ number=SR-CboeBZX-2025-024. II. 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 electronically by using the Commission’s internet comment form (https://www.sec.gov/rules-regulations/ self-regulatory-organizationrulemaking/national-securitiesexchanges?file_number=SR-CboeBZX2025-024) or by sending an email to rule-comments@sec.gov. Please include file number SR–CboeBZX–2025–024 on the subject line. Alternatively, paper comments may be sent to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–CboeBZX–2025– 024. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments 3 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. 4 17 PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 10769 on the Commission’s internet website (https://www.sec.gov/rules-regulations/ self-regulatory-organizationrulemaking/national-securitiesexchanges?file_number=SR-CboeBZX2025-024). 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–CboeBZX–2025–024 and should be submitted on or before March 19, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.5 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2025–03066 Filed 2–25–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102445; File No. SR– CboeBZX–2025–019] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the WisdomTree XRP Fund Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares February 19, 2025. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 6, 2025, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (‘‘BZX’’ or the ‘‘Exchange’’) is filing with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) a proposed rule change to list and trade shares of the WisdomTree XRP Fund (the 5 17 CFR 200.30–3(a)(12). 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 E:\FR\FM\26FEN1.SGM 26FEN1

Agencies

[Federal Register Volume 90, Number 37 (Wednesday, February 26, 2025)]
[Notices]
[Pages 10759-10769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-03065]



[[Page 10759]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102456; File No. SR-CboeBZX-2025-018]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To 
List and Trade Options on the Grayscale Ethereum Trust ETF, the 
Grayscale Ethereum Mini Trust ETF, and the Bitwise Ethereum ETF

February 20, 2025.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 5, 2025, Cboe BZX Exchange, Inc. (``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the Exchange. On February 6, 2025, the Exchange 
filed Amendment No. 1 to the proposal. The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'') 
proposes to amend Rule 19.3, to allow the Exchange to list and trade 
options on the Grayscale Ethereum Trust ETF, the Grayscale Ethereum 
Mini Trust ETF, and the Bitwise Ethereum ETF. The text of the proposed 
rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Rule 19.3 regarding the criteria for 
underlying securities. Specifically, the Exchange proposes to amend 
Rule 19.3(i)(4) to allow the Exchange to list and trade options on 
shares or other securities (``Fund Shares'') that are principally 
traded on a national securities exchange and are defined as an ``NMS 
stock'' under Rule 600 of Regulation NMS and that represent interests 
in the Grayscale Ethereum Trust ETF (the ``Grayscale Fund''), the 
Grayscale Ethereum Mini Trust ETF (the ``Grayscale Mini Fund''), and 
the Bitwise Ethereum ETF (the ``Bitwise Fund'' and, collectively, the 
``Ethereum Funds'').\3\ This is a competitive filing based on a similar 
proposal submitted by NYSE American, LLC (``NYSE American''), which is 
currently pending with the Securities and Exchange Commission (the 
``Commission'').\4\ Current Rule 19.3(i) provides that, subject to 
certain other criteria set forth in that Rule, securities deemed 
appropriate for options trading include Fund Shares that represent 
certain types of interests,\5\ including interests in certain specific 
trusts that hold financial instruments, money market instruments, 
precious metals (which are deemed commodities), or Bitcoin (which is 
another crypto currency and deemed a commodity). In addition, Rule 
19.3(i) requires that Fund Shares meet the criteria and standards set 
forth in Rule 19.3(a) and (b),\6\ or (2) be available for creation or 
redemption each business day from or through the issuer in cash or in 
kind at a price related to net asset value, and the issuer must be 
obligated to issue Fund Shares in a specified aggregate number even if 
some or all of the investment assets required to be deposited have not 
been received by the issuer, subject to the condition that the person 
obligated to deposit the investments has undertaken to deliver the 
investment assets as soon as possible and such undertaking is secured 
by the delivery and maintenance of collateral consisting of cash or 
cash equivalents satisfactory to the issuer, as provided in the 
respective prospectus.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release Nos. 100224 (May 23, 
2024), 89 FR 46937 (May 30, 2024) (SR-NYSEArca-2023-70; SR-NYSEArca-
2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023-069; SR-CboeBZX-2023-
070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095; and SR-CboeBZX-2024-
018) (Order Granting Accelerated Approval of Proposed Rule Changes, 
as Modified by Amendments Thereto, to List and Trade Shares of 
Ether-Based Exchange-Traded Products) (``Ethereum ETP Approval 
Order''); and 100541 (July 17, 2024), 89 FR 59786 (July 23, 2024) 
(SR-NYSEArca-2024-44; and SR-NYSEArca-2024-53) (Order Granting 
Approval of Proposed Rule Changes To List and Trade Shares of the 
Grayscale Ethereum Mini Trust and ProShares Ethereum ETF).
    \4\ See Securities Exchange Act Release Nos. 99306 (August 7, 
2024), 89 FR 65957 (August 13, 2024) (SR-NYSEAMER-2024-45), as 
amended by Amendment No. 1 (February 5, 2025) (``NYSE American 
Proposal'').
    \5\ See Rule 19.3(i), which permits options trading on Fund 
Shares that (1) represent interests in registered investment 
companies (or series thereof) organized as open-end management 
investment companies, unit investment trusts or similar entities, 
and that hold portfolios of securities comprising or otherwise based 
on or representing investments in indexes or portfolios of 
securities (or that hold securities in one or more other registered 
investment companies that themselves hold such portfolios of 
securities) (``Funds'') and/or financial instruments including, but 
not limited to, stock index futures contracts, options on futures, 
options on securities and indexes, equity caps, collars and floors, 
swap agreements, forward contracts, repurchase agreements and 
reverse repurchase agreements (the ``Financial Instruments''), and 
money market instruments, including, but not limited to, U.S. 
government securities and repurchase agreements (the ``Money Market 
Instruments'') constituting or otherwise based on or representing an 
investment in an index or portfolio of securities and/or Financial 
Instruments and Money Market Instruments, or (2) represent commodity 
pool interests principally engaged, directly or indirectly, in 
holding and/or managing portfolios or baskets of securities, 
commodity futures contracts, options on commodity futures contracts, 
swaps, forward contracts and/or options on physical commodities and/
or non-U.S. currency (``Commodity Pool ETFs'') or (3) represent 
interests in a trust or similar entity that holds a specified non-
U.S. currency or currencies deposited with the trust or similar 
entity when aggregated in some specified minimum number may be 
surrendered to the trust by the beneficial owner to receive the 
specified non-U.S. currency or currencies and pays the beneficial 
owner interest and other distributions on the deposited non-U.S. 
currency or currencies, if any, declared and paid by the trust 
(``Currency Trust Shares''), or (4) represent interests in the SPDR 
Gold Trust or are issued by the iShares COMEX Gold Trust or iShares 
Silver Trust, the Aberdeen Standard Physical Silver Trust, the 
Aberdeen Standard Physical Gold Trust, the Aberdeen Standard 
Physical Palladium Trust, the Aberdeen Standard Physical Platinum 
Trust, the Sprott Physical Gold Trust, the Goldman Sachs Physical 
Gold ETF, or the Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares 
Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, 
the Grayscale Bitcoin Mini Trust, or the Bitwise Bitcoin ETF.
    \6\ Rule 19.3(a) and (b) sets forth the criteria that underlying 
securities must satisfy for option contracts on those underlying 
securities to be eligible for listing and trading on the Exchange.
---------------------------------------------------------------------------

    The Ethereum Funds are Ethereum-backed commodity ETFs structured as 
trusts. Similar to any Fund Share currently deemed appropriate for 
options trading under Rule 19.3(i), the investment objective of each 
Ethereum Fund is for its shares to reflect the

[[Page 10760]]

performance of Ethereum (less the expenses of the trust's operations), 
offering investors an opportunity to gain exposure to Ethereum without 
the complexities of Ethereum delivery. As is the case for Fund Shares 
currently deemed appropriate for options trading, a Ethereum Fund's 
shares represent units of fractional undivided beneficial interest in 
the trust, the assets of which consist principally of Ethereum and are 
designed to track Ethereum or the performance of the price of Ethereum 
and offer access to the Ethereum market.\7\ The Ethereum Funds provide 
investors with cost-efficient alternatives that allow a level of 
participation in the Ethereum market through the securities market. The 
Ethereum Funds are similar to the Bitcoin Funds, except that those 
funds hold Bitcoin (another cryptocurrency) rather than Ethereum, which 
are already eligible for options trading on the Exchange (i.e., the 
Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares Bitcoin ETF, the 
iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the Grayscale 
Bitcoin Mini Trust, or the Bitwise Bitcoin ETF).
---------------------------------------------------------------------------

    \7\ The trust may include minimal cash.
---------------------------------------------------------------------------

    The Exchange's initial listing standards for Fund Shares on which 
options may be listed and traded on the Exchange will apply to the 
Ethereum Funds. Pursuant to Rule 19.3(a), a security (which includes a 
Fund Share) on which options may be listed and traded on the Exchange 
must be registered (with the Commission) and be an NMS stock (as 
defined in Rule 600 of Regulation NMS under the Securities Exchange Act 
of 1934, as amended (the ``Act'')), and be characterized by a 
substantial number of outstanding shares that are widely held and 
actively traded.\8\ Additionally, Rule 19.3(i)(1) requires that Fund 
Shares either (1) meet the criteria and standards set forth in Rule 
19.3(a) and (b),\9\ or (2) are available for creation or redemption 
each business day in cash or in kind from the investment company, 
commodity pool or other entity at a price related to net asset value, 
and the investment company, commodity pool or other entity is obligated 
to provide that Fund Shares may be created even if some or all of the 
securities and/or cash required to be deposited have not been received 
by the Fund, the unit investment trust or the management investment 
company, provided the authorized creation participant has undertaken to 
deliver the securities and/or cash as soon as possible and such 
undertaking is secured by the delivery and maintenance of collateral 
consisting of cash or cash equivalents satisfactory to the Fund, all as 
described in the Fund's or unit trust's prospectus. Each Ethereum Fund 
satisfies Rule 19.3(i)(1)(B), as each is subject to this creation and 
redemption process.
---------------------------------------------------------------------------

    \8\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Rule 19.3(b), 
subject to exceptions.
    \9\ Rule 19.3(a) and (b) sets forth the criteria an underlying 
security must meet for the Exchange to be able to list options on 
the underlying.
---------------------------------------------------------------------------

    While not required by the Rules for purposes of options listings, 
the Exchange believes the Ethereum Funds satisfy the criteria and 
guidelines set forth in Rule 19.3(a) and (b). Pursuant to Rule 19.3(a), 
a security (which includes a Fund Share) on which options may be listed 
and traded on the Exchange must be duly registered (with the 
Commission) and be an NMS stock (as defined in Rule 600 of Regulation 
NMS under the Act, and be characterized by a substantial number of 
outstanding shares that are widely held and actively traded.\10\ Each 
of the Ethereum Funds is an NMS Stock as defined in Rule 600 of 
Regulation NMS under the Act.\11\ Further, the Exchange believes each 
Ethereum Fund is characterized by a substantial number of outstanding 
shares that are widely held and actively traded.
---------------------------------------------------------------------------

    \10\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Rule 19.3(b), 
subject to exceptions.
    \11\ An ``NMS stock'' means any NMS security other than an 
option, and an ``NMS security'' means any security or class of 
securities for which transaction reports are collected, processed, 
and made available pursuant to an effective transaction reporting 
plan (or an effective national market system plan for reporting 
transaction in listed options). See 17 CFR 242.600(b)(64) 
(definition of ``NMS security'') and (65) (definition of ``NMS 
stock'').
---------------------------------------------------------------------------

    With respect to the Grayscale Fund, the Grayscale Mini Fund, and 
the Bitwise Fund, the Exchange reviewed the data presented by NYSE 
American in its filing with respect to shares outstanding (and 
corresponding market capitalization), number of beneficial holders, and 
trading volume. As of November 29, 2024, the Ethereum Funds had the 
following number of shares outstanding (and corresponding market 
capitalization):

------------------------------------------------------------------------
                                                        Market value (11/
          Ethereum Fund            Shares outstanding        29/24)
------------------------------------------------------------------------
Grayscale Fund..................           177,838,500    $5,425,852,635
Grayscale Mini Fund.............            45,220,787     1,547,003,157
Bitwise Fund....................            16,600,000       430,886,200
------------------------------------------------------------------------

    As shown above, each of the Ethereum Funds had significantly more 
than 7,000,000 shares outstanding, which is the minimum number of 
shares of a corporate stock that the Exchange generally requires to 
list options on that stock pursuant to Rule 19.3(b).\12\ The Exchange 
believes this demonstrates that each Ethereum Fund is characterized by 
a substantial number of outstanding shares. Further, the below table 
contains information regarding the number of beneficial holders of the 
Ethereum Funds as of December 31, 2024.
---------------------------------------------------------------------------

    \12\ The Exchange notes that on November 19, 2024, the Grayscale 
Mini Fund underwent a reverse stock split, reducing the number of 
shares outstanding--and increasing the share price--tenfold.

------------------------------------------------------------------------
                                                     Beneficial holders
                   Ethereum Fund                      (as of 12/31/24)
------------------------------------------------------------------------
Grayscale Fund....................................               112,320
Grayscale Mini Fund...............................                17,396
Bitwise Fund......................................                 5,992
------------------------------------------------------------------------


[[Page 10761]]

    As this table shows, each Ethereum Fund has significantly more than 
2,000 beneficial holders (approximately 56, 9, and 3 times more, 
respectively), which is the minimum number of holders the Exchange 
generally requires for corporate stock in order to list options on that 
stock pursuant to pursuant to Rule 19.3(b).\13\ Therefore, the Exchange 
believes the shares of each Ethereum Fund are widely held.
---------------------------------------------------------------------------

    \13\ The number of beneficial holders of the Grayscale Mini Fund 
may have been impacted by the 10:1 reverse stock split, as investors 
with fewer than 10 shares would have received a cash payout. See id.
---------------------------------------------------------------------------

    The Exchange also believes that, based on trading volume since the 
Ethereum Funds began trading on July 23, 2024, shares of the Ethereum 
Funds are actively traded. In particular, the table below sets forth 
the total trading volume (by shares and notional) from the inception of 
trading through either November 29, 2024 (for the Grayscale Fund and 
the Grayscale Mini Fund) or December 31, 2024 (for the Bitwise Fund). 
In addition, the below table illustrates the average daily volume 
(``ADV'') over the 30-day period of either October 29, 2024-through 
November 29, 2024 (for the Grayscale Fund and the Grayscale Mini Fund) 
or November 29, 2024-through December 31, 2024 (for the Bitwise 
Fund).\14\
---------------------------------------------------------------------------

    \14\ See FactSet, 11/29/2024 and 12/31/24, https://www.factset.com/data-attribution.

----------------------------------------------------------------------------------------------------------------
                                                               Trading volume    Trading volume
                        Ethereum Fund                             (shares)        (notional $)     ADV (shares)
----------------------------------------------------------------------------------------------------------------
Grayscale Fund..............................................       427,312,540   $10,289,781,199       4,237,811
Grayscale Mini Fund.........................................       172,400,020     4,614,428,230       3,065,796
Bitwise Fund................................................        44,477,060       959,491,343         291,627
----------------------------------------------------------------------------------------------------------------

    As demonstrated above, even though the Ethereum Funds have been 
trading for less than one year, the trading volume for each Ethereum 
Fund is substantially higher than 2,400,000 shares (roughly 178, 72, 
and 16 times that amount), which is the minimum 12-month volume the 
Exchange generally requires for a security in order to list options on 
that security as set forth in Rule 19.3(b). The Exchange believes this 
data demonstrates each Ethereum Fund is characterized by a substantial 
number of outstanding shares that are actively traded.
    Options on the Ethereum Funds will be subject to the Exchange's 
continued listing standards set forth in Rule 19.4(g) for Fund Shares 
deemed appropriate for options trading pursuant to Rule 19.3(i). 
Specifically, 19.4(g) provides that Fund Shares that were initially 
approved for options trading pursuant to Rule 19.3 will not be deemed 
to meet the requirements for continued approval, and the Exchange shall 
not open for trading any additional series of option contracts of the 
class covering such Fund Shares if the security ceases to be an NMS 
stock (see Rule 19.4(b)(4)). Additionally, the Exchange will not open 
for trading any additional series of option contracts of the class 
covering Fund Shares in any of the following circumstances: (1) in the 
case of options covering Fund Shares approved for trading under Rule 
19.3(i)(4)(A), in accordance with the terms of Rule 19.4(b)(1), (2) and 
(3); (2) in the case of options covering Fund Shares approved pursuant 
to Rule 19.3(i)(4)(B), following the initial 12-month period beginning 
upon the commencement of trading in the Fund Shares on a national 
securities exchange and are defined as NMS stock under Rule 600 of 
Regulation NMS, there were fewer than 50 record and/or beneficial 
holders of such Fund Shares for 30 consecutive days; (3) the value of 
the index, non-U.S. currency, portfolio of commodities including 
commodity futures contracts, options on commodity futures contracts, 
swaps, forward contracts and/or options on physical commodities and/or 
Financial Instruments or Money Market Instruments, or portfolio of 
securities on which the Fund Shares are based is no longer calculated 
or available; or (4) such other event occurs or condition exists that 
in the opinion of the Exchange makes further dealing in such options on 
the Exchange inadvisable.
    Options on each Ethereum Fund will be physically settled contracts 
with American-style exercise.\15\ Consistent with current Rule 19.6, 
which governs the opening of options series on a specific underlying 
security (including Fund Shares), the Exchange will open at least one 
expiration month for options on Ethereum Funds \16\ at the commencement 
of trading on the Exchange and may also list series of options on a 
Ethereum Fund for trading on a weekly,\17\ monthly,\18\ or quarterly 
\19\ basis. The Exchange may also list long-term equity option series 
(``LEAPS'') that expire from 12 to 39 months from the time they are 
listed.\20\
---------------------------------------------------------------------------

    \15\ See Rule 19.2, which provides that the rights and 
obligations of holders and writers are set forth in the Rules of the 
Options Clearing Corporation (``OCC''); and Equity Options Product 
Specifications January 3, 2024), available at Equity Options 
Specifications (cboe.com); see also OCC Rules, Chapters VIII (which 
governs exercise and assignment) and Chapter IX (which governs the 
discharge of delivery and payment obligations arising out of the 
exercise of physically settled stock option contracts).
    \16\ See Rule 19.6(b). The monthly expirations are subject to 
certain listing criteria for underlying securities described within 
Rule 19.3. Monthly listings expire the third Friday of the month. 
The term ``expiration date'' (unless separately defined elsewhere in 
the OCC By-Laws), when used in respect of an option contract 
(subject to certain exceptions), means the third Friday of the 
expiration month of such option contract, or if such Friday is a day 
on which the exchange on which such option is listed is not open for 
business, the preceding day on which such exchange is open for 
business. See OCC By-Laws Article I, Section 1. Pursuant to Rule 
19.6(c), additional series of options of the same class may be 
opened for trading on the Exchange when the Exchange deems it 
necessary to maintain an orderly market, to meet customer demand or 
when the market price of the underlying stock moves more than five 
strike prices from the initial exercise price or prices. New series 
of options on an individual stock may be added until the beginning 
of the month in which the options contract will expire. Due to 
unusual market conditions, the Exchange, in its discretion, may add 
a new series of options on an individual stock until the close of 
trading on the business day prior to expiration.
    \17\ See Rule 19.6, Interpretation and Policy .05.
    \18\ See Rule 19.6, Interpretation and Policy .08.
    \19\ See Rule 19.6, Interpretation and Policy .04.
    \20\ See Rule 19.8.
---------------------------------------------------------------------------

    Pursuant to Rule 19.6, Interpretation and Policy .01, which governs 
strike prices of series of options on Fund Shares, the interval of 
strikes prices for series of options on Ethereum Funds will be $1 or 
greater when the strike price is $200 or less and $5 or greater where 
the strike price is over $200.\21\ Additionally, the Exchange may list 
series of options pursuant to the $1 Strike Price Interval Program,\22\ 
the $0.50 Strike Program,\23\ the $2.50 Strike

[[Page 10762]]

Price Program,\24\ and the $5 Strike Program.\25\ Pursuant to Rule 
21.5, where the price of a series of an Ethereum Fund option is less 
than $3.00, the minimum increment will be $0.05, and where the price is 
$3.00 or higher, the minimum increment will be $0.10.\26\ Any and all 
new series of Ethereum Fund options that the Exchange lists will be 
consistent and comply with the expirations, strike prices, and minimum 
increments set forth in Rules 19.6 and 21.5, as applicable.
---------------------------------------------------------------------------

    \21\ The Exchange notes that for options listed pursuant to the 
Short Term Option Series Program, the Monthly Options Series 
Program, and the Quarterly Options Series Program, Rule 19.6, 
Interpretations and Policies .05, .08, and .04 specifically sets 
forth intervals between strike prices on Quarterly Options Series, 
Short Term Option Series, and Monthly Options Series, respectively.
    \22\ See Rule 19.6, Interpretation and Policy .02.
    \23\ See Rule 19.6, Interpretation and Policy .06.
    \24\ See Rule 19.6, Interpretation and Policy .03.
    \25\ See Rule 19.6(d)(5).
    \26\ If options on an Ethereum Fund are eligible to participate 
in the Penny Interval Program, the minimum increment will be $0.01 
for series with a price below $3.00 and $0.05 for series with a 
price at or above $3.00. See Rule 21.5(e) (which describes the 
requirements for the Penny Interval Program).
---------------------------------------------------------------------------

    Ethereum Fund options will trade in the same manner as any other 
Fund Share options on the Exchange. The Exchange Rules that currently 
apply to the listing and trading of all Fund Share options on the 
Exchange, including, for example, Rules that govern listing criteria, 
expirations, exercise prices, minimum increments, margin requirements, 
customer accounts, and trading halt procedures will apply to the 
listing and trading of Ethereum Funds options on the Exchange in the 
same manner as they apply to other options on all other Fund Shares 
that are listed and traded on the Exchange, including the precious-
metal backed commodity Fund Shares and the Bitcoin Funds already deemed 
appropriate for options trading on the Exchange pursuant to current 
Rule 19.3(i).\27\ Position and exercise limits for options on ETFs, 
including options on Ethereum Funds, are determined pursuant to Rules 
18.7 and 18.9.\28\
---------------------------------------------------------------------------

    \27\ See, e.g., SPDR Gold Trust, iShares COMEX Gold Trust or 
iShares Silver Trust, the Aberdeen Standard Physical Silver Trust, 
the Aberdeen Standard Physical Gold Trust, the Aberdeen Standard 
Physical Palladium Trust, the Aberdeen Standard Physical Platinum 
Trust, the Sprott Physical Gold Trust, the Goldman Sachs Physical 
Gold ETF or the Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares 
Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, 
the Grayscale Bitcoin Mini Trust, or the Bitwise Bitcoin ETF.
    \28\ Rule 18.7(a)(1) provides that no Options Member shall make, 
for any account in which it has any interest or for the account of 
any Customer, an opening transaction on any exchange if the Options 
Member has reason to believe that as a result of such transaction 
the Options Member or its Customer would, acting alone or in concert 
with others, directly or indirectly, exceed the applicable position 
limit fixed by Cboe Exchange, Inc. (``Cboe Options''). See also Cboe 
Options Rules 8.30 and 8.42.
---------------------------------------------------------------------------

    Pursuant to Rules 18.7 and 18.9, the position and exercise limits, 
respectively, for Ethereum Fund options will be 25,000 same side option 
contracts.\29\ The Exchange believes these proposed position and 
exercise limits are reasonable and appropriate. In considering the 
appropriate position and exercise limits for the Ethereum Funds, the 
Exchange reviewed the data presented by NYSE American in its filing 
with respect to the Bitwise Fund, the Grayscale Fund and the Grayscale 
Mini Fund.\30\ NYSE American aggregated market capitalization, volume, 
and shares outstanding data of the Ethereum Funds and compared that 
data to those of other ETFs, and compared the proposed position limit 
of the Ethereum Funds to the position limits of the options overlying 
those other ETFs. The Exchange reviewed NYSE American's data that 
demonstrated that each of these three Bitcoin [sic] Funds would easily 
qualify for much higher position limits available to other ETFs and 
ETPs pursuant to the criterion in Cboe Options Rule 8.30, 
Interpretation and Policy .02 (which governs position limits on the 
Exchange pursuant to Rule 18.7).\31\
---------------------------------------------------------------------------

    \29\ Rule 18.7(a)(1) provides that no Options Member shall make, 
for any account in which it has any interest or for the account of 
any Customer, an opening transaction on any exchange if the Options 
Member has reason to believe that as a result of such transaction 
the Options Member or its Customer would, acting alone or in concert 
with others, directly or indirectly, exceed the applicable position 
limit fixed by Cboe Exchange, Inc. (``Cboe Options''). Cboe Options 
currently has a nearly identical rule filing pending with the 
Commission to amend Cboe Options Rule 8.30, Interpretation and 
Policy .10 (and Cboe Options Rule 8.42) to establish a position and 
exercise limit for Ethereum Fund options of 25,000. See SR-CBOE-
2025-008, as amended by Amendment No. 1 (``Cboe Ethereum Fund 
Proposal''). If the Commission approves the Cboe Ethereum Fund 
Proposal, the position and exercise limits in that filing would then 
apply to the Exchange.
    \30\ See NYSE American Proposal.
    \31\ See Cboe Options Rule 8.30, Interpretation and Policy .02; 
Exchange Rule 18.7.
---------------------------------------------------------------------------

    Cboe Options Rule 8.30, Interpretation and Policy .02 sets forth 
position (and exercise) limits for options, which vary according to the 
number of shares outstanding and the amount of trading in underlying 
during the most recent six-month period.\32\ Although the Ethereum 
Funds have been trading for less than six months [sic], the trading 
volume in each Fund is sufficient to qualify the Funds for position 
limits in excess of the proposed 25,000-contract limit, as shown 
below.\33\
---------------------------------------------------------------------------

    \32\ See Cboe Options Rule 8.30, Interpretation and Policy .02; 
Exchange Rule 18.7.
    \33\ See FactSet, 11/29/2024 and 12/31,24, https://www.factset.com/data-attribution.

------------------------------------------------------------------------
             Ethereum Fund                         Total volume
------------------------------------------------------------------------
Grayscale Fund.........................  427,312,540 (7/23/24-11/29/24).
Grayscale Mini Fund....................  172,400,020 (7/23/24-11/29/24).
Bitwise Fund...........................  44,477,060 (7/23/24-12/31/24).
------------------------------------------------------------------------

    Based on this trading volume, the most-recent trading volume in the 
Grayscale Fund and the Grayscale Mini Fund well exceeds the requisite 
minimum of 100,000,000 shares necessary to qualify for the 250,000-
contract position and exercise limits.\34\ By comparison, the 
underlying of other options with six-month trading volume less than the 
volumes in the table above are eligible for position and exercise 
limits of at least 250,000.\35\ Further, the most-recent trading volume 
for the Bitwise Fund well exceeded the requisite minimum of 40,000,000 
shares necessary to qualify for the 75,000-contract position (and 
exercise) limit, which is three times the proposed 25,000-contract 
limit.\36\ Finally, the proposed 25,000-contract position limit is the 
default for options that do not otherwise qualify for a higher limit 
and is therefore an adequate limit for each Ethereum Fund.\37\
---------------------------------------------------------------------------

    \34\ Cboe Options Rule 8.30, Interpretation and Policy .02(e) 
states that to be eligible for the 250,000 option contract limit, 
either the most recent six-month trading volume of the underlying 
security must have totaled at least 100,000,000 shares; or the most 
recent six-month trading volume of the underlying security must have 
totaled at least 75,000,000 shares and the underlying security must 
have at least 300,000,000 currently outstanding.
    \35\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search (including the following 
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR, 
SGOL).
    \36\ Cboe Options Rule 8.30, Interpretation and Policy .02(c) 
states that to be eligible for the 75,000 option contract limit, 
either the most recent six-month trading volume of the underlying 
security must have totaled at least 40,000,000 shares; or the most 
recent six-month trading volume of the underlying security must have 
totaled at least 30,000,000 shares and the underlying security must 
have at least 120,000,000 currently outstanding.
    \37\ Cboe Options Rule 8.30, Interpretation and Policy .02(a) 
states that the 25,000 option contract limit applies to those 
options having an underlying security that does not meet the 
requirements for a higher option contract limit.

---------------------------------------------------------------------------

[[Page 10763]]

    Second, with respect to the outstanding shares of these three 
Ethereum Funds, the Exchange reviewed NYSE American's data regarding 
the outstanding shares of each of these Ethereum Funds. NYSE American 
performed an exercise to demonstrate that if a market participant held 
the maximum number of contracts possible pursuant to the proposed 
position and exercise limits (25,000 contracts), the equivalent shares 
represented by the proposed position and exercise limits (2,500,000 
shares) would represent the following approximate percentage of 
outstanding shares as of November 29, 2024:

----------------------------------------------------------------------------------------------------------------
                                                        Proposed position/
                    Ethereum Fund                       exercise limits in    Outstanding       Percentage of
                                                        equivalent shares       shares       outstanding shares
----------------------------------------------------------------------------------------------------------------
Grayscale Fund.......................................            2,500,000     177,838,500                   1.4
Grayscale Mini Fund..................................            2,500,000      45,220,787                   5.5
Bitwise Fund.........................................            2,500,000      16,600,000                  15.1
----------------------------------------------------------------------------------------------------------------

    As this table demonstrates, if a market participant held the 
maximum permissible options positions in one of the Ethereum Fund 
options and exercised all of them at the same time, that market 
participant would control a small percentage of the outstanding shares 
of the underlying Ethereum Fund. For example, as noted above, a 
position limit of 25,000 same side contracts effectively restricts a 
market participant from holding positions that could result in the 
receipt of no more than 2,500,000 shares of the applicable Ethereum 
Fund (if that market participant exercised all its options). NYSE 
American used the number of shares outstanding for each Ethereum Fund 
as of November 29, 2024, and calculated the approximate number of 
market participants that could hold the maximum of 25,000 same side 
positions in each Ethereum Fund that would equate to the number of 
shares outstanding of that Ethereum Fund:

------------------------------------------------------------------------
                                                       Number of market
                                       Outstanding    participants with
         Bitcoin [sic] Fund              shares        25,000 same side
                                                          positions
------------------------------------------------------------------------
Grayscale Fund.....................     177,838,500                   71
Grayscale Mini Fund................      45,220,787                   18
Bitwise Fund.......................      16,600,000                    7
------------------------------------------------------------------------

    This means if 71 market participants had 25,000 same side positions 
in options on the Grayscale Fund, each of them would have to 
simultaneously exercise all of those options to create a scenario that 
may put the underlying security under stress. Similarly, this means if 
18 market participants had 25,000 same side positions in options on the 
Grayscale Mini Fund, each of them would have to simultaneously exercise 
all of those options to create a scenario that may put the underlying 
security under stress. Finally, this means if 7 market participants had 
25,000 same side positions in options on the Bitwise Fund, each of them 
would have to simultaneously exercise all of those options to create a 
scenario that may put the underlying security under stress. The 
Exchange believes it is highly unlikely for this to occur; however, 
even if such event did occur, the Exchange would not expect any of the 
Ethereum Fund [sic] to be under stress because such an event would 
merely induce the creation of more shares through the trust's creation 
and redemption process.
    NYSE American also performed an exercise to compare the size of the 
proposed position limit to the market capitalization of the Ethereum 
market given that the issuer of each of these three Ethereum Funds may 
create and redeem shares that represent an interest in Ethereum. NYSE 
American took the global supply of Ethereum, which was 120.44 million 
and the price of one Ethereum, which was approximately $3,593.49,\38\ 
which equates to a market capitalization of approximately $439.78 
billion. Consider the proposed position and exercise limit of 25,000 
option contracts for each Ethereum Fund option. A position and exercise 
limit of 25,000 same side contracts effectively restricts a market 
participant from holding positions that could result in the receipt of 
no more than 2,500,000 shares of the Grayscale Fund, Grayscale Mini 
Fund, and Bitwise Fund, as applicable (if that market participant 
exercised all its options). NYSE American considered the share price of 
each Bitcoin [sic] Fund on November 29, 2024 and calculated the value 
of 2,500,000 shares of the Ethereum Fund at that price, and the 
approximate percentage of that value of the size of the Ethereum 
market:
---------------------------------------------------------------------------

    \38\ See https://finance.yahoo.com/quote/ETH-USD/history.

----------------------------------------------------------------------------------------------------------------
                                                       Share price   Value of 2,500,000   Percentage of Bitcoin
                 Bitcoin [sic] Fund                        ($)             shares              [sic] Market
----------------------------------------------------------------------------------------------------------------
Grayscale Fund.....................................           30.15          75,250,000                    0.017
Grayscale Mini Fund................................           33.84          84,600,000                    0.020
Bitwise Fund.......................................           25.80          64,500,000                    0.015
----------------------------------------------------------------------------------------------------------------


[[Page 10764]]

    Therefore, if a market participant with the maximum 25,000 same 
side contracts in options on the Grayscale Fund, the Grayscale Mini 
Fund, or the Bitwise Fund exercised all positions at one time, such an 
event would have no practical impact on the Ethereum market.
    The Exchange also reviewed NYSE American's data regarding the 
market capitalization of each of these three Ethereum Funds relative to 
the market capitalization of the entire Ethereum market, as of November 
29, 2024:

----------------------------------------------------------------------------------------------------------------
                                                           Ethereum/shares                         % of Total
                                                             outstanding      Market value ($)   Bitcoin Market
----------------------------------------------------------------------------------------------------------------
Total Ethereum Market...................................        120,440,000    432,799,935,600               100
Grayscale Fund..........................................        177,838,500      5,425,852,635              1.25
Grayscale Mini Fund.....................................         45,220,787      1,547,003,157              0.36
Bitwise Fund............................................         16,600,000        430,886,200              0.10
----------------------------------------------------------------------------------------------------------------

    As this data gathered by NYSE American demonstrates, the Ethereum 
Funds collectively represent approximately 1.71% of the global supply 
of Ethereum (120,440,000).\39\ Based on the $30.15 price of a Grayscale 
Fund share on November 29, 2024, a market participant could have 
redeemed one Ethereum for approximately 119 Grayscale Fund shares. 
Another 14,354,890,070 Grayscale Fund shares could be created before 
the supply of Ethereum was exhausted. As a result, 5,742 market 
participants would have to simultaneously exercise 25,000 same side 
positions in Grayscale Fund options to receive shares of the Grayscale 
Fund holding the entire global supply of Ethereum. Similarly, based on 
the $33.84 price of a Grayscale Mini Fund share on November 29, 2024, a 
market participant could have redeemed one Ethereum for approximately 
106 Grayscale Mini Fund shares. Another 12,789,596,206 Grayscale Mini 
Fund shares could be created before the supply of Ethereum was 
exhausted. As a result, 5,116 market participants would have to 
simultaneously exercise 25,000 same side positions in Grayscale Mini 
Fund options to receive shares of Grayscale Mini Fund holding the 
entire global supply of Ethereum. Similarly, based on the $25.80 price 
of a Bitwise Fund share on November 29, 2024, a market participant 
could have redeemed one Ethereum for approximately 139 Bitwise Fund 
shares. Another 16,775,191,302 Bitwise Fund shares could be created 
before the supply of Ethereum was exhausted. As a result, 6,710 market 
participants would have to simultaneously exercise 25,000 same side 
positions in Bitwise Fund options to receive shares of Bitwise Fund 
holding the entire global supply of Ethereum. Unlike the Ethereum 
Funds, the number of shares that corporations may issue is limited. 
However, like corporations, which authorize additional shares, 
repurchase shares, or split their shares, the Ethereum Funds may 
create, redeem, or split shares in response to demand. The supply of 
Ethereum is larger than the available supply of most securities.\40\ 
Given the significant unlikelihood of any of these events ever 
occurring, the Exchange does not believe options on the Ethereum Funds 
should be subject to position and exercise limits even lower than those 
proposed (which are already equal to the lowest available limit for 
equity options in the industry) to protect the supply of Ethereum.
---------------------------------------------------------------------------

    \39\ See id.
    \40\ The market capitalization of ethereum would rank in the top 
20 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
---------------------------------------------------------------------------

    NYSE American compared the proposed position limits to the position 
limit of CME Ethereum futures. The Chicago Mercantile Exchange 
(``CME'') imposes a position limit of 8,000 futures (for the initial 
spot month) on its ethereum futures contract.\41\ On November 29, 2024, 
CME Jan 25 Ethereum Futures settled at $3,629.69. A position of 8,000 
CME Ethereum futures, therefore, would have a notional value of 
$1,451,876,000. The following table shows the share price of each 
Ethereum Fund on November 29, 2024, and the approximate number of 
option contracts that equates to that notional value:
---------------------------------------------------------------------------

    \41\ See CME Rulebook Chapter 349 (description of CME ether 
futures) and Chapter 5, Position Limit, Position Accountability and 
Reportable Level Table in the Interpretations & Special Notices. 
Each CME ether futures contract is valued at fifty ethers as defined 
by the CME CF Ether Reference Rate (``ERR''). See CME Rulebook 
Chapter 349.

----------------------------------------------------------------------------------------------------------------
                                                                     Share price
                          Ethereum Fund                                  ($)         Number of option contracts
----------------------------------------------------------------------------------------------------------------
Grayscale Fund...................................................           30.15                        481,551
Grayscale Mini Fund..............................................           33.84                        429,041
Bitwise Fund.....................................................           25.80                        562,743
----------------------------------------------------------------------------------------------------------------

    The approximate number of option contracts for each Ethereum Fund 
that would equate to the notional value of CME Ethereum futures is 
significantly higher than the proposed limit of 25,000 options contract 
for each Ethereum Fund option. The fact that many options ultimately 
expire out-of-the-money and thus are not exercised for shares of the 
underlying, while the delta of an Ethereum future is 1, further 
demonstrates how conservative the proposed limits of 25,000 options 
contracts are for the Ethereum Fund options.
    The Exchange notes, again, unlike options contracts, CME position 
limits are calculated on a net futures-equivalent basis by contract and 
include contracts that aggregate into one or more base contracts 
according to an aggregation ratio(s).\42\ 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.\43\ If a position exceeds position limits because of an option 
assignment, CME permits market participants to liquidate the

[[Page 10765]]

excess position within one business day without being considered in 
violation of its rules. Additionally, if at the close of trading, a 
position that includes options exceeds position limits for futures 
contracts, when evaluated using the delta factors as of that day's 
close of trading but does not exceed the limits when evaluated using 
the previous day's delta factors, then the position shall not 
constitute a position limit violation. Considering CME's position 
limits on futures for Ethereum, the Exchange believes that that the 
proposed same side position limits are more than appropriate for the 
Ethereum options.
---------------------------------------------------------------------------

    \42\ See CME Rulebook Chapter 5, Position Limit, Position 
Accountability and Reportable Level Table in the Interpretations & 
Special Notices.
    \43\ Id.
---------------------------------------------------------------------------

    Consistent with its position regarding the irrelevance of bitcoin 
supply to position limits for options on bitcoin ETPs, the Exchange 
likewise believes the available supply of Ethereum is not relevant to 
the determination of position and exercise limits for Ethereum Fund 
options.\44\ Position and exercise limits are not a tool that should be 
used to address a potential limited supply of the underlying of an 
underlying. Position and exercise limits do not limit the total number 
of options that may be held, but rather they limit the number of 
positions a single customer may hold or exercise at one time.\45\ 
``Since the inception of standardized options trading, the options 
exchanges have had rules imposing limits on the aggregate number of 
options contracts that a member or customer could hold or exercise.'' 
\46\ Position and exercise limit rules are intended ``to prevent the 
establishment of options positions that can be used or might create 
incentives to manipulate or disrupt the underlying market so as to 
benefit the options position. In particular, position and exercise 
limits are designed to minimize the potential for mini-manipulations 
and for corners or squeezes of the underlying market. In addition, such 
limits serve to reduce the possibility for disruption of the options 
market itself, especially in illiquid options classes.'' \47\
---------------------------------------------------------------------------

    \44\ The Exchange is unaware of any proposed rule change related 
to position and exercise limits for any equity option (including 
commodity ETF options) for which the Commission required 
consideration of whether the available supply of an underlying 
(whether it be a corporate stock or an ETF) or the contents of an 
ETF (commodity or otherwise) should be considered when an exchange 
proposed to establish those limits. See, e.g., Securities Exchange 
Act Release No. 57894 (May 30, 2008), 73 FR 32061 (June 5, 2008) 
(SR-CBOE-2005-11) (approval order in which the Commission stated 
that the ``listing and trading of Gold Trust Options will be subject 
to the exchanges' rules pertaining to position and exercise limits 
and margin''). The Exchange notes when the Commission approved this 
filing, the position limits in Rule 8.30 were the same as they are 
today. For reference, the current position and exercise limits for 
options on SPDR Gold Shares ETF (``GLD'') and options on iShares 
Silver Trust (``SLV'') are 250,000 contracts, or 10 times that 
proposed position and exercise limit for the Bitcoin [sic] Fund 
options.
    \45\ For example, suppose an option has a position limit of 
25,000 option contracts and there are a total of 10 investors 
trading that option. If all 10 investors max out their positions, 
that would result in 250,000 option contracts outstanding at that 
time. However, suppose 10 more investors decide to begin trading 
that option and also max out their positions. This would result in 
500,000 option contracts outstanding at that time. An increase in 
the number of investors could cause an increase in outstanding 
options even if position limits remain unchanged.
    \46\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
    \47\ Id.
---------------------------------------------------------------------------

    The Exchange notes that a Registration Statement on Form S-1 was 
filed with the Commission for each Ethereum Fund, each of which 
described the supply of Ethereum as being unlimited.\48\ Each 
Registration Statement permits an unlimited number of shares of the 
applicable Ethereum Fund to be created. Further, the Commission 
approved proposed rule changes that permitted the listing and trading 
of shares of each Ethereum Fund, which approval did not comment on the 
sufficient supply of Ethereum or address whether there was a risk that 
permitting an unlimited number of shares for a Ethereum Fund would 
impact the supply of ether.\49\ Therefore, the Exchange believes the 
Commission had ample time and opportunity to consider whether the 
supply of ethereum was sufficient to permit the creation of unlimited 
Ethereum Fund shares, and does not believe considering this supply with 
respect to the establishment of position and exercise limits is 
appropriate given its lack of relevance to the purpose of position and 
exercise limits. However, given the significant size of the Ethereum 
supply, the proposed positions limits are more than sufficient to 
protect investors and the market.
---------------------------------------------------------------------------

    \48\ See, e.g., Grayscale Fund Form S-1 Registration Statement, 
at p. 77, https://www.sec.gov/Archives/edgar/data/2020455/000119312524106957/d756153ds1.htm; Grayscale Mini Fund Amendment No. 
5 to Form S-1 Registration Statement, at p. 79, https://www.sec.gov/Archives/edgar/data/2020455/000119312524181081/d756153ds1a.htm; and 
Bitwise Fund Form S-1 Registration Statement 1, at p. 17, https://www.sec.gov/Archives/edgar/data/2013744/000199937124007581/bitwise-s1a_061824.htm (``Ethereum Funds Reg. Stmts.'').
    \49\ See Ethereum ETP Approval Order.
---------------------------------------------------------------------------

    All of the above information demonstrates that the proposed 
position and exercise limits for the Ethereum Fund options are more 
than reasonable and appropriate. The trading volume, ADV, and 
outstanding shares of each Ethereum Fund demonstrate that these funds 
are actively traded and widely held, and proposed position and exercise 
limits are well below those of other ETFs with similar market 
characteristics. The proposed position and exercise limits are the 
lowest position and exercise limits available for equity options in the 
industry, are extremely conservative, and are more than appropriate 
given each Ethereum Fund's market capitalization and ADV. The proposed 
position and exercise limits reasonably and appropriately balance the 
liquidity provisioning in the market against the prevention of 
manipulation. The Exchange believes these proposed limits are 
effectively designed to prevent an individual customer or entity from 
establishing options positions that could be used to manipulate the 
market of the underlying Ethereum Funds as well as the Ethereum 
market.\50\
---------------------------------------------------------------------------

    \50\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------

    Today, the Exchange has an adequate surveillance program in place 
for options. The Exchange intends to apply those same program 
procedures to options on the Ethereum Funds that it applies to the 
Exchange's other options products, including options on the Bitcoin 
Funds.\51\ The Exchange's market surveillance staff would have access 
to the surveillances conducted by Cboe BYX Exchange, Inc., Cboe EDGX 
Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe Exchange, Inc.\52\ 
with respect to the Ethereum Funds and would review activity in the 
underlying Ethereum Funds when conducting surveillances for market 
abuse or manipulation in the options on the Ethereum Funds. 
Additionally, the Exchange is a member of the Intermarket Surveillance 
Group (``ISG'') under the Intermarket Surveillance Group Agreement. ISG 
members work together to coordinate surveillance and investigative 
information sharing in the stock, options, and futures markets. In 
addition to obtaining information from its affiliated markets, the 
Exchange would be able to obtain information regarding trading in 
shares of the Ethereum Funds from their primary listing markets and 
from other markets that trade shares of the Ethereum Funds through ISG. 
In addition, the Exchange has a Regulatory Services Agreement with the 
Financial Industry Regulatory

[[Page 10766]]

Authority (``FINRA'') for certain market surveillance, investigation 
and examinations functions. Pursuant to a multi-party 17d-2 joint plan, 
all options exchanges allocate amongst themselves and FINRA 
responsibilities to conduct certain options-related market surveillance 
that are common to rules of all options exchanges.\53\
---------------------------------------------------------------------------

    \51\ The surveillance program includes surveillance patterns for 
price and volume movements as well as patterns for potential 
manipulation (e.g., spoofing and marking the close).
    \52\ Cboe BYX Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe 
EDGA Exchange, Inc., and Cboe Exchange, Inc. are affiliated markets 
of the Exchange.
    \53\ Section 19(g)(1) of the Act, among other things, requires 
every self-regulatory organization (``SRO'') registered as a 
national securities exchange or national securities association to 
comply with the Act, the rules and regulations thereunder, and the 
SRO's own rules, and, absent reasonable justification or excuse, 
enforce compliance by its members and persons associated with its 
members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 
17(d)(1) of the Act allows the Commission to relieve an SRO of 
certain responsibilities with respect to members of the SRO who are 
also members of another SRO (``common members''). Specifically, 
Section 17(d)(1) allows the Commission to relieve an SRO of its 
responsibilities to: (i) receive regulatory reports from such 
members; (ii) examine such members for compliance with the Act and 
the rules and regulations thereunder, and the rules of the SRO; or 
(iii) carry out other specified regulatory responsibilities with 
respect to such members.
---------------------------------------------------------------------------

    The underlying shares of spot Ethereum exchange traded products 
(``ETPs''), including the Ethereum Funds, are also subject to 
safeguards related to addressing market abuse and manipulation. As the 
Commission stated in its order approving proposals of several exchanges 
to list and trade shares of spot Ethereum-based ETPs, ``[e]ach Exchange 
has a comprehensive surveillance-sharing agreement with the [CME] via 
their common membership in the Intermarket Surveillance Group. This 
facilitates the sharing of information that is available to the CME 
through its surveillance of its markets, including its surveillance of 
the CME ethereum futures market.'' \54\ The Exchange states that, given 
the consistently high correlation between the CME Ethereum futures 
market and the spot bitcoin [sic] market, as confirmed by the 
Commission through robust correlation analysis, the Commission was able 
to conclude that such surveillance sharing agreements could reasonably 
be ``expected to assist in surveilling for fraudulent and manipulative 
acts and practices in the specific context of the [Ethereum ETPs].'' 
\55\ In light of surveillance measures related to both options and 
futures as well as the underlying Ethereum Funds,\56\ the Exchange 
believes that existing surveillance procedures are designed to deter 
and detect possible manipulative behavior which might potentially arise 
from listing and trading the proposed options on the Ethereum Funds. 
Further, the Exchange will implement any new surveillance procedures it 
deems necessary to effectively monitor the trading of options on 
Ethereum ETPs.
---------------------------------------------------------------------------

    \54\ See Ethereum ETP Approval Order, at 46938 (footnotes 
excluded).
    \55\ See id.
    \56\ See id.
---------------------------------------------------------------------------

    Finally, quotation and last sale information for ETFs is available 
via the Consolidated Tape Association (``CTA'') high speed line. 
Quotation and last sale information for such securities is also 
available from the exchange on which such securities are listed. 
Quotation and last sale information for options on Ethereum Funds will 
be available via OPRA and major market data vendors.
    The Exchange has also analyzed its capacity and represents that it 
believes the Exchange and OPRA have the necessary systems capacity to 
handle the additional traffic associated with the listing of new series 
that may result from the introduction of options on Ethereum Funds up 
to the number of expirations currently permissible under the Rules.
    Ethereum Fund options will trade in the same manner as any other 
Fund Share options on the Exchange. The Exchange Rules that currently 
apply to the listing and trading of all Fund Share options on the 
Exchange, including, for example, Rules that govern listing criteria, 
expirations, exercise prices, minimum increments, margin requirements, 
customer accounts, and trading halt procedures will apply to the 
listing and trading of Ethereum Funds options on the Exchange in the 
same manner as they apply to other options on all other Fund Shares 
that are listed and traded on the Exchange, including the precious-
metal backed commodity Fund Shares and the Bitcoin Funds already deemed 
appropriate for options trading on the Exchange pursuant to current 
Rule 19.3(i).\57\ Position and exercise limits for options on ETFs, 
including options on Ethereum Funds, are determined pursuant to Rules 
18.7 and 18.9.\58\
---------------------------------------------------------------------------

    \57\ See, e.g., SPDR Gold Trust, iShares COMEX Gold Trust or 
iShares Silver Trust, the Aberdeen Standard Physical Silver Trust, 
the Aberdeen Standard Physical Gold Trust, the Aberdeen Standard 
Physical Palladium Trust, the Aberdeen Standard Physical Platinum 
Trust, the Sprott Physical Gold Trust, the Goldman Sachs Physical 
Gold ETF or the Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares 
Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, 
the Grayscale Bitcoin Mini Trust, or the Bitwise Bitcoin ETF.
    \58\ Rule 18.7(a)(1) provides that no Options Member shall make, 
for any account in which it has any interest or for the account of 
any Customer, an opening transaction on any exchange if the Options 
Member has reason to believe that as a result of such transaction 
the Options Member or its Customer would, acting alone or in concert 
with others, directly or indirectly, exceed the applicable position 
limit fixed by Cboe Exchange, Inc. (``Cboe Options''). See also Cboe 
Options Rules 8.30 and 8.42.
---------------------------------------------------------------------------

    The Exchange believes that offering options on Ethereum Funds will 
benefit investors by providing them with an additional, relatively 
lower cost investing tool to gain exposure to the price of Ethereum and 
hedging vehicle to meet their investment needs in connection with 
Ethereum-related products and positions. The Exchange expects investors 
will transact in options on Ethereum Funds in the unregulated over-the-
counter (``OTC'') options market,\59\ but may prefer to trade such 
options in a listed environment to receive the benefits of trading 
listing options, including (1) enhanced efficiency in initiating and 
closing out positions; (2) increased market transparency; and (3) 
heightened contra-party creditworthiness due to the role of OCC as 
issuer and guarantor of all listed options. The Exchange believes that 
listing Ethereum Fund options may cause investors to bring this 
liquidity to the Exchange, would increase market transparency and 
enhance the process of price discovery conducted on the Exchange 
through increased order flow. The Fund Shares that hold financial 
instruments, money market instruments, or precious metal commodities on 
which the Exchange may already list and trade options are trusts 
structured in substantially the same manner as Ethereum Funds and 
essentially offer the same objectives and benefits to investors, just 
with respect to different assets. The Exchange notes that it has not 
identified any issues with the continued listing and trading of any 
Fund Share options, including Fund Shares that hold commodities (i.e., 
precious metals and Bitcoin) that it currently lists and trades on the 
Exchange.
---------------------------------------------------------------------------

    \59\ The Exchange understands from customers that investors have 
historically transacted in options on Fund Shares in the OTC options 
market if such options were not available for trading in a listed 
environment.
---------------------------------------------------------------------------

    Finally, the Exchange notes that applicable Exchange rules will 
require that customers receive appropriate disclosure before trading 
options in Ethereum Funds.\60\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\61\
---------------------------------------------------------------------------

    \60\ See Rules 26.2(b)) and (e).
    \61\ See Rule 26.4.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange

[[Page 10767]]

and, in particular, the requirements of Section 6(b) of the Act.\62\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \63\ requirements that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \64\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78f(b).
    \63\ 15 U.S.C. 78f(b)(5).
    \64\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposal to list and 
trade options on the Ethereum Funds will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and, in general, protect investors because offering options on 
the Ethereum Funds will provide investors with a greater opportunity to 
realize the benefits of utilizing options on an ETF based on spot 
Ethereum, including cost efficiencies and increased hedging strategies.
    The Exchange believes that offering options on a competitively 
priced ETF based on spot Ethereum will benefit investors by providing 
them with an additional, relatively lower-cost risk management tool, 
allowing them to manage, more easily, their positions and associated 
risks in their portfolios in connection with exposure to spot Ethereum. 
Today, the Exchange lists options on other commodity (including 
Ethereum [sic]) ETFs structured as a trust, which essentially offer the 
same objectives and benefits to investors, and for which the Exchange 
has not identified any issues with the continued listing and trading of 
options on those ETFs.
    The Exchange also believes the proposal to permit options on the 
Ethereum Funds will remove impediments to and perfect the mechanism of 
a free and open market and a national market system, because options on 
the Ethereum Funds will comply with current Exchange Rules as discussed 
herein. Options on the Ethereum Funds must satisfy the initial listing 
standards and continued listing standards currently in the Rules, 
applicable to options on all ETFs, including options on other commodity 
ETFs already deemed appropriate for options trading on the Exchange 
pursuant to Rule 19.3(i). Additionally, as demonstrated above, the 
Ethereum Funds are characterized by a substantial number of shares that 
are widely held and actively traded. Further, Rules that currently 
govern the listing and trading of options on ETFs, including 
permissible expirations, strike prices, minimum increments, position 
and exercise limits, and margin requirements, will govern the listing 
and trading of options on Ethereum Funds.
    The Exchange believes the proposed position and exercise limits are 
designed to prevent fraudulent and manipulative acts and practices and 
promote just and equitable principles of trade, as they are designed to 
address potential manipulative schemes and adverse market impacts 
surrounding the use of options, such as disrupting the market in the 
security underlying the options. The proposed position and exercise 
limits for options on each of the Ethereum Funds is 25,000 contracts. 
These position and exercise limits are the lowest position and exercise 
limits available in the options industry, are extremely conservative 
and more than appropriate given each Ethereum Fund's market 
capitalization, ADV, and high number of outstanding shares. The 
proposed position limit, and exercise limit, is consistent with the Act 
as it addresses concerns related to manipulation and protection of 
investors because, as demonstrated above, the position limit (and 
exercise limit) is extremely conservative and more than appropriate 
given the Ethereum Funds are actively traded. In support of the 
proposed position and exercise limits for options on the Ethereum Funds 
are 25,000 contracts, the Exchange is citing the in depth analysis NYSE 
American did in their filing. As noted above, in NYSE American 
Proposal, NYSE American considered the: (1) applicable Ethereum Fund's 
market capitalization and ADV, and proposed position limit in relation 
to other securities; (2) market capitalization of the entire Ethereum 
market in terms of exercise risk and availability of deliverables; (3) 
proposed position limit by comparing it to position limits for 
derivative products regulated by the CFTC; and (4) supply of Ethereum. 
Based on the Exchange's review of these analyses, the Exchange believes 
that the [sic] setting position and exercise limits for options on each 
of the Ethereum Funds is [sic] 25,000 contracts is more than 
appropriate. The proposed position and exercise limits reasonably and 
appropriately balance the liquidity provisioning in the market against 
the prevention of manipulation. The Exchange believes these proposed 
limits are effectively designed to prevent an individual customer or 
entity from establishing options positions that could be used to 
manipulate the market of the underlying as well as the Ethereum 
market.\65\
---------------------------------------------------------------------------

    \65\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------

    The Exchange represents that it has the necessary systems capacity 
to support the new Ethereum Fund options. As discussed above, the 
Exchange believes that its existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might arise from listing and trading Fund Share options, 
including Ethereum Fund options. The Exchange's existing surveillance 
and reporting safeguards are designed to deter and detect possible 
manipulative behavior which might arise from listing and trading 
options on ETFs and ETPs, such as (existing) precious metal-commodity 
backed ETP options as well as the proposed options on Ethereum Funds. 
The Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of options on Ethereum Funds in all 
trading sessions and to deter and detect violations of Exchange rules. 
Specifically, the Exchange's market surveillance staff will have access 
to surveillances that it conducts, and that FINRA conducts on its 
behalf, with respect to the Ethereum Funds and, as appropriate, would 
review activity in the underlying Funds when conducting surveillances 
for market abuse or manipulation in the options on the Ethereum Funds. 
Additionally, the Exchange is a member of the ISG under the Intermarket 
Surveillance Group Agreement. ISG members work together to coordinate 
surveillance and investigative information sharing in the stock, 
options, and futures markets. In addition, the Exchange has a 
Regulatory Services Agreement with the FINRA and as noted herein, 
pursuant to a multi-party 17d-2 joint plan, all options exchanges 
allocate regulatory responsibilities to FINRA to conduct certain 
options-related market surveillances. Further, the Exchange will 
implement any new surveillance procedures it deems necessary to

[[Page 10768]]

effectively monitor the trading of options on the Ethereum Funds.
    The underlying shares of spot Ethereum ETPs, including the Ethereum 
Funds, are also subject to safeguards related to addressing market 
abuse and manipulation. As the Commission stated in its order approving 
proposals of several exchanges to list and trade shares of spot 
Ethereum-based ETPs, ``[e]ach Exchange has a comprehensive 
surveillance-sharing agreement with the CME via their common membership 
in the Intermarket Surveillance Group. This facilitates the sharing of 
information that is available to the CME through its surveillance of 
its markets, including its surveillance of the CME ether futures 
market.'' \66\ The Exchange states that, given the consistently high 
correlation between the CME ethereum futures market and the spot 
ethereum market, as confirmed by the Commission through robust 
correlation analysis, the Commission was able to conclude that such 
surveillance sharing agreements could reasonably be ``expected to 
assist in surveilling for fraudulent and manipulative acts and 
practices in the specific context of the [Ether ETPs].'' \67\ In light 
of the foregoing, the Exchange believes that existing surveillance 
procedures are designed to deter and detect possible manipulative 
behavior which might potentially arise from listing and trading the 
proposed options on the Ethereum Funds. Further, the Exchange will 
implement any new surveillance procedures it deems necessary to 
effectively monitor the trading of options on Ethereum ETPs.
---------------------------------------------------------------------------

    \66\ See Ethereum ETP Approval Order, 89 FR 46938.
    \67\ See Ethereum ETP Approval Order, 89 FR 46941.
---------------------------------------------------------------------------

    Finally, the Exchange notes that this proposal will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, protect investors because 
applicable Exchange rules will require that customers receive 
appropriate disclosure before trading options in Ethereum Funds \68\ 
and will require that brokers opening accounts and recommending options 
transactions must comply with relevant customer suitability 
standards.\69\
---------------------------------------------------------------------------

    \68\ See Rules 26.2(b)) and (e).
    \69\ See Rule 26.4.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as the Ethereum Fund options 
will be equally available to all market participants who wish to trade 
such options and will trade generally in the same manner as other 
options. The Rules that currently apply to the listing and trading of 
all Fund Share options on the Exchange, including, for example, Rules 
that govern listing criteria, expirations, exercise prices, minimum 
increments, margin requirements, customer accounts, and trading halt 
procedures will apply to the listing and trading of Ethereum Funds 
options on the Exchange in the same manner as they apply to other 
options on all other Fund Shares that are listed and traded on the 
Exchange. Also, and as stated above, the Exchange already lists options 
on other commodity-based Fund Shares (including Bitcoin-based).\70\ 
Further, the Ethereum Funds would need to satisfy the maintenance 
listing standards set forth in the Exchange Rules in the same manner as 
any other Fund Share for the Exchange to continue listing options on 
them.
---------------------------------------------------------------------------

    \70\ See Rule 19.3(i)(4).
---------------------------------------------------------------------------

    The Exchange does not believe that the proposal to list and trade 
options on Ethereum Funds will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. To the extent that the advent of Ethereum Fund 
options trading on the Exchange may make the Exchange a more attractive 
marketplace to market participants at other exchanges, such market 
participants are free to elect to become market participants on the 
Exchange. The Exchange notes that listing and trading Ethereum Fund 
options on the Exchange will subject such options to transparent 
exchange-based rules as well as price discovery and liquidity, as 
opposed to alternatively trading such options in the OTC market.
    The Exchange believes that the proposed rule change may relieve any 
burden on, or otherwise promote, competition, as it is designed to 
increase competition for order flow on the Exchange in a manner that is 
beneficial to investors by providing them with a lower-cost option to 
hedge their investment portfolios. The Exchange notes that it operates 
in a highly competitive market in which market participants can readily 
direct order flow to competing venues that offer similar products. 
Ultimately, the Exchange believes that offering Ethereum Fund options 
for trading on the Exchange will promote competition by providing 
investors with an additional, relatively low-cost means to hedge their 
portfolios and meet their investment needs in connection with Ethereum 
prices and Ethereum-related products and positions on a listed options 
exchange.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    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 Exchange consents, the Commission will:
    A. by order approve or disapprove such 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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2025-018 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CboeBZX-2025-018. 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

[[Page 10769]]

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-CboeBZX-2025-018 and should be submitted 
on or before March 19, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\71\
---------------------------------------------------------------------------

    \71\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-03065 Filed 2-25-25; 8:45 am]
BILLING CODE 8011-01-P
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