[Federal Register Volume 89, Number 231 (Monday, December 2, 2024)]
[Notices]
[Pages 95309-95321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28114]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101744; File No. SR-ISE-2024-54]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To List and Trade
Various Bitcoin Options
November 25, 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 November 21, 2024, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``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
[[Page 95310]]
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
The Exchange to amend Options 4, Section 3, Criteria for Underlying
Securities.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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 Exchange 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 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 Options 4, Section 3, Criteria for
Underlying Securities, to allow the Exchange to list and trade options
the (1) Fidelity Wise Origin Bitcoin Fund (``Fidelity Fund''); (2)
ARK21Shares Bitcoin ETF (``ARK 21 Fund''); (3) Grayscale Bitcoin Trust
(BTC) (the ``Grayscale Fund'' or ``GBTC''); (4) Grayscale Bitcoin Mini
Trust BTC (the ``Grayscale Mini Fund'' or ``BTC''); (5) and Bitwise
Bitcoin ETF (the ``Bitwise Fund'' or ``BITB''), (collectively ``Bitcoin
Trusts'') as ``Units'' deemed appropriate for options trading on the
Exchange. Options on each Bitcoin Trust were approved for trading on
other options exchanges.\3\
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\3\ See 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) (``CBOE-2024-035''). See also Securities
Exchange Act Release No. 101386 (October 18, 2024), 89 FR 84960
(October 24, 2024) (SR-NYSEAMER-2024-49) (Notice of Filing of
Amendment No. 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 3, To Permit the
Listing and Trading of Options on Bitcoin Exchange-Traded Funds)
(``NYSEAMER-2024-49'').
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Currently, Options 4, Section 3(h) provides that securities deemed
appropriate for options trading shall include shares or other
securities (``Exchange-Traded Fund Shares'' or ``ETFs'') that are
traded on a national securities exchange and are defined as an ``NMS''
stock under Rule 600 of Regulation NMS, and that meet certain criteria
specified in Options 4, Section 3(h), including that they:
(i) represent interests in registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts or similar entities that hold
portfolios of securities and/or financial instruments, including,
but not limited to, stock index futures contracts, options on
futures, options on securities and indices, equity caps, collars and
floors, swap agreements, forward contracts, repurchase agreements
and reverse repurchase agreements (the ``Financial Instruments''),
and money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements (the ``Money Market
Instruments'') comprising or otherwise based on or representing
investments in broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market Instruments (or that hold
securities in one or more other registered investment companies that
themselves hold such portfolios of securities and/or Financial
Instruments and Money Market Instruments) or
(ii) represent interests in a trust or similar entity that holds
a specified non-U.S. currency or currencies deposited with the trust
when aggregated in some specified minimum number may be surrendered
to the trust or similar entity by the beneficial owner to receive
the specified non-U.S. currency or currencies and pays the
beneficial owner interest and other distributions on the deposited
non-U.S. currency or currencies, if any, declared and paid by the
trust (``Currency Trust Shares'') or
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing portfolios or
baskets of securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs'') or
(iv) represent interests in the SPDR[supreg] Gold Trust, the
iShares COMEX Gold Trust, the iShares Silver Trust, the Aberdeen
Standard Physical Gold Trust, or the iShares Bitcoin Trust or
(v) represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management 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'').
In addition to the aforementioned requirements, Options 4, Section
3(h)(1) and (2) must be met to list options on ETFs.\4\
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\4\ Options 4, Section 3(h)(1) and (2) state that the Exchange-
Traded Fund Shares either (i) meet the criteria and guidelines set
forth in paragraphs (a) and (b) described herein; or (ii) the
Exchange-Traded Fund Shares are available for creation or redemption
each business day from or through the issuing trust, investment
company, commodity pool or other entity in cash or in kind at a
price related to net asset value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in a specified aggregate number
even if some or all of the investment assets and/or cash required to
be deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investment assets
has undertaken to deliver them 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 of
the Exchange-Traded Fund Shares, all as described in the Exchange-
Traded Fund Shares' prospectus. Also, the Exchange-Traded Fund
Shares based on international or global indexes, or portfolios that
include non-U.S. securities, shall meet the criteria in Options 4,
Section 3(h)(2)(A)-(F).
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Proposal
The Exchange proposes to expand the list of ETFs that are
appropriate for options trading on the Exchange in Options 3, Section
4(h)(iv) to include the Bitcoin Trusts.\5\
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\5\ Specifically, the Exchange proposes to amend Options 3,
Section 4(h)(iv) to include the name of each Bitcoin Trust to enable
options to be listed on the Bitcoin Trusts on the Exchange.
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The Bitcoin Trusts are Bitcoin-backed commodity ETFs structured as
trusts. Similar to any Unit currently deemed appropriate for options
trading under Options 3, Section 4(h), the investment objective of each
Bitcoin 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 Trust'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.\6\ The Bitcoin Trusts provide investors with cost-
efficient alternatives that allow a level of participation in the
Bitcoin market through the securities market. The primary substantive
difference
[[Page 95311]]
between Bitcoin Trusts 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 Trusts hold Bitcoin (which is also deemed a
commodity).
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\6\ The trust may include minimal cash.
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The Exchange believes each Bitcoin Trust satisfies the Exchange's
initial listing standards for Units on which the Exchange may list
options. Specifically, each Bitcoin Trust satisfies the initial listing
standards set forth in Options 3, Section 4(h), as is the case for
other Units on which the Exchange lists options (including trusts that
hold commodities). Currently, Options 4, Section 3(h)(1) and (2)
requires that Units must either (i) meet the criteria and guidelines
set forth in paragraphs (a) and (b) described herein; or (ii) be
available for creation or redemption each business day from or through
the issuing trust, investment company, commodity pool or other entity
in cash or in kind at a price related to net asset value, and the
issuer is obligated to issue Exchange-Traded Fund Shares in a specified
aggregate number even if some or all of the investment assets and/or
cash required to be deposited have not been received by the issuer,
subject to the condition that the person obligated to deposit the
investment assets has undertaken to deliver them 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 of the Exchange-Traded Fund Shares, all as described in the
Exchange-Traded Fund Shares' prospectus. Each Bitcoin Trust Fund
satisfies Options 4, Section 3(h)(1) and (2), as each is subject to
this creation and redemption process.
While not required by the Rules for purposes of options listings,
the Exchange believes each Bitcoin Trust satisfies the criteria and
guidelines set forth in Options 4, Section 3(b).\7\ Options 4, Section
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.\8\ Each Bitcoin Trust
is an NMS Stock as defined in Rule 600 of Regulation NMS under the
Act.\9\ The Exchange believes each Bitcoin Trust is characterized by a
substantial number of outstanding shares that are widely held and
actively traded.
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\7\ ISE Options 4, Section 3(b) states that, in addition, the
Exchange shall from time to time establish guidelines to be
considered in evaluating potential underlying securities for
Exchange options transactions. There are many relevant factors which
must be considered in arriving at such a determination, and the fact
that a particular security may meet the guidelines established by
the Exchange does not necessarily mean that it will be selected as
an underlying security. Further, in exceptional circumstances an
underlying security may be selected by the Exchange even though it
does not meet all of the guidelines. The Exchange may also give
consideration to maintaining diversity among various industries and
issuers in selecting underlying securities. Notwithstanding the
forgoing, however, absent exceptional circumstances, an underlying
security will not be selected unless: (1) There are a minimum of
seven (7) million shares of the underlying security which are owned
by persons other than those required to report their stock holdings
under Section 16(a) of the Exchange Act; (2) There are a minimum of
2,000 holders of the underlying security; (3) The issuer is in
compliance with any applicable requirements of the Exchange Act; (4)
Trading volume (in all markets in which the underlying security is
traded) has been at least 2,400,000 shares in the preceding twelve
(12) months; (5) Either: (i) If the underlying security is a
``covered security'' as defined under Section 18(b)(1)(A) of the
Securities Act of 1933: (A) the market price per share of the
underlying security has been at least $3.00 for the previous three
consecutive business days preceding the date on which the Exchange
submits a certificate to the Clearing Corporation for listing and
trading, as measured by the closing price reported in the primary
market in which the underlying security is traded; however, (B) the
requirements set forth in (5)(i)(A) will be waived during the three
days following its initial public offering day for an underlying
security having a market capitalization of at least $3 billion based
upon the offering price of its initial public offering, and may be
listed and traded starting on or after the second business day
following the initial public offering day; or (ii) If the underlying
security is not a ``covered security,'' the market price per share
of the underlying security has been at least $7.50 for the majority
of business days during the three calendar months preceding the date
of selection, as measured by the lowest closing price reported in
any market in which the underlying security traded on each of the
subject days. Notwithstanding the requirements set forth in
Paragraphs 1, 2, 4 and 5 above, the Exchange may list and trade an
options contract if (i) the underlying security meets the guidelines
for continued approval in Options 4, Section 4; and (ii) options on
such underlying security are traded on at least one other registered
national securities exchange.
\8\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Options 4, Section
3(b), subject to exceptions.
\9\ 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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Fidelity Fund and ARK 21
Cboe Exchange, Inc. (``Cboe'') noted in CBOE-2024-035 that, as of
August 7, 2024, that the Fidelity Fund had 201,100,100 shares
outstanding and the ARK 21 Fund had 45,495,000 shares outstanding.
Further, each Bitcoin Trust had significantly more than 7,000,000
shares outstanding (approximately 29 and 6.5 times that amount,
respectively), which is the minimum number of shares of a corporate
stock that the Exchange generally requires to list options on that
stock pursuant to Options 4, Section 3(b).\10\ Cboe noted in CBOE-2024-
035 that this demonstrated that the Fidelity Fund and the ARK 21 Fund
were both characterized by a substantial number of outstanding shares.
Further, in CBOE-2024-035, Cboe noted that the Fidelity Fund, as of
June 27, 2024, had 279,656 beneficial owners and the ARK 21 Fund, as of
June 26, 2024, had 69,425 beneficial owners. Cboe noted that the
Fidelity Fund and the ARK 21 Fund both had significantly more than
2,000 beneficial holders (approximately 140 and 35 times more,
respectively), which is the minimum number of holders the Exchange
generally requires for corporate stock in order to list options on that
stock pursuant to Options 4, Section 3(b).\11\ Therefore, Cboe noted in
CBOE-2024-035, that it believed the shares of the Fidelity Fund and the
ARK 21 Fund are widely held. Cboe noted in CBOE-2024-035 that it
believed that the shares of the Fidelity Fund and the ARK 21 Fund are
both actively traded. Cboe noted in CBOE-2024-035 that as of August 7,
2024, the total trading volume (by shares) for each fund for the six-
month period of February 8 through August 7, 2024, and the approximate
average daily volume (``ADV'') (in shares and notional) over the 30-day
period of July 9 through August 7, 2024, for each Bitcoin Trust was as
follows:
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\10\ See supra note 7.
\11\ See supra note 7.
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6-Month trading 30-Day ADV 30-Day ADV
Bitcoin Trust volume (shares) (shares) (notional $)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund................................................ 1,112,861,581 6,014,335 250,354,755
ARK 21 Fund.................................................. 297,360,739 1,893,335 90,484,307
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[[Page 95312]]
Cboe noted that as demonstrated above, despite the fact that the
Fidelity Fund and the ARK 21 Fund had been trading for approximately
seven months (as of January 10, 2024) only as of August 7, 2024, the
six-month trading volume for each as of that date was substantially
higher than 2,400,000 shares (approximately 464 and 124 times that
amount, respectively), which is the minimum 12-month volume the
Exchange generally requires for a corporate stock in order to list
options on that security as set forth in Options 4, Section 3(b).
Additionally, Cboe noted in in CBOE-2024-035 that as of August 7, 2024,
the trading volume for the Fidelity Fund and the ARK 21 Fund was in the
top 5% of all ETFs that are currently trading. Cboe noted in CBOE-2024-
035 that this data demonstrates the Fidelity Fund and the ARK 21 Fund
are characterized as having shares that are actively traded.
Cboe determined the proposed position and exercise limits
considering, among other things, the approximate six-month average
daily volume (``ADV'') and outstanding shares of the Fidelity Fund and
the ARK 21 Fund noted in the filing (which as discussed above
demonstrate that these Bitcoin Trusts are widely held and actively
traded and thus justify these conservatively proposed position limits),
as set forth in in CBOE-2024-035 and below, along with market
capitalization (as of August 7, 2024):
----------------------------------------------------------------------------------------------------------------
Six-month ADV Outstanding Market capitalization
Underlying Bitcoin Trust (shares) shares ($)
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Fidelity Fund.......................................... 8,902,893 201,100,100 14,217,013,188
ARK 21 Fund............................................ 2,378,886 45,495,000 2,487,666,600
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Cboe then compared the number of outstanding shares of the Fidelity
Fund and the ARK 21 Fund to those of other ETFs. The following table in
CBOE-2024-035 provided the approximate average position (and exercise
limit) of ETF options with similar outstanding shares (as of August 27,
2024), compared to the proposed position and exercise limit for options
on the Fidelity Fund and the ARK 21 Fund:
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Average limit
of other ETF Proposed limit
Underlying Bitcoin Trust options (contracts)
(contracts)
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Fidelity Fund.............................. 188,11023 25,000 Cboe noted in Cboe-2024-035 that
over 80% of the ETFs used for
comparison had a limit of at least
200,000, and more than half had a
limit of 250,000. Additionally,
the three-month ADV of the
majority of the ETFs used for
comparison was lower than the
Fidelity Fund three-month ADV of
5,665,027 shares.
ARK 21 Fund................................ 108,69624 25,000 Cboe noted in Cboe-2024-035 that
nearly 80% of the ETFs used for
comparison had a limit of at least
75,000 (and up to 250,000).
Additionally, the three-month ADV
of the majority of ETFs used for
comparison was lower (many more
than four times lower) than the
ARK 21 Fund three-month ADV of
1,737,327 shares.
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Cboe considered current position and exercise limits of options on
ETFs with outstanding shares comparable to those of each the Fidelity
Fund and the ARK 21 Fund, with the proposed limit significantly lower
(between two and ten times lower) than the average limits of the
options on the other ETFs. As discussed above in in CBOE-2024-035, the
Fidelity Fund and the ARK 21 Fund are actively held and widely traded:
(1) each of these Bitcoin Trusts (as of August 7, 2024) 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 Options 4,
Section 3(b); (2) the Fidelity Fund and the ARK 21 Fund (as of the
dates listed above) had 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 Options 4, Section 3(b)(2) and; (3) the Fidelity Fund and
the ARK 21 Fund had a six-month trading volume 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 Options 4, Section 3.
Cboe noted in in CBOE-2024-035 that with respect to outstanding
shares, if a market participant held the maximum number of positions
possible pursuant to the proposed position and exercise limits, the
equivalent shares represented by the proposed position/exercise limit
would represent the following approximate percentage of current
outstanding shares:
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Proposed position
/exercise limit Outstanding Percentage of
Underlying Bitcoin Trust (in equivalent shares outstanding
shares) shares (%)
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Fidelity Fund................................................ 2,500,000 201,100,100 1.2
ARK 21 Fund.................................................. 2,500,000 45,495,000 5.5
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As this table demonstrated in CBOE-2024-035, if a market
participant held the maximum permissible options positions in either
the Fidelity Fund or the ARK 21 Fund and exercised all of them at the
same time, that market
[[Page 95313]]
participant would control a small percentage of the outstanding shares
of the particular underlying Bitcoin Trust. Cboe provided a table in in
CBOE-2024-035 noting the equivalent shares of the position limits
applicable to equity options, including ETFs, further represents the
percentages of the minimum number of outstanding shares that an
underlying stock or ETF must have to qualify for that position limit
(under the second method described above), all of which are higher than
the percentages for the Fidelity Fund and the ARK 21 Fund.
------------------------------------------------------------------------
Minimum Percentage of
Position/exercise limit (in equivalent outstanding outstanding
shares) shares shares (%)
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2,500,000............................... 6,300,000 40.0
5,000,000............................... 40,000,000 12.5
7,500,000............................... 120,000,000 6.3
20,000,000.............................. 240,000,000 8.3
25,000,000.............................. 300,000,000 8.3
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6,300,000 is the minimum number of outstanding shares an underlying
security must have for the Exchange to continue to list options on that
security, so this would be the smallest number of outstanding shares
permissible for any corporate option that would have a position limit
of 25,000 contract. See Options 4, Section 3(b). This rule applies to
corporate stock options but not ETF options, which currently have no
requirement regarding outstanding shares of the underlying ETF for the
Exchange to continue listing options on that ETF. Therefore, there may
be ETF options trading for which the 25,000 contract position limits
represent an even larger percentage of outstanding shares of the
underlying ETF than set forth above.
CBOE-2024-035 provided that the equivalent shares represented by
the proposed position and exercise limits for the Fidelity Fund and the
ARK 21 Fund as a percentage of outstanding shares of the underlying
Bitcoin Trust is significantly lower than the percentage for the lowest
possible position limit for equity options of 25,000 (under 6% compared
to 40%) and is lower than that percentage for each current position
limit bucket.\12\
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\12\ As these percentages are based on the minimum number of
outstanding shares an underlying security must have to qualify for
the applicable position limit, these are the highest possible
percentages that would apply to any option subject to that position
and exercise limit.
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GBTC, BTC and BITB
NYSE American LLC (``NYSE American'') noted in NYSEAmerican-2024-49
that, as of August 30, 2024, GBTC, BTC and BITB had the following
number of shares outstanding (and corresponding market capitalization):
------------------------------------------------------------------------
Shares Market value (08/
Bitcoin Trust outstanding 30/2024) ($)
------------------------------------------------------------------------
GBTC................................. 284,570,100 13,443,091,524
BTC.................................. 366,950,100 1,930,157,526
BITB................................. 68,690,000 2,221,640,670
------------------------------------------------------------------------
NYSE American noted in NYSEAmerican-2024-49 that, as displayed in
the above table, GBTC, BTC and BITB 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 Options 4, Section 3(b). NYSE American noted
in NYSEAmerican-2024-49 that this demonstrated that GBTC, BTC and BITB
are characterized by a substantial number of outstanding shares.
Further, as provided in NYSEAmerican-2024-49 the below table contained
information regarding the number of beneficial holders of GBTC, BTC and
BITB as of August 14, 2024.
------------------------------------------------------------------------
Beneficial
Bitcoin Trust holders (8/14/
24)
------------------------------------------------------------------------
GBTC.................................................... 464,364
BTC..................................................... 13,403
BITB.................................................... 75,437
------------------------------------------------------------------------
As shown in NYSEAmerican-2024-49, the table showed that GBTC, BTC
and BITB each had significantly more than 2,000 beneficial holders
(approximately 232, 7, and 38 times more, respectively), 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
Options 4, Section 3(b)(2).\13\ Therefore, NYSE American noted that the
shares of each GBTC, BTC and BITB are widely held. In addition, NYSE
American noted that the shares of each GBTC, BTC and BITB are actively
traded. NYSEAmerican-2024-49 provided, as of September 30, 2024, that
the total trading volume (by shares and notional) for these funds since
they began trading \14\ and the average daily volume (``ADV'') over the
30-day period of September 1 through September 30, 2024, was as
follows:
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\13\ See supra note 7.
\14\ GBTC and BITB began trading on January 11th and BTC began
trading on July 31st. Thus, the measurement period for the trading
volume (shares/notional) was January 11 through September 20, 2024,
for GBTC and BITB (i.e., nine months) and July 31 through September
20, 2024, for BTC (i.e., two months).
----------------------------------------------------------------------------------------------------------------
Trading volume Trading volume
Bitcoin Trust (shares) (notional $) ADV (shares)
----------------------------------------------------------------------------------------------------------------
GBTC................................................... 1,803,567,700 93,472,544,497 3,266,138
[[Page 95314]]
BTC.................................................... 335,492,930 1,792,866,521 6,838,546
BITB................................................... 434,815,840 14,433,361,384 1,949,835
----------------------------------------------------------------------------------------------------------------
As demonstrated above and in NYSEAmerican-2024-49, even though
GBTC, BTC and BITB were trading for less than one year (and in the case
of the BTC, less than two months), the trading volume for each was
substantially higher than 2,400,000 shares (between roughly 165 and 700
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 Options 4, Section 3(b). NYSE American noted
that this data demonstrated that GBTC, BTC and BITB are characterized
by a substantial number of outstanding shares that are actively traded.
NYSE American noted in NYSEAmerican-2024-49 that BTC began trading
on July 31, 2024, and therefore had only two months of trading data
available at the time of filing NYSEAmerican-2024-49. In terms of total
volume, NYSEAmerican-2024-49 provided the below table.
------------------------------------------------------------------------
Total volume
Bitcoin Trust (9/30/2024)
------------------------------------------------------------------------
GBTC.................................................... 723,758,100 (6-
months).
BTC..................................................... 335,492,930 (2-
months).
BITB.................................................... 263,965,870 (6-
months).
------------------------------------------------------------------------
NYSE American noted in NYSEAmerican-2024-49 that based on the most-
recent trading volume, GBTC, BTC and BITB exceeded the requisite
minimum of 100,000,000 shares necessary to qualify for the 250,000-
contract position and exercise limits. By comparison, NYSE American
noted that other options symbols with six-month trading volume less
than GBTC, BITB, and BTC were eligible for position and exercise limits
of at least 250,000.\15\ NYSEAmerican-2024-49 provided, with respect to
the outstanding shares of each Bitcoin Trust, if a market participant
held the maximum number of contracts possible pursuant to the proposed
position and exercise limits (25,000 contracts), the equivalent shares
represented by the proposed position/exercise limit (2,500,000 shares)
would represent the following approximate percentage of current
outstanding shares:
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\15\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search (including the following
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR,
SGOL).
----------------------------------------------------------------------------------------------------------------
Proposed position/ Outstanding Percentage of
Bitcoin Trust exercise limit in shares (8/30/ outstanding
equivalent shares 24) shares (%)
----------------------------------------------------------------------------------------------------------------
GBTC......................................................... 2,500,000 284,570,100 0.9
BTC.......................................................... 2,500,000 366,950,100 0.7
BITB......................................................... 2,500,000 68,690,000 3.6
----------------------------------------------------------------------------------------------------------------
As this table demonstrated in NYSEAmerican-2024-49, if a market
participant held the maximum permissible options positions in any one
of GBTC, BTB or BITB options and exercised all of them at the same
time, that market participant would control a small percentage of the
outstanding shares of the underlying GBTC, BTB or BITB. For example, as
noted above, a position limit of 25,000 same side contracts effectively
restricts a market participant from holding positions that could result
in the receipt of no more than 2,500,000 shares of the applicable
Bitcoin Trust (if that market participant exercised all its options).
Based on the number of shares outstanding for each of GBTC, BTB or BITB
as of August 30, 2024, NYSE American noted in NYSEAmerican-2024-49 and
the table below, that the approximate number of market participants
that could hold the maximum of 25,000 same side positions in each of
GBTC, BTB and BITB that would equate to the number of shares
outstanding of that Bitcoin Trust:
------------------------------------------------------------------------
Number of market
Shares participants with
Bitcoin Trust outstanding 25,000 same side
positions
------------------------------------------------------------------------
GBTC........................... 284,570,100 114
BTC............................ 366,950,100 147
BITB........................... 68,690,000 27
------------------------------------------------------------------------
NYSE American concluded in NYSEAmerican-2024-49 that this meant if
114 market participants had 25,000 same side positions in options on
GBTC, each of them would have to simultaneously exercise all of those
options to create a scenario that may put the underlying security under
stress. Similarly, this means if 147 market participants had 25,000
same side positions in options on BTC, each of them would have to
simultaneously exercise all of those options to create a scenario that
may put the underlying security under stress. Finally, this means if 27
market participants had 25,000 same side positions in options on BITB,
each of them would have to simultaneously exercise all of those options
to create a scenario that may put the underlying security under stress.
[[Page 95315]]
NYSE American noted in NYSEAmerican-2024-49 that it believed it was
highly unlikely for this to occur; however, even if such event did
occur, NYSE American would not expect GBTC, BTB or BITC to be under
stress because such an event would merely induce the creation of more
shares through the trust's creation and redemption process. Further,
given that the issuer of each of GBTC, BTB or BITC may create and
redeem shares that represent an interest in Bitcoin, NYSE American
noted in NYSEAmerican-2024-49 that it is relevant to compare the size
of a position limit to the market capitalization of the Bitcoin market.
NYSE American noted in NYSEAmerican-2024-49 that, as of August 30,
2024, the global supply of Bitcoin was 19,747, 066, and the price of
one Bitcoin was approximately $59,108.23,39 which equates to a market
capitalization of approximately $1.167 trillion.\16\ NYSE American
stated in NYSEAmerican-2024-49 that a position and exercise limit of
25,000 same side contracts effectively restricts a market participant
from holding positions that could result in the receipt of no more than
2,500,000 shares of GBTC, BTC, or BITB, as applicable (if that market
participant exercised all its options). NYSE American presented the
below table with the share price of each of GBTC, BTC and BITB on
August 30, 2024, the value of 2,500,000 shares of the particular
Bitcoin Trust at that price, and the approximate percentage of that
value of the size of the Bitcoin market:
---------------------------------------------------------------------------
\16\ See https://www.blockchain.com/explorer/charts/total-bitcoins.
----------------------------------------------------------------------------------------------------------------
Value of
Aug. 30th 2,500,000 Percentage of
Bitcoin Trust share price shares of Bitcoin market
($) Bitcoin Trust (%)
($)
----------------------------------------------------------------------------------------------------------------
GBTC............................................................ 46.75 116,875,000 0.010
BTC............................................................. 5.20 13,000,000 0.001
BITB............................................................ 31.95 79,875,000 0.007
----------------------------------------------------------------------------------------------------------------
NYSE American concluded that, if a market participant with the
maximum 25,000 same side contracts in options on GBTC, BTC, or BITB
exercised all positions at one time, such an event would have no
practical impact on the Bitcoin market. NYSE American also reviewed the
market capitalization of each Bitcoin Trust relative to the market
capitalization of the entire bitcoin market, as of August 30, 2024.
----------------------------------------------------------------------------------------------------------------
% of total
Bitcoin/shares Market value (8/30/ Bitcoin market
outstanding 2024) ($) (%)
----------------------------------------------------------------------------------------------------------------
Total Bitcoin Market................................... 19,747,066 $1,167,214,096,788 100.00
GBTC............................................... 284,570,100 $13,443,091,524 1.15
BTC................................................ 366,950,100 $1,930,157,526 0.17
BITB............................................... 68,690,000 $2,221,640,670 0.19
----------------------------------------------------------------------------------------------------------------
As shown above and in NYSEAmerican-2024-49, GBTC, BTC and BITB
collectively represented approximately 1.51% of the global supply of
Bitcoin (19,747,066). Based on the $46.75 price of a GBTC share on
August 30, 2024, a market participant could have redeemed one Bitcoin
for approximately 1,264 GBTC shares. Further, NYSE American noted that
another 24,967,146,455 GBTC shares could be created before the supply
of Bitcoin was exhausted. NYSEAmerican-2024-49 provided that as a
result, 9,987 market participants would have to simultaneously exercise
25,000 same side positions in GBTC options to receive shares of the
GBTC holding the entire global supply of Bitcoin. NYSEAmerican-2024-49
also provided that based on the $5.20 price of a BTC share on August
30, 2024, a market participant could have redeemed one Bitcoin for
approximately 11,367 BTC shares. Another 224,464,249,382 BTC shares
could be created before the supply of Bitcoin was exhausted. NYSE
American stated that as a result, 89,786 market participants would have
to simultaneously exercise 25,000 same side positions in BTC options to
receive shares of BTC holding the entire global supply of Bitcoin.
Similarly, NYSE American noted that based on the $31.95 price of a BITB
share on August 30, 2024, a market participant could have redeemed one
Bitcoin for approximately 1,850 BITB shares. NYSEAmerican-2024-49
provided that another 36,532,522,591 BITB shares could be created
before the supply of Bitcoin was exhausted. NYSE American concluded
that as a result, 14,613 market participants would have to
simultaneously exercise 25,000 same side positions in BITB options to
receive shares of BITB holding the entire global supply of Bitcoin.
NYSE American also concluded that, unlike GBTC, BTB and BITB, the
number of shares that corporations may issue is limited. NYSEAmerican-
2024-49 provided that, however, like corporations, which authorize
additional shares, repurchase shares, or split their shares, the
Bitcoin Trusts may create, redeem, or split shares in response to
demand and while the supply of Bitcoin is limited to 21,000,000, it is
believed that it will take more than 100 years to fully mine the
remaining Bitcoin.\17\ NYSE American noted that the supply of Bitcoin
is larger than the available supply of most securities.\18\ NYSE
American concluded that given the significant unlikelihood of any of
these events ever occurring, NYSE American noted that it did not
believe options on GBTC, BTC and BITB should be subject to position and
exercise limits even lower than those proposed (which are already equal
to the lowest available limit for equity options in the industry) to
protect the supply of Bitcoin. NYSE American also noted in
[[Page 95316]]
NYSEAmerican-2024-49 that it believed the proposed limits are
appropriate given position limits for Bitcoin futures. NYSE American
noted that the Chicago Mercantile Exchange (``CME'') imposed a position
limit of 2,000 futures (for the initial spot month) on its Bitcoin
futures contract.\19\ Further, NYSE American provided that on August
28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. NYSE American
noted that a position of 2,000 CME Bitcoin futures, therefore, would
have a notional value of $589,500,000. NYSEAmerican-2024-49 provided
the following table with the share price of each of GBTC, BTC and BITB
on August 28, 2024, and the approximate number of option contracts that
equates to that notional value:
---------------------------------------------------------------------------
\17\ See https://www.blockchain.com/explorer/assets/btc (citing
21 million as the ``total supply'' of bitcoin).
\18\ The market capitalization of Bitcoin would rank in the top
10 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
\19\ See CME Rulebook Chapter 350 (description of CME Bitcoin
Futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME Bitcoin futures contract is valued at five Bitcoins as
defined by the CME CF Bitcoin Reference Rate (``BRR''). See CME Rule
35001.
------------------------------------------------------------------------
Aug. 28th Number of options
Bitcoin Trust share price contracts
------------------------------------------------------------------------
GBTC................................. 46.94 125,585
BTC.................................. 5.23 1,127,151
BITB................................. 32.08 183,759
------------------------------------------------------------------------
NYSE American stated that approximate number of option contracts
for GBTC, BTC and BITB that equate to the notional value of CME Bitcoin
futures was significantly higher than the proposed limit of 25,000
options contract for each option on GBTC, BTC and BITB. Further, NYSE
American noted that the fact that many options ultimately expire out-
of-the-money and thus are not exercised for shares of the underlying,
while the delta of a Bitcoin Future is 1, further demonstrated how
conservative the proposed limits of 25,000 options contracts are for
options on GBTC, BTC and BITB.
The Exchange notes, unlike options contracts, CME position limits
are calculated on a net futures-equivalent basis by contract and
include contracts that aggregate into one or more base contracts
according to an aggregation ratio(s).\20\ Therefore, if a portfolio
includes positions in options on futures, CME would aggregate those
positions into the underlying futures contracts in accordance with a
table published by CME on a delta equivalent value for the relevant
spot month, subsequent spot month, single month and all month position
limits.\21\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position shall not constitute a position limit
violation. Considering CME's position limits on futures for Bitcoin,
the Exchange believes that that the proposed same side position limits
are more than appropriate for the options on Bitcoin Trusts.
---------------------------------------------------------------------------
\20\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\21\ Id.
---------------------------------------------------------------------------
NYSE American noted in NYSEAmerican-2024-049 that the available
supply of Bitcoin is not relevant to the determination of position and
exercise limits for options overlying the GBTC, BTC and BITB.\22\ NYSE
American noted stated that position and exercise limits are not a tool
that should be used to address a potential limited supply of the
underlying of an underlying. NYSE American noted that position and
exercise limits do not limit the total number of options that may be
held, but rather they limit the number of positions a single customer
may hold or exercise at one time.\23\ ``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.'' \24\ NYSE American noted
that position and exercise limit 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.'' \25\
---------------------------------------------------------------------------
\22\ NYSE American in NYSEAmerican-2024-49 stated that it is
unaware of any proposed rule change related to position and exercise
limits for any equity option (including commodity ETF options) for
which the Commission required consideration of whether the available
supply of an underlying (whether it be a corporate stock or an ETF)
or the contents of an ETF (commodity or otherwise) should be
considered when an exchange proposed to establish those limits. See,
e.g., Securities Exchange Act Release No. 57894 May 30, 2008), 73 FR
32061 (June 5, 2008) (SR-CBOE2005-11) (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''). The Exchange notes when
the Commission approved this filing, the position limits in Rule
9054 were the same as they are today. For reference, the current
position and exercise limits for options on SPDR Gold Shares ETF
(``GLD'') and options on iShares Silver Trust (``SLV'') are 250,000
contracts, or 10 times that proposed position and exercise limit for
the Bitcoin Trust options.
\23\ NYSE American in NYSEAmerican-2024-49 provided an example
that supposed an option had a position limit of 25,000 option
contracts and there were a total of 10 investors trading that
option. If all 10 investors maxed out their positions, that would
result in 250,000 option contracts outstanding at that time.
However, if 10 more investors decided to begin trading that option
and also maxed out their positions. This would result in 500,000
option contracts outstanding at that time. NYSE American concluded
that an increase in the number of investors could cause an increase
in outstanding options even if position limits remain unchanged.
\24\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SRCBOE-1997-11).
\25\ Id.
---------------------------------------------------------------------------
The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each of GBTC, BTC and BITB, each of which
described the supply of Bitcoin as being limited to 21,000,000 (of
which approximately 90% had already been mined), and that the limit
would be reached around the year 2140.\26\ Each Registration Statement
permits an unlimited number of shares of the applicable Bitcoin Trust
to be created.
[[Page 95317]]
Further, the Commission approved proposed rule changes that permitted
the listing and trading of shares of each of GBTC, BTC and BITB, which
approval did not comment on the sufficient supply of Bitcoin or address
whether there was a risk that permitting an unlimited number of shares
for a Bitcoin Trust would impact the supply of Bitcoin.\27\ Therefore,
the Exchange believes the Commission had ample time and opportunity to
consider whether the supply of Bitcoin was sufficient to permit the
creation of unlimited Bitcoin Trust shares, and does not believe
considering this supply with respect to the establishment of position
and exercise limits is appropriate given its lack of relevance to the
purpose of position and exercise limits. However, given the significant
size of the Bitcoin supply, the proposed positions limits are more than
sufficient to protect investors and the market.
---------------------------------------------------------------------------
\26\ See, e.g., GBTC Form S-1 Registration Statement, at p. 17,
https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm; BTC Form S-1 Registration Statement, at p. 21,
https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm; and BITB Amendment No 2. to S-1, at p. 47, https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm (``Bitcoin Trusts Reg. Stmts.'').
\27\ See NYSEAMER-2024-49.
---------------------------------------------------------------------------
Based on the foregoing and notwithstanding the position limits in
Options 9, Section 13(d) and exercise limits in Options 9, Section
15(c), ISE proposes the position and exercise limits for the options
Fidelity Fund, the ARK 21 Fund, GBTC, BTC and BITB to be 25,000
contracts on the same side pursuant to proposed Supplementary Material
.01 to Options 9, Section 13 and proposed Supplementary Material .01 to
Options 9, Section 15. Further, Exchange Rules that currently govern
the listing and trading of options on ETFs, including permissible
expirations, strike prices, minimum increments, and margin
requirements, will govern the listing and trading of options on the
Bitcoin Trusts. The proposed position limit, and exercise limit, is
consistent with the Act as it addresses concerns related to
manipulation and protection of investors because the position limit
(and exercise limit) is conservative and appropriate given the Bitcoin
Trusts are actively traded.
Options on the Bitcoin Trusts will be subject to the Exchange's
continued listing standards for options on ETFs set forth in Options 4,
Section 4(g). Specifically, options approved for trading pursuant to
Options 4, Section 3(h) will not be deemed 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 such ETFs
if the ETFs are delisted from trading as provided in subparagraph
(b)(5) of Options 4, Section 4 \28\ or the ETFs are halted or suspended
from trading on their primary market.\29\ In addition, the Exchange
shall consider the suspension of opening transactions in any series of
options of the class covering ETFs in any of the following
circumstances:
---------------------------------------------------------------------------
\28\ Options 4, Section 4(b)(5) provides, If an underlying
security is approved for options listing and trading under the
provisions of Options 4, Section 3(c), the trading volume of the
Original Security (as therein defined) prior to but not after the
commencement of trading in the Restructure Security (as therein
defined), including `when-issued' trading, may be taken into account
in determining whether the trading volume requirement of (3) of this
paragraph (b) is satisfied.
\29\ See Options 4, Section 4(g).
---------------------------------------------------------------------------
(1) in the case of options covering Exchange-Traded Fund Shares
approved pursuant to Options 4, Section 3(h)(A)(i), in accordance with
the terms of subparagraphs (b)(1), (2), (3) and (4) of Options 4,
Section 4; \30\
---------------------------------------------------------------------------
\30\ Options 4, Section 4(b)(5)(1) through (4) provides, if: (1)
there are fewer than 6,300,000 shares of the underlying security
held by persons other than those who are required to report their
security holdings under Section 16(a) of the Act, (2) there are
fewer than 1,600 holders of the underlying security, (3) the trading
volume (in all markets in which the underlying security is traded)
has been less than 1,800,000 shares in the preceding twelve (12)
months, or (4) the underlying security ceases to be an `NMS stock'
as defined in Rule 600 of Regulation NMS under the Exchange Act.
Options 4, Section 3(h)(i) refers to Financial Instruments and Money
Market Instruments. In addition, the Exchange proposes to amend the
citation to ``Options 4, Section 3(h)(A)(i)'' herein to ``Options 4,
Section 3(h)(i).''
(2) in the case of options covering Fund Shares approved
pursuant to Options 4, Section 3(h)(A)(ii),\31\ following the
initial twelve-month period beginning upon the commencement of
trading in the Exchange-Traded Fund Shares on a national securities
exchange and are defined as an ``NMS stock'' under Rule 600 of
Regulation NMS, there were fewer than 50 record and/or beneficial
holders of such Exchange-Traded Fund Shares for 30 or more
consecutive trading days;
---------------------------------------------------------------------------
\31\ Options 4, Section 3(h)(ii) refers to Currency Trust
Shares. In addition, the Exchange proposes to amend the citation to
``Options 4, Section 3(h)(A)(ii)'' herein to ``Options 4, Section
3(h)(ii).''
---------------------------------------------------------------------------
(3) the value of the index or portfolio of securities or non-
U.S. currency, portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts, options on physical commodities and/or Financial
Instruments and Money Market Instruments, on which the Exchange-
Traded Fund Shares are based 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 in such options on the
Exchange inadvisable.
Options on the Bitcoin Trusts would be physically settled contracts
with American-style exercise.\32\ Consistent with current Options 4,
Section 5, which governs the opening of options series on a specific
underlying security (including ETFs), the Exchange will open at least
one expiration month for options on the Bitcoin Trusts and may also
list series of options on the Bitcoin Trusts for trading on a weekly
\33\ or quarterly \34\ basis. The Exchange may also list long-term
equity option series (``LEAPS'') \35\ that expire from twelve to
thirty-nine from the time they are listed.
---------------------------------------------------------------------------
\32\ See Options 4, Section 2, Rights and Obligations of Holders
and Writers, which provides that the rights and obligations of
holders and writers 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/occ_rules.pdf.
\33\ See Supplementary .03 to Options 4, Section 5.
\34\ See Supplementary .04 to Options 4, Section 5.
\35\ See Options 4, Section 8.
---------------------------------------------------------------------------
Pursuant to Options 4, Section 5(d), which governs strike prices of
series of options on ETFs, the interval between strike prices of series
of options on ETFs approved for options trading pursuant to Section
3(h) of Options 4 shall be fixed at a price per share which is
reasonably close to the price per share at which the underlying
security is traded in the primary market at or about the same time such
series of options is first open for trading on the Exchange, or at such
intervals as may have been established on another options exchange
prior to the initiation of trading on the Exchange. With respect to the
Short Term Options Series or Weekly Program, during the month prior to
expiration of an option class that is selected for the Short Term
Option Series Program, the strike price intervals for the related non-
Short Term Option (``Related non-Short Term Option'') shall be the same
as the strike price intervals for the Short Term Option.\36\
Specifically, the Exchange may open for trading Short Term Option
Series at strike price intervals of (i) $0.50 or greater where the
strike price is less than $100, and $1 or greater where the strike
price is between $100 and $150 for all option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150.\37\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval
[[Page 95318]]
Program,\38\ the $0.50 Strike Program,\39\ the $2.50 Strike Price
Program,\40\ and the $5 Strike Program.\41\ Options 3, Section 3
governs the minimum increment for bids and offers for both equity and
index options. Pursuant to Options 3, Section 3, where the price of a
series of options for the Bitcoin Trusts 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 \42\ consistent with the minimum
increments for options on other ETFs listed on the Exchange. Any and
all new series of options on the Bitcoin Trusts that the Exchange lists
will be consistent and comply with the expirations, strike prices, and
minimum increments set forth in Options 4, Section 5 and Options 3,
Section 3, as applicable.
---------------------------------------------------------------------------
\36\ See Supplementary Material .03(e) to Options 4, Section 5.
\37\ Id.
\38\ See Supplementary Material .01 to Options 4, Section 5.
\39\ See Supplementary Material .05 to Options 4, Section 5.
\40\ See Supplementary Material .02 to Options 4, Section 5.
\41\ See Supplementary Material .06 to Options 4, Section 5.
\42\ Options that are eligible to participate in the Penny
Interval Program have a minimum increment of $0.01 below $3.00 and
$0.50 above $3.00. See Supplementary Material .01 to Options 3,
Section 3.
---------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options the Bitcoin Trusts that it applies to the
Exchange's other options products.\43\ ISE's market surveillance staff
would have access to the surveillances conducted by Nasdaq \44\ with
respect to the Bitcoin Trusts and would review activity in the
underlying Bitcoin Trusts when conducting surveillances for market
abuse or manipulation in the options on the Bitcoin Trusts.
Additionally, ISE is a member of the Intermarket Surveillance Group
(``ISG'') under the Intermarket Surveillance Group Agreement. ISG
members work together to coordinate surveillance and investigative
information sharing in the stock, options, and futures markets. In
addition, ISE has a Regulatory Services Agreement 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
surveillance that are common to rules of all options exchanges.\45\
---------------------------------------------------------------------------
\43\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\44\ The Nasdaq Stock Market LLC is an affiliated market of ISE.
\45\ 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
(``common members''). 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.
---------------------------------------------------------------------------
The Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Bitcoin Trusts.
Also, the Exchange represents 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 options on ETFs, including the proposed
options on the Bitcoin Trusts. The underlying shares of spot bitcoin
ETPs, including the Bitcoin Trusts, are also subject to safeguards
related to addressing market abuse and manipulation. As the Commission
stated in the orders approving proposals of several exchanges to list
and trade shares of spot bitcoin-based exchange-traded products: \46\
---------------------------------------------------------------------------
\46\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008, 3009 (January 17, 2024) (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; SRCboeBZX-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 Approval 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.\47\
---------------------------------------------------------------------------
\47\ Id.
The Exchange states that, 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, 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].'' \48\ In light of surveillance measures related
to both options and futures as well as the underlying Bitcoin
Trusts,\49\ 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 Trusts.
---------------------------------------------------------------------------
\48\ Id.
\49\ Id.
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority or
``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 the Bitcoin Trusts up to the number of
expirations currently permissible under the Exchange Rules. Because the
proposal is limited to one class, the Exchange believes any additional
traffic that may be generated from the introduction of the options on
the Bitcoin Trust will be manageable.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\50\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\51\ in particular, in that it is 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) \52\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\50\ 15 U.S.C. 78f(b).
\51\ 15 U.S.C. 78f(b)(5).
\52\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Bitcoin Trusts will remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in
[[Page 95319]]
general, protect investors because offering options on the Bitcoin
Trusts will provide investors with an opportunity to realize the
benefits of utilizing options on a Bitcoin Trust, including cost
efficiencies and increased hedging strategies. The Exchange believes
that offering options on the Bitcoin Trusts 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 options on the Bitcoin Trusts 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,\53\ which, as
described above, are trusts structured in substantially the same manner
as Bitcoin Trusts 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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\53\ See Options 4, Section 3(h)(iv).
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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 Trusts 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 Trust is characterized by a
substantial number of shares that are widely held and actively traded.
Options on the Bitcoin Trusts 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 applicable
margin requirements, will govern the listing and trading of options on
Bitcoin Trusts in the same manner.
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
Trusts 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 Trust is characterized by a
substantial number of shares that are widely held and actively traded.
Options on the Bitcoin Trust 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 Trusts in the same
manner.
The proposed position and exercise limit for options on the Bitcoin
Trusts 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
Trusts' market capitalization, average daily volume, number of
beneficial holders, and high number of outstanding shares.\54\ 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 Trusts are
actively traded.
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\54\ The Exchange notes that IBIT--which has been approved for
options trading--represents a larger percentage of the bitcoin
market than all proposed Bitcoin Trusts. As noted herein, the
Bitcoin Trusts collectively represent approximately 1.51% of the
bitcoin market. By comparison, IBIT options have an approved
position limit of 25,000 contracts per side, which represents 4% of
total underlying spot BTC liquidity, and IBIT is the most liquid
spot Bitcoin ETF.
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Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options the Bitcoin Trusts that it applies to the
Exchange's other options products.\55\ ISE's market surveillance staff
would have access to the surveillances conducted by Nasdaq \56\ with
respect to the Bitcoin Trusts and would review activity in the
underlying Bitcoin Trusts when conducting surveillances for market
abuse or manipulation in the options on the Bitcoin Trusts.
Additionally, ISE is a member of the Intermarket Surveillance Group
(``ISG'') under the Intermarket Surveillance Group Agreement. ISG
members work together to coordinate surveillance and investigative
information sharing in the stock, options, and futures markets. ISE
would be able to obtain information regarding trading and shares of the
Bitcoin Trusts from their primary listing market, and from other
markets that trade shares of the Bitcoin Trusts, through ISG. In
addition, ISE has a Regulatory Services Agreement 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
surveillance that are common to rules of all options exchanges.\57\
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\55\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\56\ The Nasdaq Stock Market LLC is an affiliated market of ISE.
\57\ 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
(``common members''). 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 Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Bitcoin Trusts.
Also, the Exchange represents 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 options on ETFs, including the proposed
options on the Bitcoin Trusts. The underlying shares of spot bitcoin
ETPs, including
[[Page 95320]]
the Bitcoin Trusts, 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
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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.\58\
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\58\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008, 3009 (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; SRCboeBZX-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).
The Exchange states that, 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, 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].'' \59\ In light of surveillance measures related
to both options and futures as well as the underlying Bitcoin
Trusts,\60\ 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 Trusts.
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\59\ Id.
\60\ Id.
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The Exchange has also analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority or
``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 the Bitcoin Trusts up to the number of
expirations currently permissible under the Exchange Rules. Because the
proposal is limited to one class, the Exchange believes any additional
traffic that may be generated from the introduction of the options on
the Bitcoin Trusts will be manageable.
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 Trusts
would need to satisfy the initial listing standards set forth in the
Exchange Rules in the same manner as any other ETF before the Exchange
could list options on them. Additionally, options on the Bitcoin Trusts
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 Bitcoin Trusts.
Also, and as stated above, the Exchange already lists options on other
commodity-based ETPs.
The Exchange does not believe that the proposal to list and trade
options on Bitcoin Trusts 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 options on the
Bitcoin Trusts 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 Trusts, holds bitcoin.\61\ Additionally,
other options exchanges are free to amend their listing rules, as
applicable, to permit them to list and trade options on Bitcoin Trusts.
The Exchange notes that listing and trading options on Bitcoin Trust 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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\61\ See supra note 3.
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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 options on the Bitcoin
Trusts 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 either solicited or received.
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 \62\ and Rule 19b-4(f)(6) thereunder.\63\
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 \64\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\65\
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\62\ 15 U.S.C. 78s(b)(3)(A)(iii).
\63\ 17 CFR 240.19b-4(f)(6).
\64\ 15 U.S.C. 78s(b)(3)(A)(iii).
\65\ 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) \66\ 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),\67\ 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 Fidelity
Wise
[[Page 95321]]
Origin Bitcoin Fund, the ARK21Shares Bitcoin ETF, the Grayscale Bitcoin
Trust (BTC), the Grayscale Bitcoin Mini Trust BTC, and the Bitwise
Bitcoin ETF.\68\ The Exchange has provided information regarding the
underlying Bitcoin Trusts, including, among other things, information
regarding trading volume, the number of beneficial holders, and the
market capitalization of the Bitcoin Trusts. The proposal also
establishes position and exercise limits for options on the Bitcoin
Trusts and provides information regarding the surveillance procedures
that will apply to Bitcoin Trust options. The Commission believes that
waiver of the operative delay could benefit investors by providing an
additional venue for trading Bitcoin Trust 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.\69\
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\66\ 17 CFR 240.19b-4(f)(6).
\67\ 17 CFR 240.19b-4(f)(6)(iii).
\68\ See 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). See also Securities Exchange Act Release No.
101386 (October 18, 2024), 89 FR 84960 (October 24, 2024) (SR-
NYSEAMER-2024-49) (Notice of Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, To Permit the Listing and Trading of Options on
Bitcoin Exchange-Traded Funds).
\69\ 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-ISE-2024-54 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-ISE-2024-54. 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-ISE-2024-54 and should be
submitted on or before December 23, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\70\
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\70\ 17 CFR 200.30-3(a)(12), (59).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28114 Filed 11-29-24; 8:45 am]
BILLING CODE 8011-01-P