[Federal Register Volume 89, Number 84 (Tuesday, April 30, 2024)]
[Notices]
[Pages 34290-34294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09216]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100024; File Nos. SR-BOX-2024-07; SR-CBOE-2024-005; SR-
ISE-2024-03; SR-ISE-2024-14; SR-MIAX-2024-03; SR-NYSEAMER-2024-10; SR-
PEARL-2024-03]


Self-Regulatory Organizations; BOX Exchange LLC; Cboe Exchange, 
Inc.; MIAX International Securities Exchange LLC; MIAX PEARL LLC; 
Nasdaq ISE, LLC; NYSE American LLC; Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove Proposed Rule Changes To 
Permit the Listing and Trading of Options on Trusts That Hold Bitcoin

April 24, 2024.

I. Introduction

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ BOX 
Exchange LLC (``BOX''); Cboe Exchange, Inc. (``Cboe Options''); MIAX 
International Securities Exchange LLC (``MIAX''); MIAX PEARL LLC 
(``MIAX Pearl''); Nasdaq ISE, LLC (``ISE''); and NYSE American LLC 
(``NYSE American'') (collectively, the ``Exchanges'' and each an 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule changes to list and trade options on 
exchange-

[[Page 34291]]

traded product (``ETP'') shares that represent interests in either a 
specified bitcoin trust or in any trust that holds bitcoin, as 
described below (each, a ``Proposal,'' and collectively, the 
``Proposals''). Specifically, ISE proposed to list and trade options on 
shares that represent interests in the iShares Bitcoin Trust.\3\ BOX, 
Cboe Options, MIAX, MIAX Pearl and, in a second filing, ISE, proposed 
to list and trade options on shares that represent interests in a trust 
that holds bitcoin.\4\ NYSE American proposed to list and trade options 
on shares that represent interests in the Bitwise Bitcoin ETF, the 
Grayscale Bitcoin Trust, and on any trust that holds bitcoin.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See File No. SR-ISE-2024-03 (``ISE iShares Proposal''), 
filed Jan. 9, 2024. On January 10, 2024, the Commission approved 
proposals by NYSE Arca, Inc., The Nasdaq Stock Market LLC, and Cboe 
BZX Exchange, Inc. to list and trade the shares of 11 bitcoin-based 
commodity-based trust shares and trust units, including the iShares 
Bitcoin Trust, the Grayscale Bitcoin Trust, and the Bitwise Bitcoin 
ETF. See Securities Exchange Act Release No. 99306 (Jan. 10, 2024), 
89 FR 3008 (Jan. 17, 2024) (order approving File Nos. SR-NYSEARCA-
2021-90; SR-NYSEARCA-2023-44; SR-NYSEARCA-2023-58; SR-NASDAQ-2023-
016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; 
SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-
CboeBZX-2023-072).
    \4\ See File Nos. SR-BOX-2024-07 (``BOX Proposal''), filed Mar. 
11, 2024; SR-CBOE-2024-005 (``Cboe Options Proposal''), filed Jan 5, 
2024; SR-ISE-2024-14 (``ISE Trust Proposal''), filed Mar. 19, 2024; 
SR-MIAX-2024-03 (``MIAX Proposal''), filed Jan. 12, 2024; SR-PEARL-
2024-03 (``MIAX Pearl Proposal''), filed Jan. 12, 2024.
    \5\ See File No. SR-NYSEAMER-2024-10 (``NYSE American 
Proposal''), filed Feb. 9, 2024.
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    On January 25, 2024, the Cboe Options Proposal,\6\ the ISE iShares 
Proposal,\7\ the MIAX Proposal,\8\ and the MIAX Pearl Proposal \9\ were 
published for comment in the Federal Register. On March 6, 2024, 
pursuant to Section 19(b)(2) of the Act,\10\ the Commission designated 
a longer period within which to approve these proposals, disapprove the 
proposals, or institute proceedings to determine whether to disapprove 
the proposals.\11\ The NYSE American Proposal was published for comment 
in the Federal Register on February 29, 2024.\12\ On April 8, 2024, 
pursuant to Section 19(b)(2) of the Act,\13\ the Commission designated 
a longer period within which to approve the proposal, disapprove the 
proposal, or institute proceedings to determine whether to disapprove 
the NYSE American Proposal.\14\ On March 25, 2024, the BOX Proposal 
\15\ and the ISE Trust Proposal \16\ were published for comment in the 
Federal Register.
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    \6\ See Securities Exchange Act Release Nos. 99395 (Jan. 19, 
2024), 89 FR 5075 (``Cboe Options Notice'').
    \7\ See. Securities Exchange Act Release No. 99396 (Jan. 19, 
2024), 89 FR 5047 (``ISE iShares Notice'').
    \8\ See Securities Exchange Act Release No. 99397 (Jan. 19, 
2024), 89 FR 5079 (``MIAX Notice'').
    \9\ See Securities Exchange Act Release No. 99394 (Jan. 19, 
2024), 89 FR 5058 (``MIAX Pearl Notice'').
    \10\ 15 U.S.C. 78s(b)(2).
    \11\ See Securities Exchange Act Release Nos. 99680 (Mar. 6, 
2024), 89 FR 17887 (Mar. 12, 2024) (Cboe Options Proposal); 99682 
(Mar. 6, 2024), 89 FR 17887 (Mar. 12, 2024) (MIAX Pearl Proposal); 
99684 (Mar. 6, 2024), 89 FR 17887 (Mar. 12, 2024) (MIAX Proposal); 
99681 (Mar. 6, 2024), 89 FR 17886 (Mar. 12, 2024) (ISE iShares 
Proposal). The Commission designated April 24, 2024, as the date by 
which the Commission shall approve or disapprove, or institute 
proceedings to determine whether to approve or disapprove, the 
proposed rule changes.
    \12\ See Securities Exchange Act Release No. 99593 (Feb. 23, 
2024), 89 FR 14911 (``NYSE American Notice'').
    \13\ 15 U.S.C. 78s(b)(2).
    \14\ See Securities Exchange Act Release No. 99921 (April 8, 
2024), 89 FR 25908 (April 12, 2024). The Commission designated May 
29, 2024, as the date by which the Commission shall approve or 
disapprove, or institute proceedings to determine whether to approve 
or disapprove, the proposed rule change.
    \15\ See Securities Exchange Act Release No. 99777 (Mar. 19, 
2024), 89 FR 20712 (``BOX Notice'').
    \16\ See Securities Exchange Act Release No. 99776 (Mar. 19, 
2024), 89 FR 20717 (``ISE Trust Proposal Notice'').
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    The Commission received comments addressing the ISE iShares 
Proposal,\17\ the NYSE American Proposal,\18\ and the Cboe 
Proposal.\19\ This order institutes proceedings pursuant to Section 
19(b)(2)(B) of the Act \20\ to determine whether to approve or 
disapprove the Proposals.
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    \17\ Comments may be accessed at https://www.sec.gov/comments/sr-ise-2024-03/srise202403.htm.
    \18\ Comments may be accessed at https://www.sec.gov/comments/sr-nyseamer-2024-10/srnyseamer202410.htm.
    \19\ Comments may be accessed at https://www.sec.gov/comments/sr-cboe-2024-005/srcboe2024005.htm.
    \20\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposals

    As described in detail in the notices of their respective 
Proposals,\21\ the Exchanges proposed to amend their rules to permit 
the listing and trading of options on shares that represent interests 
in any trust that holds spot bitcoin,\22\ or options on shares that 
represent interests in specified trusts that hold spot bitcoin \23\ 
(such trusts, collectively, the ``Bitcoin ETPs'').
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    \21\ See notes 6-9, 12, 15-16, supra.
    \22\ See BOX Proposal; Cboe Options Proposal; ISE Trust 
Proposal; MIAX Proposal; MIAX Pearl Proposal; and NYSE American 
Proposal.
    \23\ See ISE iShares Proposal and NYSE American Proposal.
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    The Exchanges stated that Bitcoin ETPs are trusts that hold spot 
bitcoin, and that the investment objective of a Bitcoin ETP is to 
reflect the performance of bitcoin (less the expenses of the trust's 
operations), offering investors an opportunity to gain exposure to 
bitcoin without the complexities of direct investment in bitcoin.\24\ 
The Exchanges stated that the Bitcoin ETPs also would provide investors 
with a hedging and risk management tool to manage their exposure to the 
price of bitcoin and bitcoin-related products and positions.\25\ 
Additionally, several Exchanges stated that the Proposals would provide 
investors with the ability to transact Bitcoin ETP options on a listed 
market rather than in the unregulated over-the-counter options market, 
which would increase market transparency and enhance the process of 
price discovery conducted on the Exchanges through increased order 
flow.\26\ Several Exchanges stated that the primary substantive 
difference between the proposed Bitcoin ETPs and exchange-traded funds 
(``ETFs'') currently deemed appropriate for options trading on the 
Exchanges are that the ETFs may hold securities, certain financial 
instruments, and specified precious metals, while Bitcoin ETPs hold 
bitcoin.\27\ The Exchanges

[[Page 34292]]

stated that they have not identified any issues with the continued 
listing and trading of any ETF or ETP options currently trading on the 
Exchanges, including options on ETPs that hold commodities.\28\
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    \24\ See BOX Notice, 89 FR at 20713; Cboe Options Notice, 89 FR 
at 5076; ISE Trust Proposal Notice 89 FR at 20717; MIAX Notice, 89 
FR at 5080; MIAX Pearl Notice, 89 FR at 5058; NYSE American Notice, 
89 FR at 14912.
    \25\ See BOX Notice, 89 FR at 20715; Cboe Options Notice, 89 FR 
at 5078; ISE iShares Notice, 89 FR at 5051; ISE Trust Proposal 
Notice, 89 FR at 20719; MIAX Notice, 89 FR at 5082; MIAX Pearl 
Notice, 89 FR at 5060-1; NYSE American Notice, 89 FR at 14912.
    \26\ See BOX Notice, 89 FR at 20714; Cboe Options Notice, 89 FR 
at 5077; ISE Trust Proposal Notice, 89 FR at 20719; MIAX Notice, 89 
FR at 5081; MIAX PEARL Notice, 89 FR at 5061.
    \27\ See BOX Notice, 89 FR at 20713; Cboe Options Notice, 89 FR 
at 5076; ISE Trust Proposal Notice, 89 FR at 20717; MIAX Notice, 89 
FR at 5080; NYSE American Notice, 89 FR at 14912. The Exchanges' 
rules use the term ``exchange traded fund'' to refer to several 
types of investment products. For example, BOX Rule 5020(h) 
provides: ``Securities deemed appropriate for options trading shall 
include shares or other securities (``Exchange-Traded Fund Shares'') 
that are traded on a national securities exchange and are defined as 
an ``NMS stock'' under Rule 600 of Regulation NMS and that (i) 
represent interests in registered investment companies (or series 
thereof) organized as open-end management investment companies, unit 
investment trusts or similar entities that hold portfolios of 
securities and/or financial instruments, including, but not limited 
to, stock index futures contracts, options on futures, options on 
securities and indices, 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'') comprising or otherwise based on or representing 
investments in broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market Instruments (or that hold 
securities in one or more other registered investment companies that 
themselves hold such portfolios of securities and/or Financial 
Instruments and Money Market Instruments); or (ii) represent 
interests in a trust that holds a specified non-U.S. currency 
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 
(iii) 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 (iv) represent interests in the SPDR[supreg] Gold Trust, 
the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS 
Gold Trust, the ETFS Silver trust, the ETFS Palladium Trust, the 
ETFS Platinum Trust or the Sprott Physical Gold Trust; provided that 
all of the following conditions are met. . . .'' See also Cboe Rules 
1.1 and 4.3, Interpretation and Policy .06; ISE Options 4, Section 
3(h); MIAX Rule 402(i); MIAX Pearl Rule 402(i); NYSE American Rule 
915, Commentary .06. In describing the Proposals, for purposes of 
this Order, the terms ``exchange-traded fund'' and ``ETF'' have the 
meaning set forth in the Exchanges' rules.
    \28\ See BOX Notice, 89 FR at 20714; Cboe Options Notice, 89 FR 
at 5077; ISE Trust Proposal Notice, 89 FR at 20717; MIAX Notice, 89 
FR at 5080; MIAX Pearl Notice, 89 FR at 5060; NYSE American Notice, 
89 FR at 14912.
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    Bitcoin ETP options will be physically settled with American-style 
exercise.\29\ The Exchanges stated that Bitcoin ETP options will be 
subject to the Exchanges' respective initial and continued listing 
standards.\30\ The Exchanges' initial listing standards require, among 
other things, that the security underlying a listed option be 
``characterized by a substantial number of outstanding shares that are 
widely held and actively traded.'' \31\ The Exchanges stated that 
Bitcoin ETP options will trade in the same manner as other ETF options, 
and that Bitcoin ETP options would be subject to the Exchanges' rules 
that currently apply to the listing and trading of all ETF options on 
the Exchanges, including, for example, exchange rules governing listing 
criteria, expiration and exercise prices, minimum increments, position 
and exercise limits, margin requirements, customer accounts and trading 
halt procedures.\32\
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    \29\ See BOX Notice, 89 FR at 20713; Cboe Options Notice, 89 FR 
at 5076; ISE iShares Notice, 89 FR at 5050; ISE Trust Notice, 89 FR 
at 20718; MIAX Notice, 89 FR at 5080; MIAX Pearl Notice, 89 FR at 
5059; NYSE American Notice, 89 FR at 14913.
    \30\ See BOX Notice, 89 FR at 20713; Cboe Options Notice, 89 FR 
at 5076; ISE iShares Notice, 89 FR at 5049; ISE Trust Proposal 
Notice, 89 FR at 201717-8; MIAX Notice, 89 FR at 5080; MIAX Pearl 
Notice, 89 FR at 5059; NYSE American Notice, 89 FR at 14913.
    \31\ See BOX Notice, 89 FR at 20713; Cboe Options Notice, 89 FR 
at 5076; ISE iShares Notice, 89 FR at 5049; ISE Trust Proposal 
Notice, 89 FR at 201717-8; MIAX Notice, 89 FR at 5080; MIAX Pearl 
Notice, 89 FR at 5059; NYSE American Notice, 89 FR at 14913.
    \32\ See BOX Notice, 89 FR at 20714; Cboe Options Notice, 89 FR 
at 5077; ISE iShares Notice, 89 FR at 5050; ISE Trust Notice, 89 FR 
at 20718-9; MIAX Notice, 89 FR at 5081; MIAX Pearl Notice, 89 FR at 
5059-60; NYSE American Notice, 89 FR at 14913-4.
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    The Exchanges stated that position and exercise limits for Bitcoin 
ETP options would be determined pursuant to the Exchanges' existing 
rules.\33\ Under these rules, the position limit applicable to an 
options class depends upon the trading volume and outstanding shares of 
the underlying security. The Exchanges stated that the highest option 
position and exercise limit--250,000 option contracts on the same side 
of the market--would apply to options on a Bitcoin ETP with the highest 
trading volume and number of shares outstanding.\34\ Position and 
exercise limits of 200,000, 75,000, 50,000 or 25,000 contracts on the 
same side of the market would apply to Bitcoin ETP options with lower 
six-month trading volumes and numbers of shares outstanding.\35\
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    \33\ See BOX Notice, 89 FR at 20714; Cboe Options Notice, 89 FR 
at 5077; ISE iShares Notice, 89 FR at 5050; ISE Trust Notice, 89 FR 
at 20718-9; MIAX Notice, 89 FR at 5081; MIAX Pearl Notice, 89 FR at 
5059-60; NYSE American Notice, 89 FR at 14913-4.
    \34\ See BOX Notice, 89 FR at 20714; Cboe Options Notice, 89 FR 
at 5077; ISE iShares Notice, 89 FR at 5050; ISE Trust Notice, 89 FR 
at 20718-9; MIAX Notice, 89 FR at 5081; MIAX Pearl Notice, 89 FR at 
5059-60; NYSE American Notice, 89 FR at 14913-4. For an option to be 
eligible for the 250,000-contract limit, the security underlying the 
option must have most recent six-month trading volume of at least 
100 million shares, or most recent six-month trading volume of at 
least 75 million shares and at least 300 million shares currently 
outstanding. See BOX Rule 3120(d); Cboe Rule 8.30, Interpretation 
and Policy .02; ISE Options 9, Section 13; MIAX Rule 307; MIAX Pearl 
Chapter III (incorporating MIAX Rule 307 by reference); NYSE 
American Rule 904, Commentary .07.
    \35\ For an option to be eligible for the 50,000-contract limit, 
the security underlying the option must have most recent six-month 
trading volume of at least 20,000,000 shares, or most recent six-
month trading volume of at least 15,000,000 shares and at least 
40,000,000 shares currently outstanding. For an option to be 
eligible for the 75,000-contract limit, the underlying security must 
have most recent six-month trading volume of at least 40,000,000 
shares, or most recent six-month trading volume of at least 
30,000,000 shares and at least 120,000,000 shares currently 
outstanding. For an option to be eligible for the 200,000-contract 
limit, the underlying security must have most recent six-month 
trading volume of at least 80,000,000 shares, or most recent six-
month trading volume of at least 60,000,000 shares and at least 
240,000,000 shares currently outstanding. The 25,000-contract limit 
applies to options on underlying securities that do not qualify for 
a higher contract limit. See BOX Rule 3120(d); Cboe Rule 8.30, 
Interpretation and Policy .02; ISE Options 9, Section 13; MIAX Rule 
307; MIAX Pearl Chapter III (incorporating MIAX Rule 307 by 
reference); NYSE American Rule 904, Commentary .07.
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    The Exchanges represented that the surveillance procedures that 
they apply to other ETF options would apply to options on Bitcoin ETPs, 
and that their existing surveillance and reporting safeguards are 
designed to deter and detect possible manipulative behavior that might 
arise from listing and trading options on ETFs.\36\ In addition, 
several Exchanges stated that they may obtain information from contract 
markets that are members of the Intermarket Surveillance Group 
(``ISG'') related to any financial instrument that is based, in whole 
or in part, upon an interest in or the performance of bitcoin.\37\ Each 
Exchange represented that it believed that both the Exchange and the 
Options Price Reporting Authority, LLC (``OPRA'') have the necessary 
systems capacity to handle the additional traffic associated with the 
listing of new series that may result from the introduction of options 
on Bitcoin ETPs.\38\
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    \36\ See BOX Notice, 89 FR at 20714; Cboe Notice, 89 FR at 5077; 
ISE iShares Notice, 89 FR at 5050; ISE Trust Notice, 89 FR at 20719; 
MIAX Notice, 89 FR at 5081; MIAX Pearl Notice, 89 FR at 5060; NYSE 
American Notice, 89 FR at 14914.
    \37\ See BOX Notice, 89 FR at 20714; Cboe Notice, 89 FR at 5077; 
ISE Trust Notice, 89 FR at 20719; MIAX Notice, 89 FR at 5081; MIAX 
Pearl Notice, 89 FR at 5060. NYSE American stated that it may obtain 
information from exchanges that are members of ISG or from other 
exchanges with which the NYSE American has entered into a 
comprehensive surveillance sharing agreement (``CSSA''). NYSE 
American further stated that it would implement any new surveillance 
procedures it deems necessary to effectively monitor the trading of 
options on Bitcoin ETPs. See NYSE American Notice, 89 FR at 14914.
    \38\ See BOX Notice, 89 FR at 20714; Cboe Notice, 89 FR at 5077; 
ISE iShares Notice, 89 FR at 5050; ISE Trust Notice, 89 FR at 20719; 
MIAX Notice, 89 FR at 5081; MIAX Pearl Notice, 89 FR at 5060; NYSE 
American Notice, 89 FR at 14914.
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    One Exchange acknowledged that options on the Bitcoin ETPs will not 
be available for trading until The Options Clearing Corporation 
(``OCC'') represents to the Exchange that it is able to clear and 
settle the options.\39\
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    \39\ See NYSE American Notice, 89 FR at 14914.
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III. Summary of Comments Received

    The Commission received comments addressing the ISE iShares 
Proposal,\40\ the NYSE American Proposal,\41\ and both the Cboe and 
NYSE American Proposals.\42\ Commenters stated the

[[Page 34293]]

options on spot Bitcoin ETPs would help investors hedge their positions 
in spot bitcoin and manage risk.\43\ One commenter stated that 
permitting options on the iShares Bitcoin Trust would likely increase 
overall market liquidity, allow for arbitrage and increased market 
efficiency, and provide investors with additional investing tools to 
take exposure to spot bitcoin.\44\ Other commenters stated the 
Commission should permit the listing of options on shares of spot 
bitcoin-based ETPs because options on shares of an ETF holding bitcoin 
futures already trade.\45\ One commenter also stated that options on 
ETPs holding spot bitcoin and options on ETFs holding bitcoin futures 
are both subject to the risks presented by the spot bitcoin market,\46\ 
and commenters further stated that options on extremely similar 
national market system (``NMS'') securities \47\ should have the same 
regulatory treatment.\48\ One commenter further stated that because 
``the price trajectories of the spot- and futures-based bitcoin ETFs 
are virtually identical,'' options on these securities should have the 
same regulatory treatment.\49\ The commenter also stated that the 
Commission should allow options exchanges to list options on any NMS 
security that meets the exchange's quantitative listing standards 
without filing a proposed rule change with the Commission.\50\
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    \40\ See comments from Joseph Ferrucci (``Ferrucci Letter''); 
Benjamin Pincock (``Pincock Letter''); Derek Jerina, dated Feb. 10, 
20240 (``Jerina Letter''); Xplorer Trading (``Xplorer Lettter''); 
and a comment submitted anonymously (``Anonymous Letter'').
    \41\ See letter to Vanessa Countryman, Secretary, Commission, 
from Michael Sonnenshein, on behalf of Grayscale Investments, LLC 
and GBTC investors, dated February 28, 2024 (``Grayscale Letter'').
    \42\ See letter to the Commission from James J. Angel, Associate 
Professor of Finance, Georgetown University, to the Commission, 
dated March 10, 2024 (``Angel Letter'').
    \43\ See Ferrucci Letter (stating that options on the iShares 
Bitcoin Trust would be used to hedge long positions); Jerina Letter 
(stating that options would give investors a means to hedge their 
investment in the iShares Bitcoin Trust and other bitcoin-related 
positions); Anonymous Letter (stating that options on spot bitcoin 
ETPs would allow hedging and greater flexibility for retail 
investors to trade a volatile asset class at a more granular risk/
reward trade-off profile); Pincock Letter (stating that options 
allow hedging strategies and mitigate risk during periods of market 
downtime); Xplorer Letter (stating that options make a product safer 
by providing the ability to hedge); Angel Letter at 8 (stating that 
options are efficient risk management tools and may be used as part 
of hedging strategies to reduce risk).
    \44\ See Jerina Letter.
    \45\ See Angel Letter and Grayscale Letter.
    \46\ See Grayscale Letter at 4. The commenter also stated that 
the spot bitcoin ETP market is ``far more liquid'' than the market 
for bitcoin futures ETFs. Id. at 4-5.
    \47\ 17 CFR 242.600(b)(54).
    \48\ See Grayscale Letter at 4; Angel Letter at 4.
    \49\ See Angel Letter at 4.
    \50\ See Angel Letter at 6.
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    One commenter stated that options are an efficient risk management 
tool that give investors the ability to take on or reduce risk.\51\ 
Another commenter stated that options on spot bitcoin ETPs would 
facilitate price discovery in the shares of the underlying ETP, improve 
market efficiency, and help investors achieve desired investment 
outcomes, such as generating income, hedging, or reducing 
volatility.\52\ In addition, the commenter stated that approving the 
listing and trading of options on spot Bitcoin ETPs ``would further 
bring Bitcoin into the regulatory perimeter by allowing additional 
regulated market participants such as CFTC-regulated designated 
contract merchants and SEC-regulated broker-dealers to trade the 
products.'' \53\
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    \51\ See Angel Letter at 8.
    \52\ See Grayscale Letter at 3.
    \53\ Grayscale Letter at 3.
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IV. Proceedings To Determine Whether To Approve or Disapprove File Nos. 
SR-BOX-2024-07; SR-CBOE-2024-005; SR-ISE-2024-03; SR-ISE-2024-14; SR-
MIAX-2024-03; SR-NYSEAMER-2024-10; and SR-PEARL-2024-03 and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \54\ to determine whether the Proposals should 
be approved or disapproved. Institution of proceedings is appropriate 
at this time in view of the legal and policy issues raised by the 
proposed rule change, as discussed below. 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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    \54\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\55\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the Proposals' consistency with Section 6(b)(5) of the 
Act,\56\ 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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    \55\ 15 U.S.C. 78s(b)(2)(B).
    \56\ 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 [Act] 
and the rules and regulations issued thereunder . . . is on the self-
regulatory organization that proposed the rule change.'' \57\ 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,\58\ 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.\59\
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    \57\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \58\ See id.
    \59\ See id.
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    As discussed above, the Exchanges' initial listing standards 
require, among other things, that the security underlying a listed 
option be ``characterized by a substantial number of outstanding shares 
that are widely held and actively traded.'' \60\ Instituting 
proceedings allows for comment on whether the Proposals have 
demonstrated that spot Bitcoin ETP shares meet this standard. In 
addition, the Proposals stated that spot Bitcoin ETP options would be 
subject to the Exchanges' rules that currently apply to the listing of 
ETF options, including, among others, the Exchanges' option position 
and exercise limit rules.\61\ Under the Exchanges' rules, options that 
have traded for less than six months would be subject to a position 
limit of 25,000 contracts on the same side of the market.\62\ The 
Exchanges' rules provide higher position limits based on the six-month 
average daily volume and/or number of shares outstanding of the 
underlying security.\63\ Instituting proceedings allows for comment on 
whether the Proposals have demonstrated that these position limits are 
appropriate for the proposed spot Bitcoin ETP options. In addition, 
instituting proceedings allows for comment on whether the Proposals 
have demonstrated that listing options on the Bitcoin ETPs would not 
result in adverse market impacts.
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    \60\ See supra note 31.
    \61\ See supra note 32.
    \62\ See BOX Rule 3120(d); Cboe Rule 8.30, Interpretation and 
Policy .02; ISE Options 9, Section 13; MIAX Rule 307; MIAX Pearl 
Chapter III (incorporating MIAX Rule 307 by reference); NYSE 
American Rule 904, Commentary .07.
    \63\ See supra note 35.
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V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written

[[Page 34294]]

submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the Proposals. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
changes are consistent with Section 6(b)(5), or any other provision of 
the Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval which would 
be facilitated by an oral presentation of data, views, and arguments, 
the Commission will consider, pursuant to Rule 19b-4 under the Act,\64\ 
any request for an opportunity to make an oral presentation.\65\
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    \64\ 17 CFR 240.19b-4.
    \65\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
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 changes should be 
approved or disapproved by May 21, 2024. Any person who wishes to file 
a rebuttal to any other person's submission must file that rebuttal by 
June 4, 2024. The Commission asks that commenters address the 
sufficiency of the Exchanges' statements in support of their respective 
Proposals, which are set forth in the Notices,\66\ in addition to any 
other comments they may wish to submit about the proposed rule changes. 
In particular, the Commission seeks comment on the following questions 
and asks commenters to submit data where appropriate to support their 
views:
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    \66\ See supra notes 8-16.
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    1. Whether the Proposals should include data demonstrating that the 
shares of each of the specified Bitcoin ETPs on which an Exchange 
proposes to list options are ``widely held and actively traded,'' as 
required by the Exchanges' rules;
    2. Whether options on the specified Bitcoin ETPs should be subject 
to the same position limits as options on stock, and whether the 
available supply in the markets for bitcoin should be considered in 
establishing position limits for options on Bitcoin ETPs;
    3. Whether the Proposals should analyze the potential impact that 
listing options on Bitcoin ETPs could have on bitcoin market quality 
and function, particularly during times of market stress, given the 
linkages between the options markets for Bitcoin ETPs, spot Bitcoin 
ETPs, and spot bitcoin;
    4. Whether the Proposals should include representations regarding 
how the Exchanges would obtain information regarding trading in the 
Bitcoin ETPs from the exchanges where the Bitcoin ETPs trade; and
    5. Whether the Proposals seeking to list options on any ETP that 
holds spot bitcoin provide an adequate basis for the Commission to find 
that it is consistent with Section 6(b)(5) of the Act to permit the 
listing of such options, rather than approving options on ETPs that 
hold bitcoin on a product-by-product basis.\67\
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    \67\ To date, options exchanges have proposed, and the 
Commission has approved, the listing and trading of options on 
commodity-based ETPs on a product-by-product basis. See, e.g., 
Securities Exchange Act Release Nos. 94928 (May 17, 2022), 87 FR 
31287 (May 23, 2022) (File No. SR-CBOE-2022-09) (order approving a 
proposed rule change to list and trade options on shares of the 
Goldman Sachs Physical Gold ETF); 61983 (Apr. 26, 2010), 75 FR 23314 
(May 3, 2010) (File No. SR-ISE-2010-19) (order approving a proposed 
rule change to list and trade options on shares of the ETFS 
Palladium Trust and the ETFS Platinum Trust); 61483 (Feb. 3, 2010), 
75 FR 6753 (Feb. 10, 2010) (File Nos. SR-SR-CBOE-2010-007; SR-ISE-
2009-106; SR-NYSEAmex-2009-86; and SR-NYSEArca-2009-110) (order 
approving proposals to list and trade options on shares of the ETFS 
Gold Trust and the ETFS Silver Trust); 59055 (December 4, 2008), 73 
FR 75148 (December 10, 2008) (File Nos. SR-Amex-2008-68; SR-BSE-
2008-51; SR-CBOE-2008-72; SR-ISE-2008-58; SR-NYSEArca-2008-66; and 
SR-Phlx-2008-58) (order approving the listing and trading of options 
on shares of the iShares COMEX Gold Trust and the iShares Silver 
Trust); 57894 (May 30, 2008), 73 FR 32061 (June 5, 2008) (File Nos. 
SR-Amex-2008-15; SR-CBOE-2005-11; SR-ISE-2008-12; SR-NYSEArca-2008-
52; and SR-Phlx-2008-17) (order approving the listing and trading of 
options on shares of the SPDR Gold Trust).
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    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 Nos. SR-BOX-2024-07; SR-CBOE-2024-005; SR-ISE-2024-03; SR-ISE-
2024-14; SR-MIAX-2024-03; SR-NYSEAMER-2024-10; SR-PEARL-2024-03 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 numbers SR-BOX-2024-07; SR-CBOE-
2024-005; SR-ISE-2024-03; SR-ISE-2024-14; SR-MIAX-2024-03; SR-NYSEAMER-
2024-10; SR-PEARL-2024-03. These file numbers 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 submissions, all 
subsequent amendments, all written statements with respect to the 
proposed rule changes that are filed with the Commission, and all 
written communications relating to the proposed rule changes 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 offices of the Exchanges. 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 numbers SR-BOX-2024-07; SR-CBOE-2024-005; SR-ISE-2024-03; 
SR-ISE-2024-14; SR-MIAX-2024-03; SR-NYSEAMER-2024-10; SR-PEARL-2024-03 
and should be submitted by May 21, 2024. Rebuttal comments should be 
submitted by June 4, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\68\
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    \68\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-09216 Filed 4-29-24; 8:45 am]
BILLING CODE 8011-01-P