Self-Regulatory Organizations; NYSE American LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade FLEX Options on the Grayscale Bitcoin Trust, 13229-13230 [2025-04656]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 90, Number 53 (Thursday, March 20, 2025)]
[Notices]
[Pages 13229-13230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04656]



[[Page 13229]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102675; File No. SR-NYSEAMER-2024-78]


Self-Regulatory Organizations; NYSE American LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To List and Trade FLEX Options on the Grayscale 
Bitcoin Trust

March 14, 2025.

I. Introduction

    On December 13, 2024, NYSE American LLC (``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 allow the trading of Flexible Exchange (``FLEX'') options on 
the Grayscale Bitcoin Trust (BTC) (``GBTC''). The proposed rule change 
was published for comment in the Federal Register on December 27, 
2024.\3\ The Commission has received no comments regarding the 
proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 102014 (Dec. 20, 
2024), 89 FR 105669 (Dec. 27, 2024) (``Notice'').
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    On February 7, 2025, pursuant to Section 19(b)(2) of the Exchange 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ This order institutes proceedings under 
Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 102376 (Feb. 7, 
2025) 90 FR 9570 (Feb. 13, 2025) (designating March 27, 2025, as the 
date by which the Commission shall either approve, disapprove, or 
institute proceedings to determine whether to disapprove the 
proposed rule change).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change

    As described more fully in the Notice,\7\ the Exchange states that 
FLEX Options are customized equity or index contracts that allow 
investors to tailor contract terms for exchange-listed equity and index 
options.\8\ The Exchange states that the Commission approved options on 
GBTC, an exchange-traded fund (``ETF'') that holds bitcoin and is 
traded on NYSE Arca, Inc., the Exchange's affiliated equities 
exchange.\9\ The Exchange states that options on GBTC are subject to 
position and exercise limits of 25,000 contracts, and that GBTC options 
are not currently approved for FLEX trading.\10\ The Exchange proposes 
to amend its rules to permit FLEX Options on GBTC. Under the proposal, 
FLEX GBTC options would have the same 25,000-contract position limit as 
Non-FLEX Options on GBTC, and positions in FLEX GBTC options will be 
aggregated with positions in Non-FLEX GBTC options.\11\ Accordingly, 
the Exchange states that the position and exercise limits for all GBTC 
options--both FLEX GBTC and non-FLEX GBTC--will be 25,000 
contracts.\12\ The Exchange states that the proposed aggregated limit 
effectively restricts a market participant from holding positions that 
could result in the receipt of more than 2,500,000 shares, aggregated 
for FLEX GBTC and non-FLEX GBTC (if that market participant exercised 
all its GBTC options).\13\ The Exchange states that capping the 
aggregated position limit at 25,000 contracts would be sufficient to 
address concerns related to manipulation and the protection of 
investors.\14\ The Exchange further states that this number is 
conservative for GBTC and therefore appropriate given its 
liquidity.\15\
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    \7\ See supra note 3.
    \8\ See Notice, 89 FR at 15669.
    \9\ See Notice, 89 FR at 15669 and Securities Exchange Act 
Release No. 101386 (Oct. 18, 2024), 89 FR 84960 (Oct. 24, 2024) 
(order approving File No. SR-NYSEAMER-2024-49). The Exchange states 
that GBTC options began trading on the Exchange on November 22, 
2024. See Notice, 89 FR at 15669.
    \10\ See id. at 105669-70.
    \11\ See id. at 105670.
    \12\ See id.
    \13\ See id.
    \14\ See id.
    \15\ See id.
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    The Exchange states that FLEX Options on ETFs are currently traded 
in the over-the-counter (``OTC'') market by a variety of market 
participants, e.g., hedge funds, proprietary trading firms, and pension 
funds.\16\ The Exchange expects that users of these OTC products would 
be among the primary users of FLEX GBTC options, and that the trading 
of FLEX GBTC options would allow these market participants to better 
manage the risk associated with the volatility of GBTC positions given 
the enhanced liquidity that an exchange-traded product would bring.\17\ 
In addition, the Exchange states that FLEX GBTC options traded on the 
Exchange would have important advantages over the contracts that are 
traded in the OTC market, including potentially greater liquidity, The 
Options Clearing Corporation's guarantee of the options, and the price 
discovery and dissemination provided by the Exchange and its 
members.\18\ The Exchange states that its ability to offer FLEX GBTC 
options could provide a useful risk management and trading vehicle for 
market participants and their customers.\19\
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    \16\ See id.
    \17\ See id.
    \18\ See id. at 105670-1.
    \19\ See id. 105671.
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    The Exchange states that the same surveillance procedures 
applicable to other options products listed and traded on the Exchange, 
including non-FLEX GBTC options, will apply to FLEX GBTC 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 (``FINRA'') who perform surveillance and 
investigative work on behalf of the Exchange pursuant a regulatory 
services agreement) conducts surveillances with respect to GBTC (the 
underlying ETF) and, as appropriate, would review activity in GBTC when 
conducting surveillances for market abuse or manipulation in the FLEX 
GBTC options.\22\ The Exchange does not believe that allowing FLEX GBTC 
options would render the marketplace for non-FLEX GBTC options, or 
equity options in general, more susceptible to manipulative 
practices.\23\ The Exchange states that its existing trading 
surveillances are adequate to monitor the trading in GBTC and 
subsequent trading of FLEX GBTC options on the Exchange.\24\ 
Additionally, the Exchange states that it is a member of the 
Intermarket Surveillance Group (``ISG'') under the Intermarket 
Surveillance Group Agreement. The Exchange states that ISG members work 
together to coordinate surveillance and investigative information 
sharing in the stock, options, and futures markets.\25\ The Exchange 
states that, for surveillance purposes, the Exchange would therefore 
have access to information regarding trading activity in the pertinent 
underlying securities. In addition, and as referenced above, the 
Exchange has a regulatory services

[[Page 13230]]

agreement with FINRA, pursuant to which FINRA conducts certain 
surveillances on behalf of the Exchange.\26\ Further, pursuant to a 
multi-party 17d-2 joint plan, all options exchanges allocate regulatory 
responsibilities to FINRA to conduct certain options-related market 
surveillances.\27\ The Exchange states that it will implement any 
additional surveillance procedures it deems necessary to effectively 
monitor the trading of GBTC options.\28\
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    \20\ See id.
    \21\ See id.
    \22\ See id.
    \23\ See id.
    \24\ See id.
    \25\ See id.
    \26\ See id.
    \27\ See id.
    \28\ See id.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEAMER-2024-78 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \29\ 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.
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    \29\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\30\ 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,\31\ 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.
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    \30\ Id.
    \31\ 15 U.S.C. 78f(b)(5).
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    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.'' \32\ 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,\33\ 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.\34\ 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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    \32\ 17 CFR 201.700(b)(3).
    \33\ See id.
    \34\ See id.
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IV. 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.\35\
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    \35\ 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-NYSEAMER-2024-78 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-NYSEAMER-2024-78. 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-NYSEAMER-2024-78 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.\36\
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    \36\ 17 CFR 200.30-3(a)(57).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-04656 Filed 3-19-25; 8:45 am]
BILLING CODE 8011-01-P