[Federal Register Volume 89, Number 171 (Wednesday, September 4, 2024)]
[Notices]
[Pages 71982-71988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19771]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100861; File No. SR-CBOE-2024-035]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend Rule 4.3 To List and Trade 
Options on Bitcoin Exchange-Traded Funds

August 28, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 19, 2024, Cboe Exchange, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 4.3. The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the

[[Page 71983]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to amend Rule 4.3 regarding the criteria for 
underlying securities. Specifically, the Exchange proposes to amend 
Rule 4.3, Interpretation and Policy .06(a)(4) to allow the Exchange to 
list and trade options on Units \3\ that represent interests in the 
following exchange-traded products: the Fidelity Wise Origin Bitcoin 
Fund (the ``Fidelity Fund''), the ARK21Shares Bitcoin ETF (the ``ARK 
21Shares Fund''), the Invesco Galaxy Bitcoin ETF (the ``Invesco 
Fund''), the Franklin Bitcoin ETF (the ``Franklin Fund''), the VanEck 
Bitcoin Trust (the ``VanEck Fund''), and the WisdomTree Bitcoin Fund 
(the ``WisdomTree Fund''), the Grayscale Bitcoin Trust BTC (the 
``Grayscale Fund''), the Bitwise Bitcoin ETF (the ``Bitwise Fund''), 
the iShares Bitcoin Trust ETF (the ``iShares Fund''), and the Valkyrie 
Bitcoin Fund (the ``Valkyrie Fund'' and, collectively, the ``Bitcoin 
Funds''), designating them as ``Units'' deemed appropriate for options 
trading on the Exchange. Current Rule 4.3, Interpretation and Policy 
.06 provides that, subject to certain other criteria set forth in that 
Rule, securities deemed appropriate for options trading include Units 
that represent certain types of interests,\4\ including interests in 
certain specific trusts that hold financial instruments, money market 
instruments, or precious metals (which are deemed commodities).
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    \3\ Rule 1.1 defines a ``Unit'' (which may also be referred to 
as an exchange-traded fund (``ETF'')) as a share or other security 
traded on a national securities exchange and defined as an NMS stock 
as set forth in Rule 4.3.
    \4\ See Rule 4.3, Interpretation and Policy .06(a), which 
permits options trading on Units that represent (1) 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 indexes, 
equity caps, collars and floors, swap agreements, forward contracts, 
repurchase agreements and reverse purchase agreements (the 
``Financial Instruments''), and money market instruments, including, 
but no limited to, U.S. government securities and repurchase 
agreements (the ``Money Market Instruments'') comprising or 
otherwise based on or representing investments in 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); (2) interests in a trust or similar entity 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 and pays the beneficial owner interest 
and other distributions on deposited non-U.S. currency, if any, 
declared and paid by the trust (``Currency Trust Shares''); (3) 
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 
Units''); (4) interests in the SPDR Gold Trust, the iShares COMEX 
Gold Trust, the iShares Silver Trust, the Aberdeen Standard Physical 
Silver Trust, the Aberdeen Standard Physical Gold Trust, the 
Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard 
Physical Platinum Trust, the Sprott Physical Gold Trust or the 
Goldman Sachs Physical Gold ETF; or (5) an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity, that invests in a 
portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's 
investment objectives and policies, which is issued in a specified 
aggregate minimum number in return for a deposit of a specified 
portfolio of securities and/or a cash amount with a value equal to 
the next determined net asset value (``NAV''), and when aggregated 
in the same specified minimum number, may be redeemed at a holder's 
request, which holder will be paid a specified portfolio of 
securities and/or cash with a value equal to the next determined NAV 
(``Managed Fund Share'').
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    The Bitcoin Funds are Bitcoin-backed commodity ETFs structured as 
trusts. Similar to any Unit currently deemed appropriate for options 
trading under Rule 4.3, Interpretation and Policy .06, the investment 
objective of each Bitcoin Fund trust is for its shares 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 Bitcoin delivery. As is the case for Units 
currently deemed appropriate for options trading, a Bitcoin Fund's 
shares represent units of fractional undivided beneficial interest in 
the trust, the assets of which consist principally of Bitcoin and are 
designed to track Bitcoin or the performance of the price of Bitcoin 
and offer access to the Bitcoin market.\5\ The Bitcoin Funds provide 
investors with cost-efficient alternatives that allow a level of 
participation in the Bitcoin market through the securities market. The 
primary substantive difference between Bitcoin Funds and Units 
currently deemed appropriate for options trading are that Units may 
hold securities, certain financial instruments, and specified precious 
metals (which are deemed commodities), while Bitcoin Funds hold Bitcoin 
(which is also deemed a commodity).
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    \5\ The trust may include minimal cash.
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    The Exchange believes the Bitcoin Funds satisfy the Exchange's 
initial listing standards for Units on which the Exchange may list 
options. Specifically, the Bitcoin Funds satisfy the initial listing 
standards set forth in Rule 4.3, Interpretation and Policy .06(b), as 
is the case for other Units on which the Exchange lists options 
(including trusts that hold commodities). Rule 4.3, Interpretation and 
Policy .06 requires that Units must either (1) meet the criteria and 
standards set forth in Rule 4.3, Interpretation and Policy .01(a),\6\ 
or (2) be available for creation or redemption each business day from 
or through the issuer in cash or in kind at a price related to net 
asset value, and the issuer must be obligated to issue Units in a 
specified aggregate number even if some or all of the investment assets 
required to be deposited have not been received by the issuer, subject 
to the condition that the person obligated to deposit the investments 
has undertaken to deliver the investment assets as soon as possible and 
such undertaking is secured by the delivery and maintenance of 
collateral consisting of cash or cash equivalents satisfactory to the 
issuer, as provided in the respective prospectus. The Bitcoin Funds 
satisfy Rule 4.3, Interpretation and Policy .06(b)(2), as they are all 
subject to this creation and redemption process.
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    \6\ Rule 4.3, Interpretation and Policy .01 provides for 
guidelines to be by the Exchange when evaluating potential 
underlying securities for Exchange option transactions.
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    While not required by the Rules for purposes of options listings, 
the majority of the Bitcoin Funds satisfy the criteria and guidelines 
set forth in Rule 4.3, Interpretation and Policy .01. Pursuant to Rule 
4.3(a), a security (which includes a Unit) on which options may be 
listed and traded on the Exchange must be duly registered (with the 
Commission) and be an NMS stock (as defined in Rule 600 of Regulation 
NMS under the Securities Exchange Act of 1934, as amended (the 
``Act'')), and be characterized by a substantial number of outstanding 
shares that are widely held and actively traded.\7\ Each of the Bitcoin 
Funds is an NMS Stock as defined in Rule 600 of Regulation NMS under 
the Act.\8\ The Exchange

[[Page 71984]]

believes each Bitcoin Fund is characterized by a substantial number of 
outstanding shares that are widely held and actively traded.
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    \7\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Rule 4.3, 
Interpretation and Policy .01, subject to exceptions.
    \8\ An ``NMS stock'' means any NMS security other than an 
option, and an ``NMS security'' means any security or class of 
securities for which transaction reports are collected, processed, 
and made available pursuant to an effective transaction reporting 
plan (or an effective national market system plan for reporting 
transaction in listed options). See 17 CFR 242.600(b)(64) 
(definition of ``NMS security'') and (65) (definition of ``NMS 
stock'').
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    As of August 7, 2024, the Bitcoin Funds had the following number of 
shares outstanding:

------------------------------------------------------------------------
                                                               Shares
                       Bitcoin fund                          outstanding
------------------------------------------------------------------------
Fidelity Fund.............................................   201,100,100
ARK 21Shares Fund.........................................    45,495,000
Invesco Fund..............................................     7,965,000
Franklin Fund.............................................    11,100,000
VanEck Fund...............................................     9,600,000
WisdomTree Fund...........................................     1,420,000
Grayscale Fund............................................   296,930,100
Bitwise Fund..............................................    69,910,000
iShares Fund..............................................   606,120,000
Valkyrie Fund.............................................    31,335,000
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    All but one Bitcoin Fund had more than 7,000,000 shares 
outstanding, which is the minimum number of shares of a corporate stock 
that the Exchange generally requires to list options on that stock 
pursuant to Rule 4.3, Interpretation and Policy .01(a)(1). However, the 
Exchange believes shares outstanding (i.e., free float \9\), while 
commonly used to determine investable capacities of corporate stocks, 
the figure has little utility with respect to ETFs due to the market 
structure of ETFs. Proofing of ETF baskets, in addition to the 
efficiency of creation/redemption mechanisms, decouple concepts of 
``floating'' ETF shares against the impacts of ETF liquidity to the 
liquidity of ETF constituents. While ETF market-makers may often limit 
the amount of floating ETF shares, primary market mechanisms enable 
virtually limitless capacity to create and redeem ETF shares on a daily 
basis.\10\ As evidenced during their time in market since beginning 
trading in January of 2024, the gross value of daily shares created or 
redeemed for each Bitcoin Fund exceeds the assets under management 
(``AUM'') of each fund as of August 7, 2024, which was as follows:
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    \9\ All outstanding ETF shares are considered free float, as 
there are no restricted ETF shares or shares held by insiders, as is 
the case with respect to corporate stocks.
    \10\ This is the primary reasoning for why the Exchange may list 
options on ETFs as long as they are subject to the creation and 
redemption process and generally do not need to satisfy the criteria 
set forth in Interpretation and Policy .01.

------------------------------------------------------------------------
                  Bitcoin fund                             AUM
------------------------------------------------------------------------
Fidelity Fund..................................           10,240,420,000
ARK 21Shares Fund..............................            2,887,759,000
Invesco Fund...................................              405,628,500
Franklin Fund..................................              339,882,800
VanEck Fund....................................              617,779,500
WisdomTree Fund................................               81,690,950
Grayscale Fund.................................           20,117,590,000
Bitwise Fund...................................            2,266,633,000
iShares Fund...................................           18,274,490,000
Valkyrie Fund..................................              527,831,700
------------------------------------------------------------------------

    As a result, the Exchange believes this demonstrates that each 
Bitcoin Fund is characterized by a substantial number of outstanding 
shares.
    Further, the below table contains information regarding the number 
of beneficial holders of certain Bitcoin Funds as of the specified 
dates:

------------------------------------------------------------------------
                                            Beneficial
              Bitcoin fund                    holders          Date
------------------------------------------------------------------------
Fidelity Fund...........................         279,656       6/27/2024
ARK 21Shares Fund.......................          69,425       6/26/2024
Invesco Fund............................          13,420       6/25/2024
Franklin Fund...........................          12,224       6/27/2024
VanEck Fund.............................          19,061       6/28/2024
WisdomTree Fund.........................           3,509        7/2/2024
------------------------------------------------------------------------

    As this table shows, each of these six Bitcoin Funds has more than 
2,000 beneficial holders, which is the minimum number of holders the 
Exchange generally requires for corporate stock in order to list 
options on that stock pursuant to Rule 4.3, Interpretation and Policy 
.01(a)(2). The Exchange does not have access to the number of 
beneficial holders of the other Bitcoin Funds. However, given those 
other four funds have significant trading volumes similar to the 
trading volumes of the Bitcoin Funds listed in the table above (as 
discussed below), the Exchange believes it is reasonable to expect that 
shares of all of the Bitcoin Funds are characterized by a substantial 
number of outstanding shares that are widely held.
    The Exchange also believes each Bitcoin Fund is characterized by a 
substantial number of outstanding shares that are actively traded. As 
of August 7, 2024, the total trading volume (by shares and notional) 
for each fund since they began trading on January 11, 2024 and the 
average daily volume (``ADV'') over the 30-day period of July 9 through 
August 7, 2024 for each Bitcoin Fund was as follows:

----------------------------------------------------------------------------------------------------------------
                                                        Trading volume      Trading volume
                    Bitcoin fund                           (shares)          (notional $)         ADV (shares)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund.......................................      1,490,261,825     78,936,647,100.20       6,014,335.50
ARK 21Shares Fund...................................        413,159,977     24,787,148,013.81       1,893,335.00
Invesco Fund........................................         78,609,595      4,578,462,838.89         299,372.94
Franklin Fund.......................................         58,954,975      2,063,321,834.88         338,901.56
VanEck Fund.........................................         59,991,039      4,195,401,686.66         265,605.84
WisdomTree Fund.....................................         39,977,866      2,546,889,570.58         209,501.33
Grayscale Fund......................................      2,074,101,826     95,371,791,353.17       4,794,193.00
Bitwise Fund........................................        455,817,104     14,926,192,896.43       2,250,989.25
iShares Fund........................................      5,209,443,211    185,451,676,432.50      28,406,964.00
Valkyrie Fund.......................................        100,580,329      1,762,278,782.37         349,587.41
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[[Page 71985]]

    As demonstrated above, despite the Bitcoin Funds have been trading 
for approximately seven months, the trading volume for each is 
substantially higher than 2,400,000 shares (between 16 and 620 times 
that amount), which is the minimum 12-month volume the Exchange 
generally requires for a security in order to list options on that 
security as set forth in Rule 4.3, Interpretation and Policy .01. 
Additionally, as of August 7, 2024, the six-month ADV for each Bitcoin 
Fund is in the top 20% of all ETFs that are currently trading. The 
Exchange believes this data demonstrates each Bitcoin Fund is 
characterized by a substantial number of outstanding shares that are 
actively traded.
    Options on Bitcoin Funds will be subject to the Exchange's 
continued listing standards set forth in Rule 4.4, Interpretation and 
Policy .06 for Units deemed appropriate for options trading pursuant to 
Rule 4.3, Interpretation and Policy .06. Specifically, Rule 4.4, 
Interpretation and Policy .06 provides that Units that were initially 
approved for options trading pursuant to Rule 4.3, Interpretation and 
Policy .06 shall be deemed not to meet the requirements for continued 
approval, and the Exchange shall not open for trading any additional 
series of option contracts of the class covering that such Units, if 
the Units cease to be an NMS stock or the Units are halted from trading 
in their primary market. Additionally, options on Units may be subject 
to the suspension of opening transactions in any of the following 
circumstances: (1) in the case of options covering Units approved for 
trading under Rule 4.3, Interpretation and Policy .06(b)(1), in 
accordance with the terms of paragraphs (a), (b), and (c) of Rule 4.4, 
Interpretation and Policy .01; (2) in the case of options covering 
Units approved for trading under Rule 4.3 Interpretation and Policy 
.06(b)(2) (as is the case for the Bitcoin Funds), following the initial 
twelve-month period beginning upon the commencement of trading in the 
Units on a national securities exchange and are defined as an NMS 
stock, there are fewer than 50 record and/or beneficial holders of such 
Units for 30 or more consecutive trading days; (3) the value of the 
index or portfolio of securities, non-U.S. currency, or portfolio of 
commodities including commodity futures contracts, options on commodity 
futures contracts, swaps, forward contracts and/or options on physical 
commodities and/or financial instruments and money market instruments 
on which the Units are based is no longer calculated or available; or 
(4) such other event shall occur or condition exist that in the opinion 
of the Exchange makes further dealing in such options on the Exchange 
inadvisable.
    Options on each Bitcoin Fund will be physically settled contracts 
with American-style exercise.\11\ Consistent with current Rule 4.5, 
which governs the opening of options series on a specific underlying 
security (including Units), the Exchange will open at least one 
expiration month for options on each Bitcoin Fund \12\ at the 
commencement of trading on the Exchange and may also list series of 
options on a Bitcoin Fund for trading on a weekly,\13\ monthly,\14\ or 
quarterly \15\ basis. The Exchange may also list long-term equity 
option series (``LEAPS'') that expire from 12 to 180 months from the 
time they are listed.\16\
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    \11\ See Rule 4.2, which provides that the rights and 
obligations of holders and writers are set forth in the Rules of the 
Options Clearing Corporation (``OCC''); and Equity Options Product 
Specifications (January 3, 2024), available at Equity Options 
Specifications (cboe.com); see also OCC Rules, Chapters VIII (which 
governs exercise and assignment) and Chapter IX (which governs the 
discharge of delivery and payment obligations arising out of the 
exercise of physically settled stock option contracts).
    \12\ See Rule 4.5(b). The monthly expirations are subject to 
certain listing criteria for underlying securities described within 
Rule 4.3. Monthly listings expire the third Friday of the month. The 
term ``expiration date'' (unless separately defined elsewhere in the 
OCC By-Laws), when used in respect of an option contract (subject to 
certain exceptions), means the third Friday of the expiration month 
of such option contract, or if such Friday is a day on which the 
exchange on which such option is listed is not open for business, 
the preceding day on which such exchange is open for business. See 
OCC By-Laws Article I, Section 1. Pursuant to Rule 4.5(c), 
additional series of options of the same class may be opened for 
trading on the Exchange when the Exchange deems it necessary to 
maintain an orderly market, to meet customer demand or when the 
market price of the underlying stock moves more than five strike 
prices from the initial exercise price or prices. New series of 
options on an individual stock may be added until the beginning of 
the month in which the options contract will expire. Due to unusual 
market conditions, the Exchange, in its discretion, may add a new 
series of options on an individual stock until the close of trading 
on the business day prior to expiration.
    \13\ See Rule 4.5(d).
    \14\ See Rule 4.5(g).
    \15\ See Rule 4.5(e).
    \16\ See Rule 4.5(f).
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    Pursuant to Rule 4.5, Interpretation and Policy .07, which governs 
strike prices of series of options on Units, the interval of strikes 
prices for series of options Bitcoin Funds will be $1 or greater when 
the strike price is $200 or less and $5 or greater where the strike 
price is over $200.\17\ Additionally, the Exchange may list series of 
options pursuant to the $1 Strike Price Interval Program,\18\ the $0.50 
Strike Program,\19\ the $2.50 Strike Price Program,\20\ and the $5 
Strike Program.\21\ Pursuant to Rule 5.4, where the price of a series 
of a Bitcoin Fund option is less than $3.00, the minimum increment will 
be $0.05, and where the price is $3.00 or higher, the minimum increment 
will be $0.10.\22\ Any and all new series of Bitcoin Fund options that 
the Exchange lists will be consistent and comply with the expirations, 
strike prices, and minimum increments set forth in Rules 4.5 and 5.4, 
as applicable.
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    \17\ The Exchange notes that for options listed pursuant to the 
Short Term Option Series Program, the Monthly Options Series 
Program, and the Quarterly Options Series Program, Rules 4.5(d), 
(e), and (g) specifically sets forth intervals between strike prices 
on Quarterly Options Series, Short Term Option Series, and Monthly 
Options Series, respectively.
    \18\ See Rule 4.5, Interpretation and Policy .01(a).
    \19\ See Rule 4.5, Interpretation and Policy .01(b).
    \20\ See Rule 4.5, Interpretation and Policy .04.
    \21\ See Rule 4.5, Interpretation and Policy .01(f).
    \22\ If options on a Bitcoin Fund are eligible to participate in 
the Penny Interval Program, the minimum increment will be $0.01 for 
series with a price below $3.00 and $0.05 for series with a price at 
or above $3.00. See 5.4(d) (which describes the requirements for the 
Penny Interval Program).
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    Bitcoin Fund options will trade in the same manner as any other 
Unit options on the Exchange. The Exchange Rules that currently apply 
to the listing and trading of all Unit options on the Exchange, 
including, for example, Rules that govern listing criteria, expiration 
and exercise prices, minimum increments, position and exercise limits, 
margin requirements, customer accounts and trading halt procedures will 
apply to the listing and trading of Bitcoin Funds on the Exchange in 
the same manner as they apply to other options on all other Units that 
are listed and traded on the Exchange, including the precious-metal 
backed commodity Units already deemed appropriate for options trading 
on the Exchange pursuant to current Rule 4.3, Interpretation and Policy 
.06(a)(4).
    Position and exercise limits for options on Units, including 
options on Bitcoin Funds, are determined pursuant to Rules 8.30 and 
8.42, respectively. Position and exercise limits for Unit options vary 
according to the number of outstanding shares and the trading volumes 
of the underlying Unit over the past six months, where the largest in 
capitalization and the most frequently traded Units have an option 
position and exercise limit of 250,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market; and 
smaller capitalization Units have position and exercise limits of 
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side

[[Page 71986]]

of the market.\23\ The Exchange further notes that Rule 10.3, which 
governs margin requirements applicable to the trading of all options on 
the Exchange, including options on Units, will also apply to the 
trading of Bitcoin Fund options.
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    \23\ As Bitcoin Funds do not currently trade, options on Bitcoin 
Funds would be subject to the 25,000 option contract limit.
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    The Exchange represents that the same surveillance procedures 
applicable to all other options on Units currently listed and traded on 
the Exchange will apply to options on Bitcoin Funds, and that it has 
the necessary systems capacity to support the new option series. The 
Exchange believes that its existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might potentially arise from listing and trading Unit 
options, including precious metal-commodity backed Unit options, as 
proposed. Also, the Exchange may obtain information from CME Group 
Inc.'s designated contract markets that are members of the Intermarket 
Surveillance Group related to any financial instrument that is based, 
in whole or in part, upon an interest in or performance of Bitcoin, as 
applicable.
    The Exchange has also analyzed its capacity and represents that it 
believes the Exchange and OPRA have the necessary systems capacity to 
handle the additional traffic associated with the listing of new series 
that may result from the introduction of options on Bitcoin Funds up to 
the number of expirations currently permissible under the Rules. 
Because the proposal is limited to Units on a single commodity, the 
Exchange believes any additional traffic that may be generated from the 
introduction of Bitcoin Fund options will be manageable.
    The Exchange believes that offering options on Bitcoin Funds will 
benefit investors by providing them with an additional, relatively 
lower cost investing tool to gain exposure to the price of Bitcoin and 
hedging vehicle to meet their investment needs in connection with 
Bitcoin-related products and positions. The Exchange expects investors 
will transact in options on Bitcoin Funds in the unregulated over-the-
counter (``OTC'') options market (if the Commission approves Bitcoin 
Funds for exchange-trading),\24\ but may prefer to trade such options 
in a listed environment to receive the benefits of trading listing 
options, including (1) enhanced efficiency in initiating and closing 
out position; (2) increased market transparency; and (3) heightened 
contra-party creditworthiness due to the role of OCC as issuer and 
guarantor of all listed options. The Exchange believes that listing 
Bitcoin Fund options may cause investors to bring this liquidity to the 
Exchange, would increase market transparency and enhance the process of 
price discovery conducted on the Exchange through increased order flow. 
The Units that hold financial instruments, money market instruments, or 
precious metal commodities on which the Exchange may already list and 
trade options are trusts structured in substantially the same manner as 
Bitcoin Funds and essentially offer the same objectives and benefits to 
investors, just with respect to different assets. The Exchange notes 
that it has not identified any issues with the continued listing and 
trading of any Unit options, including Units that hold commodities 
(i.e., precious metals) that it currently lists and trades on the 
Exchange.
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    \24\ The Exchange understands from customers that investors have 
historically transacted in options on Units in the OTC options 
market if such options were not available for trading in a listed 
environment.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\25\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \26\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \27\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ Id.
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    In particular, the Exchange believes that the proposal to list and 
trade options on Bitcoin Funds will remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, protect investors because offering options on Bitcoin 
Funds will provide investors with an opportunity to realize the 
benefits of utilizing options on a Bitcoin Fund, including cost 
efficiencies and increased hedging strategies. The Exchange believes 
that offering Bitcoin Fund options will benefit investors by providing 
them with a relatively lower-cost risk management tool, which will 
allow them to manage their positions and associated risk in their 
portfolios more easily in connection with exposure to the price of 
Bitcoin and with Bitcoin-related products and positions. Additionally, 
the Exchange's offering of Bitcoin Fund options will provide investors 
with the ability to transact in such options in a listed market 
environment as opposed to in the unregulated OTC options market, which 
would increase market transparency and enhance the process of price 
discovery conducted on the Exchange through increased order flow to the 
benefit of all investors. The Exchange also notes that it already lists 
options on other commodity-based Units,\28\ which, as described above, 
are trusts structured in substantially the same manner as Bitcoin Funds 
and essentially offer the same objectives and benefits to investors, 
just with respect to a different commodity (i.e., Bitcoin rather than 
precious metals) and for which the Exchange has not identified any 
issues with the continued listing and trading of commodity-backed Unit 
options it currently lists for trading.
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    \28\ See Rule 4.3, Interpretation and Policy .06(a)(4).
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    The Exchange also believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because it is consistent with current 
Exchange Rules previously filed with the Commission. Options on Bitcoin 
Funds satisfy the initial listing standards and continued listing 
standards currently in the Exchange Rules applicable to options on all 
Units, including Units that hold other commodities already deemed 
appropriate for options trading on the Exchange. Additionally, as 
demonstrated above, each Bitcoin Fund is characterized by a substantial 
number of shares that are widely held and actively traded. Bitcoin Fund 
options will trade in the same manner as any other Unit options--the 
same Exchange Rules that currently govern the listing and trading of 
all Unit options, including permissible expirations, strike prices and 
minimum increments, and

[[Page 71987]]

applicable position and exercise limits and margin requirements, will 
govern the listing and trading of options on Bitcoin Funds in the same 
manner.
    The Exchange believes the proposed position and exercise limits for 
the Bitcoin Fund options are consistent with the Exchange Act, will 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, protect investors 
and the public interest, because these position and exercise limits are 
designed to address potential manipulative schemes and adverse market 
impacts surrounding the use of options, such as disrupting the market 
in the security underlying the options. The proposed position and 
exercise limits are the same limits that apply to other ETF options, 
including other commodity ETF options. The Exchange believes proposed 
position and exercise limits balance the liquidity provisioning in the 
market against the prevention of manipulation, as they currently do for 
other equity options (including commodity ETF options). The Exchange 
believes the available supply in the markets of Bitcoin is not relevant 
when establishing position limits for options on the Bitcoin Funds, as 
what is held by an ETF has historically not been a relevant factor 
considered by the Commission when it has considered rule filings to 
list options on ETFS, including commodity ETFs. The Commission has 
previously stated:

    Since the inception of standardized options trading, the options 
exchanges have had rules imposing limits on the aggregate number of 
options contracts that a member or customer could hold or exercise. 
These rules are intended to prevent the establishment of options 
positions that can be used or might create incentives to manipulate 
or disrupt the underlying market so as to benefit the options 
position. In particular, position and exercise limits are designed 
to minimize the potential for mini-manipulations and for corners or 
squeezes of the underlying market. In addition, such limits serve to 
reduce the possibility for disruption of the options market itself, 
especially in illiquid options classes.\29\
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    \29\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).

    As the Commission itself notes, the position limits are ``intended 
to prevent the establishment of options positions that can be used . . 
. to manipulate or disrupt the underlying market'' (emphasis added). 
When the Commission previously approved Rules to list options on other 
commodity ETFs, the Commission did not require consideration of whether 
the available supply of those commodities should be considered when the 
Exchange established those position limits.\30\ The Exchange notes that 
position limits in the Exchange's Rules at that time were the same as 
they are today as set forth in Rule 8.30 (and as proposed to be 
applicable to options on the Bitcoin Funds).
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    \30\ See, e.g., Securities Exchange Act Release No. 57894 (May 
30, 2008), 73 FR 32061 (June 5, 2008) (SR-CBOE-2005-11) (approval 
order in which the Commission stated that the ``listing and trading 
of Gold Trust Options will be subject to the exchanges' rules 
pertaining to position and exercise limits and margin'').
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    The Exchange represents that it has the necessary systems capacity 
to support the new Bitcoin Fund options. The Exchange believes that its 
existing surveillance and reporting safeguards are designed to deter 
and detect possible manipulative behavior which might arise from 
listing and trading Unit options, including Bitcoin Fund options.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as Bitcoin Funds would need to 
satisfy the initial listing standards set forth in the Exchange Rules 
in the same manner as any other Unit before the Exchange could list 
options on them. Additionally, Bitcoin Fund options will be equally 
available to all market participants who wish to trade such options. 
The Exchange Rules currently applicable to the listing and trading of 
options on Units on the Exchange will apply in the same manner to the 
listing and trading of all options on Bitcoin Funds. Also, and as 
stated above, the Exchange already lists options on other commodity-
based Units.\31\
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    \31\ See Rule 4.3, Interpretation and Policy .06(a)(4).
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    The Exchange does not believe that the proposal to list and trade 
options on Bitcoin Funds will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. To the extent that the advent of Bitcoin Fund 
options trading on the Exchange may make the Exchange a more attractive 
marketplace to market participants at other exchanges, such market 
participants are free to elect to become market participants on the 
Exchange. Additionally, other options exchanges are free to amend their 
listing rules, as applicable, to permit them to list and trade options 
on Bitcoin Funds. The Exchange notes that listing and trading Bitcoin 
Fund options on the Exchange will subject such options to transparent 
exchange-based rules as well as price discovery and liquidity, as 
opposed to alternatively trading such options in the OTC market.
    The Exchange believes that the proposed rule change may relieve any 
burden on, or otherwise promote, competition as it is designed to 
increase competition for order flow on the Exchange in a manner that is 
beneficial to investors by providing them with a lower-cost option to 
hedge their investment portfolios. The Exchange notes that it operates 
in a highly competitive market in which market participants can readily 
direct order flow to competing venues that offer similar products. 
Ultimately, the Exchange believes that offering Bitcoin Fund options 
for trading on the Exchange will promote competition by providing 
investors with an additional, relatively low-cost means to hedge their 
portfolios and meet their investment needs in connection with Bitcoin 
prices and Bitcoin-related products and positions on a listed options 
exchange.

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

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

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

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act.

[[Page 71988]]

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-CBOE-2024-035 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-CBOE-2024-035. 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-CBOE-2024-035 and should be 
submitted on or before September 25, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19771 Filed 9-3-24; 8:45 am]
BILLING CODE 8011-01-P