[Federal Register Volume 89, Number 231 (Monday, December 2, 2024)]
[Notices]
[Pages 95257-95264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28107]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101737; File No. SR-NYSEAMER-2024-73]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To List and Trade
Option Contracts on the iShares Bitcoin Trust, the Fidelity Wise Origin
Bitcoin Fund, and the ARK21Shares Bitcoin ETF
November 25, 2024.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934
[[Page 95258]]
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on November 20, 2024, NYSE American LLC (``NYSE American'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 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
The Exchange proposes to list and trade option contracts on the
iShares Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the
ARK21Shares Bitcoin ETF. The proposed rule change is available on the
Exchange's website at www.nyse.com, at the principal office of the
Exchange, 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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 904 (Position Limits), Rule 915
(Criteria for Underlying Securities), and Rule 916 (Withdrawal of
Approval of Underlying Securities) to allow the Exchange to list and
trade options on the following exchange-traded products: the iShares
Bitcoin Trust (``iShares Bitcoin'' or ``IBIT''), the Fidelity Wise
Origin Bitcoin Fund (``Fidelity Wise'' or ``FBTC''), and the
ARK21Shares Bitcoin ETF (``ARK21'' or ``ARKB'') (collectively, the
``Bitcoin Funds'' or ``Funds'').
The Exchange notes that this is a competitive filing as the
Commission recently approved rule proposals by Nasdaq ISE, LLC
(``ISE'') and Cboe Exchange, Inc. (``Cboe'') to allow the listing and
trading of options on IBIT \4\ and on FBTC and ARKB, respectively.\5\
As discussed below, the Exchange believes options on the Bitcoin Funds
would permit hedging, and allow for more liquidity, better price
efficiency, and less volatility with respect to the underlying Funds.
Further, permitting the listing of such options would enhance the
transparency and efficiency of markets in these and correlated
products.
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\4\ See Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1,
4, and 5, to Permit the Listing and Trading of Options on the
iShares Bitcoin Trust) (``IBIT Approval Order'').
\5\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (SE-CBOE-2024-035) (Notice of
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2
and 3, To Permit the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds) (``FBTC and ARKB Approval Order'').
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Rule 915 provides that, subject to certain other criteria set forth
in the Rule, securities deemed appropriate for options trading include
Exchange-Traded Fund Shares (or ETFs) as defined in Commentary .06,
that represent certain types of interests \6\ and exchange-traded
products (``ETPs'') structured as trusts that hold precious metals
(which are deemed commodities) \7\ and that hold bitcoin (which is also
deemed a commodity).\8\ The Exchange proposes to expand the list of
bitcoin-backed ETPs on which it can list options to include the Bitcoin
Funds.\9\
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\6\ See Rule 915, Commentary .06, which permits options trading
on ETFs that are traded on a national securities exchange and are
defined as an ``NMS stock'' in Rule 600(b)(55) of Regulation NMS,
that 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 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 not 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); 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'');
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''); or represents 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''); provided
that all of the conditions listed in Rules 915 and 916 are met.
\7\ See Rule 915, Commentary .10 (permitting the listing and
trading of options on shares of the following trusts: SPDR Gold
Trust, the iShares COMEX Gold Trust the iShares Silver Trust, the
ETFS Gold Trust, and the ETFS Silver Trust, pursuant to Rule 915 and
916).
\8\ See Rule 915, Commentary .10a (permitting the listing and
trading of options on shares of the following trusts: the Grayscale
Bitcoin Trust (BTC), the Grayscale Bitcoin Mini Trust (BTC), and the
Bitwise Bitcoin ETF, pursuant to Rule 915 and 916).
\9\ See proposed Rule 915, Commentary .10(a) (expanded to permit
the listing and trading of options on shares of IBIT, FBTC, and
ARKB, pursuant to Rule 915 and 916).
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The Bitcoin Funds are structured as trusts that hold bitcoin. Like
ETFs and ETPs currently deemed appropriate for options trading, 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. Each 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.\10\ The
Bitcoin Funds provide investors with cost-efficient alternatives that
allow a level of participation in the Bitcoin market through the
securities market.
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\10\ The trust may include minimal cash.
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The Exchange believes each Bitcoin Fund satisfies the Exchange's
initial listing standards set forth in Commentary .01 to Rule 915.\11\
The Exchange notes that the Bitcoin Funds also satisfy the listing
standard applied to ETFs traded on the Exchange that
[[Page 95259]]
they be available for creation and redemption each business day as set
forth in Commentary .06(a)(ii).\12\
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\11\ Commentary .01 to Rule 915 provides for guidelines to be by
the Exchange when evaluating potential underlying securities for
Exchange option transactions.
\12\ Commentary .06(a)(ii) requires that ETFs must 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 ETFs 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.
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First, each of the Bitcoin Funds satisfy the criteria and
guidelines set forth in Rule 915(a). Pursuant to Rule 915(a), a
security on which options may be listed and traded on the Exchange must
be duly registered with the Commission and be an NMS stock (as defined
in Rule 600 of Regulation NMS under the Act) and be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.\13\ Each of the Bitcoin Funds is an NMS Stock as
defined in Rule 600 of Regulation NMS under the Act.\14\ The Exchange
believes each Bitcoin Fund is characterized by a substantial number of
outstanding shares that are widely held and actively traded.
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\13\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Commentary .01 to
Rule 915, subject to exceptions.
\14\ 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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The Bitcoin Funds had the following number of shares outstanding:
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Shares
Bitcoin Fund outstanding
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IBIT (as of 8/12/24).................................... 611,040,000
FBTC (as of 8/7/24)..................................... 201,100,100
ARKB (as of 8/7/24)..................................... 45,495,000
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As shown above, each of the Bitcoin Funds had significantly more
than 7,000,000 shares outstanding, which is the minimum number of
shares of a corporate stock that the Exchange generally requires to
list options on that stock pursuant to Commentary .01(1) to Rule 915.
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 the Bitcoin Funds.
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Bitcoin Fund Number of beneficial holders
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IBIT...................................... 193,956 (as of 5/22/23).
FBTC...................................... 279,656 (as of 6/27/24).
ARKB...................................... 69,425 (as of 6/26/24).
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Each Bitcoin Fund has significantly 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 pursuant to Commentary .01(2) to Rule 915. Therefore, the
Exchange believes the shares of each Bitcoin Fund are widely held.
In addition, the Exchange believes the shares of each Bitcoin Fund
are actively traded. The total trading volume (by shares and notional)
for these funds since they began trading and the average daily volume
(``ADV'') over the 30-day period of July 9 through August 7, 2024, was
as follows:
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Bitcoin Fund Trading volume (shares) Trading volume (notional $) ADV (shares)
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IBIT (as of 5/13/24).......................................... 34,825,921 1,246,060,738 26,000,000
FBTC (as of 8/7/24)........................................... 1,112,861,581 250,354,755 6,014,335
ARKB (as of 8/7/24)........................................... 279,360,739 90,484,307 1,893,335
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As demonstrated above, even though these Bitcoin Funds have been
trading for less than one year, the trading volume for each is
substantially higher than 2,400,000 shares, 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 Commentary .01 to Rule
915. The Exchange believes this data demonstrates each Bitcoin Fund is
characterized by a substantial number of outstanding shares that are
actively traded.
In addition to satisfying the Exchange's initial listing standards,
options on Bitcoin Funds will be subject to the Exchange's continued
listing standards as set forth in Commentary .07 to Rule 916.\15\
Pursuant to Commentary .07 to Rule 916, the Exchange will not open for
trading any additional series of option contracts covering a fund
traded on the Exchange if such fund ceases to be an ``NMS stock'' as
provided for Commentary .01(5) to Rule 915 or the fund is halted from
trading on its primary market.\16\ Additionally, options on funds
traded on the Exchange may be subject to the suspension of opening
transactions as follows: (1) the fund no longer meets the terms of
Commentary .01 to Rule 916; (2) following the initial twelve-month
period beginning upon the commencement of trading of the fund, there
are fewer than 50 record and/or beneficial holders of the fund for 30
or more consecutive trading days; (3) the value of the underlying
commodity is no longer calculated or available; or (4) such other event
occurs or condition exists that in the opinion of the Exchange makes
further dealing on the Exchange inadvisable.
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\15\ The Exchange proposes to amend Commentary .11 to Rule 916
to include the Bitcoin Funds in the list of ETPs deemed ``Exchange-
Traded Fund Shares''--of ETFs--for purposes of the continued listing
standards set forth in Commentary .07 to Rule 916. See proposed
Commentary .11 to Rule 916. For avoidance of doubt, the Exchange
refers ``funds'' rather than ``ETFs'' to make clear that the Bitcoin
Funds are subject to these continued listing standards.
\16\ See Commentary .07 to Rule 916.
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Options on each Bitcoin Fund will be physically settled contracts
with American-style exercise.\17\ Consistent with Rule 903, which
governs the opening of options series on a specific underlying security
(including ETFs and
[[Page 95260]]
ETPs), the Exchange will open at least one expiration month for options
on each Bitcoin Fund \18\ at the commencement of trading on the
Exchange and may also list series of options on Bitcoin Funds for
trading on a weekly,\19\ monthly,\20\ or quarterly \21\ basis. The
Exchange may also list long-term equity option series (``LEAPS'') that
expire from twelve to thirty-nine months from the time they are
listed.\22\
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\17\ See Rule 902 (Rights and Obligations of Holders and
Writers), which provides that the rights and obligations of holders
and writers of option contracts of any class of options dealt in on
the Exchange shall be as set forth in the Rules of the Clearing
Corporation. See also OCC Rules, Chapter 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. OCC Rules can be located
at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf.
\18\ See Rule 903(c), Commentary .03. The monthly expirations
are subject to certain listing criteria for underlying securities
described within Rule 915. 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 903(d), 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.
\19\ See Rule 903(h).
\20\ See Rule 903, Commentary .11.
\21\ See Rule 903, Commentary .09.
\22\ See Rule 903, Commentary .03.
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Pursuant to Rule 903, Commentary .05(a), which governs strike
prices of series of options on ETFs, the interval between strike prices
of series of options on 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.\23\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\24\ the $0.50 Strike
Program,\25\ the $2.50 Strike Price Program,\26\ and the $5 Strike
Program.\27\ Pursuant to Rule 960NY, 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.\28\ 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 903 and 960NY,
as applicable. Further, the Exchange notes that Rule 462, which governs
margin requirements applicable to the trading of all options on the
Exchange, including options on ETFs and ETPs, will also apply to the
trading of Bitcoin Fund options.
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\23\ 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 903(h) and
Commentaries .09 and .03 to Rule 903, specifically set forth
intervals between strike prices on Quarterly Options Series, Short
Term Option Series, and Monthly Options Series, respectively.
\24\ See Rule 903, Commentary .06.
\25\ See Rule 903, Commentary .13.
\26\ See Rule 903, Commentary .07(a).
\27\ See Rule 903, Commentary .12.
\28\ If options on a Bitcoin Fund are eligible to participate in
the Penny Interval Program, the minimum increment of $0.01 below
$3.00 and $0.50 above $3.00 would apply. See Rule 960NY(a)(3). See
also Rule 960.1NY (which describes the requirements for the Penny
Interval Program).
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Rule 903G(a)(1) permits the Exchange to authorize for trading a
FLEX option class on any equity security if it may authorize for
trading a non-FLEX option class on that equity security pursuant to
Rule 915.\29\ Consistent with the Exchange's treatment of bitcoin-
backed ETPs available for options trading on the Exchange, the Bitcoin
Fund options would not be eligible to trade as FLEX options.\30\
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\29\ See Rule 903G(a)(1). See generally Section 15 (Flexible
Exchange (``FLEX'') Options).
\30\ See Rule 903G(a)(1) (which provides, in relevant part, that
the Exchange may approve and open for trading any FLEX Equity
Options series on any equity security that is eligible for Non-FLEX
Options trading under Rule 915 ``except those set forth in
Commentary .10(a) to Rule 915,'' i.e., the Bitcoin Funds). The
Exchange will continue ongoing discussions with the Commission
regarding appropriate position limits for the Bitcoin Funds and
plans to submit a separate rule filing that would permit the
Exchange to authorize for trading FLEX options on the Funds (which
filing may propose changes to existing FLEX option position limits
for such options if appropriate).
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Position and Exercise Limits
Position and exercise limits for options, including options on
Bitcoin Funds, are determined pursuant to Rules 904 and 905. Position
and exercise limits for options vary according to the number of
outstanding shares and the trading volumes of the underlying security
over the past six months, where the largest in capitalization and the
most frequently traded funds 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 funds
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 of the market.\31\
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\31\ See Commentary .07(a)-(d) to Rule 904. 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. 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 100,000,000 shares, or most recent
six-month trading volume of at least 75,000,000 shares and at least
300,000,000 shares currently outstanding. The 25,000-contract limit
applies to options on underlying securities that do not qualify for
a higher contract limit. See Commentary .07(e) to Rule 904. In
addition, Commentary .07(f) to Rule 904 establishes higher position
limits for options on certain ETFs.
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Position limits are designed to limit the number of options
contracts traded on the Exchange in an underlying security that an
investor, acting alone or in concert with others directly or
indirectly, may control. The purpose of position limits, which are set
forth in Rule 904, is 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.
Accordingly, position limits must balance concerns regarding mitigating
potential manipulation and the cost of inhibiting potential hedging
activity that investors may use for legitimate economic purposes. To
achieve this balance, the Exchange proposes to set the position and
exercise limits for the options on the Bitcoin Funds at 25,000
contracts, which limits are already in place for the Bitcoin Funds as
traded on other options exchanges and the bitcoin-backed ETPs available
for options trading on the Exchange.\32\ Capping the position limit at
25,000 contracts, the lowest limit available in options, would address
concerns related to manipulation and protection of investors as this
number is conservative for the Bitcoin Funds and therefore appropriate
given their liquidity. While the Exchange believes that the proposed
25,000-contract position limit is conservative for options on the
Bitcoin Funds.\33\
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\32\ See proposed 6.8-O, Commentary .07(f) See supra notes 4 and
5 (regarding the IBIT Approval Order and the FBTC and ARKB Approval
Order). See also NYSE American Rule 904, Commentary .07(f) (setting
25,000 position limits for the Grayscale Bitcoin Trust (BTC)
(symbol: GBTC), the Grayscale Bitcoin Mini Trust (BTC) (symbol:
BTC), and the Bitwise Bitcoin ETF (symbol: BITB)).
\33\ The Exchange may file a subsequent rule change to amend the
position and exercise limit for options on any or all the Bitcoin
Funds based on additional data regarding trading activity, to
continue to balance any concerns regarding manipulation. A higher
position limit would allow institutional investors to utilize
options on the Bitcoin Funds for prudent risk management purposes.
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[[Page 95261]]
Based on the foregoing, the Exchange believes the proposal to list
options on the Bitcoin Funds with positions and exercise limits of
25,000 on the same side, the lowest position limit available in the
options industry, is conservative and appropriate given the market
capitalization, average daily volume, and high number of outstanding
shares for each of the Bitcoin Funds. The proposed position and
exercise limits reasonably and appropriately balance the liquidity
provisioning in the market against the prevention of manipulation. The
Exchange believes these proposed limits are effectively designed to
prevent an individual customer or entity from establishing options
positions that could be used to manipulate the market of the underlying
Bitcoin Funds as well as the Bitcoin market.\34\
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\34\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
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As described herein, options on the Bitcoin Funds will trade in the
same manner as any other ETF or ETP options on the Exchange, except
that the Bitcoin Funds will not be eligible for FLEX options trading.
The Exchange Rules that currently apply to the listing and trading of
options on the Exchange, including, for example, Rules that govern
listing criteria, expiration and exercise prices, minimum increments,
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 all other ETFs and ETPs that are
listed and traded on the Exchange, including the precious metal-backed
commodity ETPs already deemed appropriate for options trading on the
Exchange pursuant to Commentary .10 to Rule 915. Further, as described
above, Exchange Rules regarding position and exercise limits will
likewise apply to options on the Bitcoin Funds except that, as
proposed, the position and exercise limits will be set at 25,000 on the
same side.
* * * * *
The Exchange notes that options on Bitcoin Funds would not be
available for trading until The Options Clearing Corporation (``OCC'')
represents to the Exchange that it is fully able to clear and settle
such options. The Exchange has also analyzed its capacity and
represents that it and The Options Price Reporting Authority (``OPRA'')
have the necessary systems capacity to handle the additional traffic
associated with the listing of options on Bitcoin Funds. The Exchange
believes any additional traffic that would be generated from the
trading of options on Bitcoin Funds would be manageable. The Exchange
represents that Exchange members will not have a capacity issue as a
result of this proposed rule change.
The Exchange represents that the same surveillance procedures
applicable to all other options 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's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal- and bitcoin-backed ETP options, as well as the proposed
options on Bitcoin Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Bitcoin Funds in all trading sessions and to deter and detect
violations of Exchange rules.
Specifically, the Exchange's market surveillance staff also
conducts surveillances with respect to the Bitcoin Funds and, as
appropriate, would review activity in the underlying Funds when
conducting surveillances for market abuse or manipulation in the
options on each Trust. Additionally, the Exchange is a member of the
Intermarket Surveillance Group (``ISG'') under the ISG Agreement. ISG
members work together to coordinate surveillance and investigative
information sharing in the stock, options, and futures markets. The
Exchange will be able to obtain information regarding trading in the
shares of the underlying Trusts from Nasdaq, LLC, Cboe Exchange, Inc.,
and other markets on which the Trusts trade through the ISG. In
addition, the Exchange has a Regulatory Services Agreement (``RSA'')
with the Financial Industry Regulatory Authority (``FINRA''). Pursuant
to a multi-party 17d-2 joint plan, all options exchanges allocate
regulatory responsibilities to FINRA to conduct certain options-related
market surveillances.\35\ Further, the Exchange will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on the Bitcoin Funds.
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\35\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
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The underlying shares of spot bitcoin ETPs, including the Bitcoin
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in its order approving
proposals of several exchanges to list and trade shares of spot
bitcoin-based exchange-traded products (``Bitcoin ETP Order'' \36\):
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\36\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (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; and SR-
CboeBZX-2023-072) (Order Granting Accelerated Approval of Proposed
Rule Changes, as Modified by Amendments Thereto, to List and Trade
Bitcoin-Based Commodity-Based Trust Shares and Trust Units)
(``Bitcoin ETP Order'').
Each Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that
is available to the CME through its surveillance of its markets,
including its surveillance of the CME bitcoin futures market.\37\
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\37\ See Bitcoin ETP Order, 89 FR at 3009.
Given the consistently high correlation between the CME bitcoin
futures market and the spot bitcoin market, as confirmed by the
Commission through robust correlation analysis, and given that the
``CME's surveillance can assist in detecting [the impact of fraud or
manipulation] on CME bitcoin future prices,'' the Commission was able
to conclude that such surveillance sharing agreements could reasonably
be ``expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [Bitcoin ETPs].''
\38\
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\38\ See Bitcoin ETP Order, 89 FR at 3010-11.
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In light of surveillance measures related to both options and
futures as well as the underlying Bitcoin Funds,\39\
[[Page 95262]]
the Exchange believes that existing surveillance procedures are
designed to deter and detect possible manipulative behavior which might
potentially arise from listing and trading the proposed options on the
Bitcoin Funds.
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\39\ See Amendment No. 1 to Proposed Rule Change to List and
Trade Shares of the iShares Bitcoin Trust under Nasdaq Rule 5711(d),
Commodity-Based Trust Shares (SR-NASDAQ-2023-016), filed Jan. 5,
2024, available at https://www.sec.gov/comments/sr-nasdaq-2023-016/srnasdaq2023016-357659-883042.pdf; Amendment No. 5 to Proposed Rule
Change to List and Trade Shares of the ARK 21Shares Bitcoin ETF
under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares (SR-
CboeBZX-2023-028), filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-028/srcboebzx2023028-358679-884202.pdf; and Amendment No. 3 to Proposed Rule Change to List and
Trade Shares of the Fidelity Wise Origin Bitcoin Fund under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares (SR-CboeBZX-2023-044),
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-044/srcboebzx2023044-358759-884163.pdf.
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Finally, quotation and last sale information for ETFs is available
via the Consolidated Tape Association (``CTA'') high speed line.
Quotation and last sale information for such securities is also
available from the exchange on which such securities are listed.
Quotation and last sale information for options on Bitcoin Funds will
be available via OPRA and major market data vendors.
The Exchange believes that offering options on the 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,\40\ but may prefer to trade such
options in a listed environment to receive the benefits of trading
listed 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 options on the Bitcoin Funds 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 Exchange notes that the ETPs that
hold 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 options on any ETFs or ETPs that hold
commodities (i.e., precious metals) that it currently lists and trades
on the Exchange.
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\40\ The Exchange understands from customers that investors have
historically transacted in options on ETFs 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 that its proposed rule change is consistent
with Section 6(b) of the Act \41\ in general and furthers the
objectives of Section 6(b)(5) of the Act \42\ in particular, in that it
is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanisms 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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\41\ 15 U.S.C. 78f(b).
\42\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes that the proposal to list and
trade options on the 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
the 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 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 ETPs,\43\
including on bitcoin-backed ETPs already trading on the Exchange,
which, as described above, are trusts structured in substantially the
same manner as the Bitcoin Funds and essentially offer the same
objectives and benefits to investors.\44\
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\43\ See Rule 915, Commentary .10. The Exchange has not
identified any issues with the continued listing and trading of
precious metal commodity-backed ETP options that it currently lists
for trading.
\44\ See Rule 915, Commentary .10(a).
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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 the
Bitcoin Funds satisfy the initial listing standards and continued
listing standards currently in the Exchange Rules applicable to options
on all ETFs and ETPs, including ETPs 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
ETF or ETP options--the same Exchange Rules that currently govern the
listing and trading of options, including permissible expirations,
strike prices, minimum increments, and margin requirements, will govern
the listing and trading of options on Bitcoin Funds in the same manner.
The Exchange believes the proposed exclusion of the Bitcoin Funds
from being eligible for trading as FLEX options is consistent with the
Act, because it will permit the Exchange to continue to participate in
ongoing discussions with the Commission regarding appropriate position
limits for options on the Bitcoin Funds.\45\
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\45\ The Exchange will submit a separate rule filing that would
permit the Exchange to authorize for trading FLEX options on the
Bitcoin Funds (which filing may propose changes to existing FLEX
option position limits for such options if appropriate).
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The proposed position and exercise limit for options on the Bitcoin
Funds is 25,000 contracts. These position and exercise limits are the
lowest position and exercise limits available in the options industry,
are extremely conservative and more than appropriate given the Bitcoin
Funds' market capitalization, average daily volume, number of
beneficial holders, and high number of outstanding shares. The proposed
position and exercise limits are consistent with the Act as they
addresses concerns related to manipulation and protection of investors
because the position and exercise limits are extremely conservative and
more than appropriate given the Bitcoin Funds are actively traded.
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 options, including Bitcoin Fund options. The
[[Page 95263]]
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal-commodity backed ETP options as well as the proposed
options on Bitcoin Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Bitcoin Funds in all trading sessions and to deter and detect
violations of Exchange rules.
Specifically, the Exchange's market surveillance staff also
conducts surveillances with respect to the Bitcoin Funds and, as
appropriate, would review activity in the underlying Funds when
conducting surveillances for market abuse or manipulation in the
options on each Trust. Additionally, the Exchange is a member of the
Intermarket Surveillance Group (``ISG'') under the ISG Agreement. ISG
members work together to coordinate surveillance and investigative
information sharing in the stock, options, and futures markets. The
Exchange will be able to obtain information regarding trading in the
shares of the underlying Trusts from Nasdaq, LLC, Cboe Exchange, Inc.,
and other markets on which the Trusts trade through the ISG. In
addition, the Exchange is a party to an RSA with FINRA and pursuant to
a multi-party 17d-2 joint plan, all options exchanges allocate
regulatory responsibilities to FINRA to conduct certain options-related
market surveillances. Further, the Exchange will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on the Bitcoin Funds.
The underlying shares of spot bitcoin ETPs, including the Bitcoin
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in its order approving
proposals of several exchanges to list and trade shares of spot
bitcoin-based ETPs, ``[e]ach Exchange has a comprehensive surveillance-
sharing agreement with the CME via their common membership in the
Intermarket Surveillance Group. This facilitates the sharing of
information that is available to the CME through its surveillance of
its markets, including its surveillance of the CME bitcoin futures
market.'' \46\ Given the consistently high correlation between the CME
bitcoin futures market and the spot bitcoin market, as confirmed by the
Commission through robust correlation analysis, and given that the
``CME's surveillance can assist in detecting [the impact of fraud or
manipulation] on CME bitcoin future prices,'' the Commission was able
to conclude that such surveillance sharing agreements could reasonably
be ``expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [Bitcoin ETPs].''
\47\ In light of surveillance measures related to both options and
futures as well as the underlying Bitcoin Funds,\48\ the Exchange
believes that existing surveillance procedures are designed to deter
and detect possible manipulative behavior which might potentially arise
from listing and trading the proposed options on the Bitcoin Funds.
Further, the Exchange will implement any new surveillance procedures it
deems necessary to effectively monitor the trading of options on
Bitcoin ETPs.
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\46\ See Bitcoin ETP Order, 89 FR at 3009.
\47\ See Bitcoin ETP Order, 89 FR at 3010-11.
\48\ See Amendment No. 1 to Proposed Rule Change to List and
Trade Shares of the iShares Bitcoin Trust under Nasdaq Rule 5711(d),
Commodity-Based Trust Shares (SR-NASDAQ-2023-016), filed Jan. 5,
2024, available at https://www.sec.gov/comments/sr-nasdaq-2023-016/srnasdaq2023016-357659-883042.pdf; Amendment No. 5 to Proposed Rule
Change to List and Trade Shares of the ARK 21Shares Bitcoin ETF
under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares (SR-
CboeBZX-2023-028), filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-028/srcboebzx2023028-358679-884202.pdf; and Amendment No. 3 to Proposed Rule Change to List and
Trade Shares of the Fidelity Wise Origin Bitcoin Fund under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares (SR-CboeBZX-2023-044),
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-044/srcboebzx2023044-358759-884163.pdf.
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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.
Intramarket Competition: 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 options on the Bitcoin Funds would need to satisfy the
initial listing standards set forth in the Exchange Rules in the same
manner as any other options on an ETF before the Exchange could list
these options. 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 ETFs on the Exchange will apply in the same manner to the
listing and trading of all options on the Bitcoin Funds. Also, and as
stated above, the Exchange already lists options on other commodity-
based ETPs, including on bitcoin-backed ETPs.\49\
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\49\ See Rule 915, Commentary .10 and Commentary .10(a).
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Intermarket Competition: 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. As noted herein, this is a competitive
filing as the Commission recently approved the listing and trading of
options on an ETP that, like the Bitcoin Funds, holds bitcoin.\50\
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.
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\50\ See id. See also supra notes 4 and 5 (regarding the IBIT
Approval Order and the FBTC and ARKB Approval Order).
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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
No written comments were solicited or received with respect to the
proposed rule change.
[[Page 95264]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \51\ and Rule 19b-4(f)(6) thereunder.\52\
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \53\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\54\
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\51\ 15 U.S.C. 78s(b)(3)(A)(iii).
\52\ 17 CFR 240.19b-4(f)(6).
\53\ 15 U.S.C. 78s(b)(3)(A)(iii).
\54\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission waives this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \55\ under the
Act does not normally become operative prior to 30 days after the date
of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\56\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative immediately upon filing. The
Commission previously approved the listing of options on the iShares
Bitcoin Trust, the Fidelity Wise Origin Bitcoin Fund, and the
ARK21Shares Bitcoin ETF.\57\ The Exchange has provided information
regarding the underlying Bitcoin Funds, including, among other things,
information regarding trading volume, the number of beneficial holders,
and the market capitalization of the Bitcoin Funds. The proposal also
establishes position and exercise limits for options on the Bitcoin
Funds and provides information regarding the surveillance procedures
that will apply to Bitcoin Fund options. The Commission believes that
waiver of the operative delay could benefit investors by providing an
additional venue for trading Bitcoin Fund options. Therefore, the
Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\58\
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\55\ 17 CFR 240.19b-4(f)(6).
\56\ 17 CFR 240.19b-4(f)(6)(iii).
\57\ See Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Self-
Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of
Amendment Nos. 4 and 5 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 1, 4, and 5, to
Permit the Listing and Trading of Options on the iShares Bitcoin
Trust). See also Securities Exchange Act Release No. 101387 (October
18, 2024), 89 FR 84948 (October 24, 2024) (SR-Cboe-2024-035) (Notice
of Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2
and 3, To Permit the Listing and Trading of Options on Bitcoin
Exchange-Traded Funds).
\58\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSEAMER-2024-73 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-2024-73. 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-2024-73 and should
be submitted on or before December 23, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\59\
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\59\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28107 Filed 11-29-24; 8:45 am]
BILLING CODE 8011-01-P