Self-Regulatory Organizations; Nasdaq Phlx, LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Permit the Trading of FLEX Options on Shares of the iShares Bitcoin Trust ETF, 13226-13228 [2025-04655]

Download as PDF 13226 Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices requirements of Rule 17Ad– 22(e)(4)(ii).20 Rule 17Ad–22(e)(6)(i) 21 requires ICC to establish, implement, maintain, and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market. As described above, the single name risk factor level MADs would be automatically updated daily in the risk management system, which would timely capture any significant MAD changes and minimize the cumulative effect of MAD changes between parameter updates, and thus reduce the level of initial margin procyclicality. The additional clarifications would further promote clarity and transparency in the RPSRP and RMMD. In ICC’s view, the proposed changes thus enhance and strengthen ICC’s process for reviewing and setting the model core parameters, which in turn serves to promote the soundness of ICC’s risk management model and system, which will continue to consider and produce margin levels commensurate with the risks and particular attributes of each relevant product, portfolio, and market, consistent with the requirements of Rule 17Ad–22(e)(6)(i).22 (B) Clearing Agency’s Statement on Burden on Competition ICC does not believe the proposed rule change would have any impact, or impose any burden, on competition. The proposed changes to the RSPRP and RMMD will apply uniformly across all market participants. ICC does not believe these amendments would affect the costs of clearing or the ability of market participants to access clearing. Therefore, ICC does not believe the proposed rule change would impose any burden on competition that is inappropriate in furtherance of the purposes of the Act. ddrumheller on DSK120RN23PROD with NOTICES1 (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments relating to the proposed rule change have not been solicited or received. ICC will notify the Commission of any written comments received by ICC. 20 Id. 21 17 CFR 240.17ad–22(e)(6)(i). 22 Id. VerDate Sep<11>2014 19:09 Mar 19, 2025 Jkt 265001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) by order approve or disapprove 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 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-regulations/self-regulatoryorganization-rulemaking); or • Send an email to rule-comments@ sec.gov. Please include file number SR– ICC–2025–001 on the subject line. Paper Comments • Send paper comments in triplicate to [Name of Secretary], Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. All submissions should refer to file number SR–ICC–2025–001. 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-regulations/self-regulatoryorganization-rulemaking). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 a.m. and 3 p.m. Copies of such filings will also be available for inspection and copying at the principal office of ICE Clear Credit and on ICE Clear Credit’s website at https://www.ice.com/clearcredit/regulation. 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–ICC–2025–001 and should be submitted on or before April 10, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Vanessa A. Countryman, Secretary. [FR Doc. 2025–04659 Filed 3–19–25; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–102669; File No. SR–PHLX– 2024–72] Self-Regulatory Organizations; Nasdaq Phlx, LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Permit the Trading of FLEX Options on Shares of the iShares Bitcoin Trust ETF March 14, 2025. I. Introduction On December 26, 2024, Nasdaq Phlx, LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Options 8, Section 34, FLEX Trading, to permit options on shares of the iShares Bitcoin Trust ETF (‘‘IBIT’’) to trade as cash-settled and physically settled FLEX equity options. The proposed rule change was published for comment in the Federal Register on January 14, 2025.3 On February 27, 2025, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 102132 (Jan. 7, 2025), 90 FR 3266 (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 1 15 E:\FR\FM\20MRN1.SGM 20MRN1 Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices within which to approve the proposal, disapprove the proposal, or institute proceedings to determine whether to disapprove the proposal.5 The Commission received a comment regarding the proposed rule change.6 This order institutes proceedings under Section 19(b)(2)(B) of the Act 7 to determine whether to approve or disapprove the proposed rule change. ddrumheller on DSK120RN23PROD with NOTICES1 II. Description of the Proposed Rule Change As described in detail in the Notice, the Exchange proposes to amend its rules to permit the trading of FLEX equity options on IBIT.8 The Commission approved Nasdaq ISE LLC’s (‘‘ISE’’) proposal to list and trade options on IBIT.9 Because the Exchange’s listing rules incorporate ISE’s listing rules by reference, the Exchange may list IBIT options.10 The Exchange’s rules currently establish position and exercise limits of 25,000 contracts on the same side of the market for IBIT options.11 The Exchange proposes to amend Options 8, Section 34(e) to apply these position and exercise limits to the proposed IBIT FLEX options and to provide that positions in IBIT FLEX options will be aggregated with positions in non-FLEX IBIT options for purposes of calculating position and exercise limits.12 Accordingly, the proposal limits the position and exercise limits for all IBIT options—FLEX and non-FLEX—to 25,000 contracts.13 The Exchange states that capping the aggregated position limit at 25,000 contracts will be sufficient to address concerns related to manipulation and the protection of investors.14 In addition, the Exchange states that in approving the 25,000contract position and exercise limit for IBIT options, the Commission concluded, based on its review of the 5 See Securities Exchange Act Release No. 102497 (Feb. 27, 2025), 90 FR 11334 (Mar. 5, 2025) (designating April 14, 2025, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change). 6 Comments received on the proposal are available at https://www.sec.gov/comments/sr-phlx2024-72/srphlx202472.htm. 7 15 U.S.C. 78s(b)(2)(B). 8 See supra note 3. 9 See Securities Exchange Act Release No. 101128 (Sept. 20, 2024), 89 FR 78942 (Sept. 26, 2024) (order approving File No. SR–ISE–2024–03) (‘‘IBIT Order’’). 10 See Options 4 and Securities Exchange Act Release No. 101613 (Nov. 13, 2024), 89 FR 91470 (Nov. 19, 2024) (notice of filing and immediate effectiveness of File No. SR–Phlx–2024–53). 11 See Options 9, Section 13(a) and Option 9, Section 15(a). 12 See proposed Options 8, Section 34(e). 13 See Notice, 90 FR at 3267. 14 See proposed Options 8, Section 34(e). VerDate Sep<11>2014 19:09 Mar 19, 2025 Jkt 265001 data and analysis provided by ISE, that the proposed position and exercise limits for IBIT options were designed to prevent investors from disrupting the market for the underlying security by acquiring and exercising a number of options contracts disproportionate to the deliverable supply and average trading volume of the underlying security, and to prevent the establishment of options positions that could be used or might create incentives to manipulate or disrupt the underlying market so as to benefit the options position.15 The Exchange states that FLEX options on ETFs are currently traded in the over-the-counter (‘‘OTC’’) market by a variety of market participants, including hedge funds, proprietary trading firms, and pension funds.16 The Exchange states that the proposed FLEX options could provide a useful risk management and trading vehicle for market participants and their customers.17 The Exchange further states that FLEX options serve two primary client types in the capital markets: (1) ETF and structured return issuers who seek European-style options with bespoke strike and expirations, such that they can tailor their returns more precisely than they could with standard American-style options; and (2) with respect to stock lending, certain investors (e.g., banks and hedge funds) that seek to align their contract durations for calls and puts, and thereby prefer options with European-style exercise, which can be exercised only at expiration.18 The Exchange states that FLEX IBIT options traded on the Exchange would have several advantages over contracts traded in the OTC market, including the potential for greater liquidity because each exchangetraded FLEX option can be closed with a liquidating transaction, while OTC FLEX contracts must be held until expiration; reduced counterparty credit risk because exchange-traded contracts are issued and guaranteed by The Options Clearing Corporation (‘‘OCC’’); and the price discovery and 15 See Notice, 90 FR at 3267 (citing the IBIT Order, 89 FR at 78946). The Exchange states that the Commission considered and reviewed the Exchange’s analysis that the exercisable risk associated with a position limit of 25,000 contracts represented only 0.4% of the outstanding shares of IBIT. The Exchange states that the Commission also considered and reviewed the Exchange’s statement that with a position limit of 25,000 contracts on the same side of the market and 611,040,000 shares of IBIT outstanding, 244 market participants would have to simultaneously exercise their positions to place IBIT under stress. See Notice, 90 FR at 3267 (citing the IBIT Order, 89 FR at 78946), 16 See Notice, 90 FR at 3268. 17 See id. 18 See id. PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 13227 dissemination provided by exchange trading.19 The Exchange states that the same surveillance procedures applicable to other options products listed and traded on the Exchange, including non-FLEX IBIT options, will apply to the proposed FLEX IBIT options, and that the Exchange has the necessary systems capacity to support the proposed options.20 The Exchange further states that FLEX options products (and their respective symbols) are integrated into the Exchange’s existing surveillance system architecture and are thus subject to the relevant surveillance processes.21 The Exchange states that its market surveillance staff (including staff of the Financial Industry Regulatory Authority who perform surveillance and investigative work on behalf of the Exchange pursuant to a regulatory services agreement) conduct surveillances with respect to IBIT (the underlying ETF) and, as appropriate, would review activity in IBIT when conducting surveillances for market abuse or manipulation in IBIT options.22 In addition, the Exchange states that it is a member of the Intermarket Surveillance Group (‘‘ISG’’) under the Intermarket Surveillance Group Agreement, and that ISG members work together to coordinate surveillance and investigative information sharing in the stock, options, and futures markets.23 For surveillance purposes, the Exchange states that it would therefore have access to information regarding trading activity in the pertinent underlying securities.24 The Exchange states that it will implement any additional surveillance procedures it deems necessary to effectively monitor the trading of IBIT options.25 III. Summary of Comment Received The Commission received one comment, which expressed support for the proposal.26 The commenter states that FLEX options on IBIT would permit the creation of products with precise payoff terms, which would provide investors with hedged exposure to 19 See id. id. 21 See id. The Exchange states that FLEX trading occurs on the Exchange’s trading floor in an open outcry environment. The Exchange states that surveillance staff monitors FLEX trading in open outcry. See id. at footnote 24. 22 See Notice, 90 FR at 3268. 23 See id. 24 See id. 25 See id. at 3269. 26 See letter from Matt McFarland, Senior Vice President, Capital Markets, Vest Financial, dated January 27, 2025. 20 See E:\FR\FM\20MRN1.SGM 20MRN1 13228 Federal Register / Vol. 90, No. 53 / Thursday, March 20, 2025 / Notices IBIT.27 The commenter states that these products allow investors to participate in the underlying reference asset in a manner that is less risky than taking a long position in the reference asset outright.28 In addition, the commenter states that the customizable features of FLEX options allow asset managers to create precise buffer levels, cash settlement (for qualifying ETFs), and outcome periods that cannot be achieved using standardized listed options.29 ddrumheller on DSK120RN23PROD with NOTICES1 IV. Proceedings To Determine Whether To Approve or Disapprove SR–PHLX– 2024–72 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 30 to determine whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,31 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of the proposed rule change’s consistency with Section 6(b)(5) of the Act,32 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Under the Commission’s Rules of Practice, the ‘‘burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization that proposed the rule change.’’ 33 The description of a 27 See id. at 1. id. at 2. 29 See id. at 3. 30 15 U.S.C. 78s(b)(2)(B). 31 Id. 32 15 U.S.C. 78f(b)(5). 33 17 CFR 201.700(b)(3). 28 See VerDate Sep<11>2014 19:09 Mar 19, 2025 Jkt 265001 proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,34 and any failure of a self-regulatory organization to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the applicable rules and regulations.35 The Commission is instituting proceedings to allow for additional consideration and comment on the issues raised herein, including as to whether the proposal is consistent with the Act. In particular, the Commission asks commenters to address whether the proposal includes sufficient analysis to support a conclusion that the proposal is consistent with the requirements of Section 6(b)(5) of the Act. V. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposal is consistent with Section 6(b)(5) or any other provision of the Act, and the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.36 Interested persons are invited to submit written data, views, and arguments regarding whether the proposed rule change should be approved or disapproved by April 10, 2025. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by April 24, 2025. 34 See id. id. 36 Section 19(b)(2) of the Act, as amended by the Securities Acts Amendments of 1975, Public Law 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Acts Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 35 See PO 00000 Frm 00097 Fmt 4703 Sfmt 9990 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– PHLX–2024–72 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–PHLX–2024–72. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–PHLX–2024–72 and should be submitted on or before April 10, 2025. Rebuttal comments should be submitted by April 24, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 Vanessa A. Countryman, Secretary. [FR Doc. 2025–04655 Filed 3–19–25; 8:45 am] BILLING CODE 8011–01–P 37 17 E:\FR\FM\20MRN1.SGM CFR 200.30–3(a)(57). 20MRN1

Agencies

[Federal Register Volume 90, Number 53 (Thursday, March 20, 2025)]
[Notices]
[Pages 13226-13228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04655]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102669; File No. SR-PHLX-2024-72]


Self-Regulatory Organizations; Nasdaq Phlx, LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Permit the Trading of FLEX Options on Shares of 
the iShares Bitcoin Trust ETF

March 14, 2025.

I. Introduction

    On December 26, 2024, Nasdaq Phlx, LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Options 8, Section 34, FLEX Trading, to 
permit options on shares of the iShares Bitcoin Trust ETF (``IBIT'') to 
trade as cash-settled and physically settled FLEX equity options. The 
proposed rule change was published for comment in the Federal Register 
on January 14, 2025.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 102132 (Jan. 7, 
2025), 90 FR 3266 (``Notice'').
---------------------------------------------------------------------------

    On February 27, 2025, pursuant to Section 19(b)(2) of the Act,\4\ 
the Commission designated a longer period

[[Page 13227]]

within which to approve the proposal, disapprove the proposal, or 
institute proceedings to determine whether to disapprove the 
proposal.\5\ The Commission received a comment regarding the proposed 
rule change.\6\ This order institutes proceedings under Section 
19(b)(2)(B) of the Act \7\ to determine whether to approve or 
disapprove the proposed rule change.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 102497 (Feb. 27, 
2025), 90 FR 11334 (Mar. 5, 2025) (designating April 14, 2025, as 
the date by which the Commission shall either approve or disapprove, 
or institute proceedings to determine whether to disapprove, the 
proposed rule change).
    \6\ Comments received on the proposal are available at https://www.sec.gov/comments/sr-phlx-2024-72/srphlx202472.htm.
    \7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    As described in detail in the Notice, the Exchange proposes to 
amend its rules to permit the trading of FLEX equity options on 
IBIT.\8\ The Commission approved Nasdaq ISE LLC's (``ISE'') proposal to 
list and trade options on IBIT.\9\ Because the Exchange's listing rules 
incorporate ISE's listing rules by reference, the Exchange may list 
IBIT options.\10\ The Exchange's rules currently establish position and 
exercise limits of 25,000 contracts on the same side of the market for 
IBIT options.\11\ The Exchange proposes to amend Options 8, Section 
34(e) to apply these position and exercise limits to the proposed IBIT 
FLEX options and to provide that positions in IBIT FLEX options will be 
aggregated with positions in non-FLEX IBIT options for purposes of 
calculating position and exercise limits.\12\ Accordingly, the proposal 
limits the position and exercise limits for all IBIT options--FLEX and 
non-FLEX--to 25,000 contracts.\13\ The Exchange states that capping the 
aggregated position limit at 25,000 contracts will be sufficient to 
address concerns related to manipulation and the protection of 
investors.\14\ In addition, the Exchange states that in approving the 
25,000-contract position and exercise limit for IBIT options, the 
Commission concluded, based on its review of the data and analysis 
provided by ISE, that the proposed position and exercise limits for 
IBIT options were designed to prevent investors from disrupting the 
market for the underlying security by acquiring and exercising a number 
of options contracts disproportionate to the deliverable supply and 
average trading volume of the underlying security, and to prevent the 
establishment of options positions that could be used or might create 
incentives to manipulate or disrupt the underlying market so as to 
benefit the options position.\15\
---------------------------------------------------------------------------

    \8\ See supra note 3.
    \9\ See Securities Exchange Act Release No. 101128 (Sept. 20, 
2024), 89 FR 78942 (Sept. 26, 2024) (order approving File No. SR-
ISE-2024-03) (``IBIT Order'').
    \10\ See Options 4 and Securities Exchange Act Release No. 
101613 (Nov. 13, 2024), 89 FR 91470 (Nov. 19, 2024) (notice of 
filing and immediate effectiveness of File No. SR-Phlx-2024-53).
    \11\ See Options 9, Section 13(a) and Option 9, Section 15(a).
    \12\ See proposed Options 8, Section 34(e).
    \13\ See Notice, 90 FR at 3267.
    \14\ See proposed Options 8, Section 34(e).
    \15\ See Notice, 90 FR at 3267 (citing the IBIT Order, 89 FR at 
78946). The Exchange states that the Commission considered and 
reviewed the Exchange's analysis that the exercisable risk 
associated with a position limit of 25,000 contracts represented 
only 0.4% of the outstanding shares of IBIT. The Exchange states 
that the Commission also considered and reviewed the Exchange's 
statement that with a position limit of 25,000 contracts on the same 
side of the market and 611,040,000 shares of IBIT outstanding, 244 
market participants would have to simultaneously exercise their 
positions to place IBIT under stress. See Notice, 90 FR at 3267 
(citing the IBIT Order, 89 FR at 78946),
---------------------------------------------------------------------------

    The Exchange states that FLEX options on ETFs are currently traded 
in the over-the-counter (``OTC'') market by a variety of market 
participants, including hedge funds, proprietary trading firms, and 
pension funds.\16\ The Exchange states that the proposed FLEX options 
could provide a useful risk management and trading vehicle for market 
participants and their customers.\17\ The Exchange further states that 
FLEX options serve two primary client types in the capital markets: (1) 
ETF and structured return issuers who seek European-style options with 
bespoke strike and expirations, such that they can tailor their returns 
more precisely than they could with standard American-style options; 
and (2) with respect to stock lending, certain investors (e.g., banks 
and hedge funds) that seek to align their contract durations for calls 
and puts, and thereby prefer options with European-style exercise, 
which can be exercised only at expiration.\18\ The Exchange states that 
FLEX IBIT options traded on the Exchange would have several advantages 
over contracts traded in the OTC market, including the potential for 
greater liquidity because each exchange-traded FLEX option can be 
closed with a liquidating transaction, while OTC FLEX contracts must be 
held until expiration; reduced counterparty credit risk because 
exchange-traded contracts are issued and guaranteed by The Options 
Clearing Corporation (``OCC''); and the price discovery and 
dissemination provided by exchange trading.\19\
---------------------------------------------------------------------------

    \16\ See Notice, 90 FR at 3268.
    \17\ See id.
    \18\ See id.
    \19\ See id.
---------------------------------------------------------------------------

    The Exchange states that the same surveillance procedures 
applicable to other options products listed and traded on the Exchange, 
including non-FLEX IBIT options, will apply to the proposed FLEX IBIT 
options, and that the Exchange has the necessary systems capacity to 
support the proposed options.\20\ The Exchange further states that FLEX 
options products (and their respective symbols) are integrated into the 
Exchange's existing surveillance system architecture and are thus 
subject to the relevant surveillance processes.\21\ The Exchange states 
that its market surveillance staff (including staff of the Financial 
Industry Regulatory Authority who perform surveillance and 
investigative work on behalf of the Exchange pursuant to a regulatory 
services agreement) conduct surveillances with respect to IBIT (the 
underlying ETF) and, as appropriate, would review activity in IBIT when 
conducting surveillances for market abuse or manipulation in IBIT 
options.\22\ In addition, the Exchange states that it is a member of 
the Intermarket Surveillance Group (``ISG'') under the Intermarket 
Surveillance Group Agreement, and that ISG members work together to 
coordinate surveillance and investigative information sharing in the 
stock, options, and futures markets.\23\ For surveillance purposes, the 
Exchange states that it would therefore have access to information 
regarding trading activity in the pertinent underlying securities.\24\ 
The Exchange states that it will implement any additional surveillance 
procedures it deems necessary to effectively monitor the trading of 
IBIT options.\25\
---------------------------------------------------------------------------

    \20\ See id.
    \21\ See id. The Exchange states that FLEX trading occurs on the 
Exchange's trading floor in an open outcry environment. The Exchange 
states that surveillance staff monitors FLEX trading in open outcry. 
See id. at footnote 24.
    \22\ See Notice, 90 FR at 3268.
    \23\ See id.
    \24\ See id.
    \25\ See id. at 3269.
---------------------------------------------------------------------------

III. Summary of Comment Received

    The Commission received one comment, which expressed support for 
the proposal.\26\ The commenter states that FLEX options on IBIT would 
permit the creation of products with precise payoff terms, which would 
provide investors with hedged exposure to

[[Page 13228]]

IBIT.\27\ The commenter states that these products allow investors to 
participate in the underlying reference asset in a manner that is less 
risky than taking a long position in the reference asset outright.\28\ 
In addition, the commenter states that the customizable features of 
FLEX options allow asset managers to create precise buffer levels, cash 
settlement (for qualifying ETFs), and outcome periods that cannot be 
achieved using standardized listed options.\29\
---------------------------------------------------------------------------

    \26\ See letter from Matt McFarland, Senior Vice President, 
Capital Markets, Vest Financial, dated January 27, 2025.
    \27\ See id. at 1.
    \28\ See id. at 2.
    \29\ See id. at 3.
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove SR-PHLX-
2024-72 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \30\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\31\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act,\32\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \31\ Id.
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
self-regulatory organization that proposed the rule change.'' \33\ The 
description of a proposed rule change, its purpose and operation, its 
effect, and a legal analysis of its consistency with applicable 
requirements must all be sufficiently detailed and specific to support 
an affirmative Commission finding,\34\ and any failure of a self-
regulatory organization to provide this information may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that a proposed rule change is consistent with the Act and the 
applicable rules and regulations.\35\ The Commission is instituting 
proceedings to allow for additional consideration and comment on the 
issues raised herein, including as to whether the proposal is 
consistent with the Act. In particular, the Commission asks commenters 
to address whether the proposal includes sufficient analysis to support 
a conclusion that the proposal is consistent with the requirements of 
Section 6(b)(5) of the Act.
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    \33\ 17 CFR 201.700(b)(3).
    \34\ See id.
    \35\ See id.
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V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, and 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\36\
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    \36\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by April 10, 2025. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
April 24, 2025.
    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-PHLX-2024-72 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-PHLX-2024-72. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-PHLX-2024-72 and should be 
submitted on or before April 10, 2025. Rebuttal comments should be 
submitted by April 24, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(57).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-04655 Filed 3-19-25; 8:45 am]
BILLING CODE 8011-01-P
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