[Federal Register Volume 90, Number 31 (Tuesday, February 18, 2025)]
[Notices]
[Pages 9765-9771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-02685]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102402; File No. SR-NYSEARCA-2025-07]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules
Regarding the Position and Exercise Limits for Options on the Grayscale
Bitcoin Trust and To Permit Flexible Exchange Options on the Grayscale
Bitcoin Trust
February 11, 2025.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on January 29, 2025, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. On February 7, 2025, the Exchange filed Amendment No. 1
to the proposed rule change. The Commission is publishing this notice
to solicit comments on the proposed rule change, as amended, 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 amend certain rules to increase the
position and exercise limits for options on the Grayscale Bitcoin Trust
(BTC) (``GBTC'') and to permit Flexible Exchange (``FLEX'') Options on
GBTC. 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 certain rules to increase the
position (and exercise) limits for options on GBTC and to permit GBTC
options to trade as FLEX Equity Options (``FLEX GBTC'') as described
herein. Specifically, the Exchange proposes to (1) amend Commentary
.06(f) to Rule 6.8-O (Position Limits) to increase the position limits
for GBTC options from 25,000 contracts to 250,000 contracts; and (2)
amend Rules 5.32-O(f)(1) (Terms of FLEX) and 5.36-O(b) (Position
Limits) to permit FLEX GBTC options and to aggregate FLEX GBTC
positions with non-FLEX GBTC positions.
The Exchange notes that this proposal is competitive as Nasdaq ISE,
LLC (``ISE'') recently filed a substantively identical proposal to
increase the position and exercise limits for options on the iShares
Bitcoin Trust ETF (``IBIT'') from 25,000 to 250,000 contracts and
permit trading of FLEX options on IBIT.\4\
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\4\ See Securities Exchange Act Release No. 102065 (December 31,
2024) 90 FR 704 (January 6, 2025) (SR-ISE-2024-62) (notice of
proposal to modify Options 9, Sections 13 and 15, to increase the
IBIT options position and exercise limits from 25,000 to 250,000
contracts) (the ``IBIT Proposal''). Although the IBIT Proposal
focuses on position limits, ISE proposes to modify its rules in
Options 3A, FLEX Options Trading Rules, Section 18, to aggregate
``position limits on FLEX Equity Options for [IBIT]'' with non-FLEX
IBIT options. See id.
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Background
GBTC is an ETF that holds bitcoin and is listed on the Exchange.\5\
On
[[Page 9766]]
October 18, 2024, the Commission approved the listing and trading of
GBTC options on NYSE American, LLC (``NYSE American'').\6\ On November
22, 2024, the Exchange obtained rule authority to trade GBTC
options.\7\ The position (and exercise) limits for GBTC options are
25,000 contracts, as set forth in Rule 6.8-O, Commentary .06(f), the
lowest limit available in options.\8\
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\5\ NYSE Arca received approval to list and trade Bitcoin-Based
Commodity-Based Trust Shares in GBTC pursuant to NYSE Arca Rule
8.201-E(c)(1). See Securities Exchange Act Release No. 99306
(January 10, 2024), 89 FR 3008 (January 17, 2024) (Order Granting
Accelerated Approval of Proposed Rule Changes, as Modified by
Amendments Thereto, to list and trade options on, among other ETFs,
GBTC) (SR-NYSEARCA-2021-90).
\6\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (order
approving rules to permit the listing and trading of GBTC options)
(the ``GBTC Options Approval Order'').
\7\ See Securities Exchange Act Release No. 101713 (November 22,
2024), 89 FR 94839 (November 29, 2024) (SR-NYSEARCA-2024-101)
(notice of immediately effective rule change to permit GBTC options
trading, based on the already-approved NYSE American rules) (the
``Arca GBTC Options Notice'').
\8\ See also Rule 6.9-O (Exercise Limits). Pursuant to Rule 6.8-
O, Commentary .06(f), the following ETFs are also subject to a
25,000-contract position and exercise limit: the Grayscale Bitcoin
Mini Trust BTC (``BTC'') and the Bitwise Bitcoin ETF (``BITB''),
options on BTC, BITB, iShares Bitcoin Trust ETF (``IBIT''), Fidelity
Wise Origin Bitcoin Fund (``FBTC''), and ARK 21Shares Bitcoin
(``ARKB'').
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FLEX Equity Options are not generally subject to position (or
exercise) limits.\9\ Today, pursuant to Rule 5.32-O(f)(1), GBTC options
are not approved for FLEX trading.\10\ Therefore, the 25,000-contract
limit for GBTC options currently applies solely to non-FLEX GBTC.
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\9\ See Rule 5.35-O(b) (subject to the exceptions enumerated in
the rule ``there shall be no position limits'' for FLEX Equity
Options).
\10\ Pursuant to Rule 5.32-O(f)(1), FLEX trading is also not
available for options on BTC, BITB, IBIT, FBTC, and ARKB.
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Per the Commission ``rules regarding position and exercise limits
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 positions.'' \11\ For
this reason, the Commission requires that ``position and exercise
limits must be sufficient to prevent investors from disrupting the
market for the underlying security by acquiring and exercising a number
of options contracts disproportionate to the deliverable supply and
average trading volume of the underlying security.'' \12\ Based on its
review of the data and analysis provided by NYSE American, the
Commission concluded that the proposed 25,000-contract position limit
for GBTC options satisfied these objectives.\13\ The Exchange adopted
the already-approved 25,000-contract limit for GBTC options.\14\
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\11\ See GBTC Options Approval Order, 89 FR, at 84971.
\12\ See id.
\13\ See id.
\14\ See Arca GBTC Options Notice, 89 FR, at 94842. See also
Rule 6.8-O, Commentary .06(f).
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For the reasons discussed below, the Exchange proposes to increase
the position (and exercise) limits from 25,000 to 250,000 contracts and
to allow FLEX trading of GBTC options and to aggregate non-FLEX and
FLEX GBTC positions for purposes of calculating the proposed 250,000-
contract limit.\15\
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\15\ See proposed Rules 6.8-O, Commentary .06(f) (removing the
limitation that GBTC options be subject to a position limit of
25,000 contracts); Rule 5.32-O(f)(1) (excluding GBTC options from
prohibition against FLEX trading); and 5.35-O(b)(iii) (adopting
requirement that positions on FLEX and non-FLEX GBTC options be
aggregated for purposes of calculating position and exercise limits
on GBTC options as set forth in Rules 6.8-O and 6.9-O). Absent the
current limit of 25,000 contracts, the position limit for GBTC
options will be determined pursuant to Rule 6.8-O, Commentary
.06(a)-(e). As discussed herein, GBTC options currently qualify for
position (and exercise) limits of 250,000 contracts per Rule 6.8-O,
Commentary .06(e)(i).
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Increased Position Limits
While NYSE American proposed an aggregated 25,000 contract position
limit for GBTC options, it nonetheless believed that evidence existed
to support a much higher position limit.\16\ Specifically, in approving
GBTC trading on NYSE American, the Commission considered and reviewed
NYSE American's analysis that the exercisable risk associated with a
position limit of 25,000 contracts represented only 0.9% of the
outstanding shares of GBTC.\17\ The Commission also considered and
reviewed NYSE American's arguments that with a 25,000-contracts limit,
and 284,570,100 GBTC shares outstanding, 114 market participants would
have to simultaneously exercise their positions to place GBTC under
stress.\18\ Based on the Commission's review of this information and
analysis, the Commission concluded that the proposed position and
exercise limits of 25,000 contracts were designed to prevent investors
from disrupting the market for the underlying security by acquiring and
exercising a number of options contracts disproportionate to the
deliverable supply and average trading volume of the underlying
security, and 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.\19\
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\16\ See GBTC Options Approval Order, 89 FR, at 84970 (referring
to NYSE American's argument that, as of Sept. 30, 2024, GBTC traded
723,758,100 shares in the most recent six months of trading, which
would qualify GBTC for a 250,000-contract position limit per NYSE
American Rule 904, Commentary .07(a), which is identical to Arca
Rule 6.8-O Commentary .06(e)).
\17\ See id. Data represents figures from FactSet as of August
30, 2024.
\18\ Id., 89 FR, at 84971.
\19\ Id.
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Now that GBTC options have been trading for more than two months,
the Exchange proposes to increase the aggregated position (and
exercise) limit for GBTC options to 250,000 contracts. GBTC qualifies
for this increased limit pursuant to Rule 6.8-O Commentary .06(e),
which requires that trading volume for the underlying security in the
most recent six months be at least 100,000,000 shares.\20\ As of
November 25, 2024, the market capitalization for GBTC was
$20,661,316,542 \21\ with an average daily volume (``ADV''), for the
preceding three months prior to November 25, 2024, of 3,829,597 shares.
GBTC is well above the requisite minimum of 100,000,000 shares
necessary to qualify for the 250,000-contract position limit. Also, as
of November 25, 2024, there were 19,787,762 bitcoins in
circulation.\22\ At a price of $94,830,\23\ that equates to a market
capitalization of greater than $1.876 trillion. If a position limit of
250,000 contracts were considered, the exercisable risk would represent
9.13% \24\ of the outstanding shares outstanding of GBTC. Given GBTC's
liquidity, the current 25,000 position limit is extremely conservative.
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\20\ See Rule 6.8-O Commentary .06(e) (providing at subparagraph
(e) that the position limit shall be 250,000 contracts for options:
(i) on underlying stock or Exchange-Traded Fund Share that had
trading volume of at least 100,000,000 shares during the most recent
six-month trading period; or (ii) on an underlying stock or
Exchange-Traded Fund Share that had trading volume of at least
75,000,000 shares during the most recent six-month trading period
and has at least 300,000,000 shares currently outstanding).
\21\ The market capitalization was determined by multiplying a
settlement price ($75.42) by the number of shares outstanding
(273,950,100). Data represents figures from FactSet as of November
25, 2024.
\22\ See https://www.coingecko.com/en/coins/bitcoin.
\23\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\24\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/273,950.100 shares
outstanding).
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As noted above, position limits, and exercise 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. These limits, which are
described in Rules 6.8-O and 6.9-O, are intended 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.
[[Page 9767]]
Position and exercise limits must balance concerns regarding mitigating
potential manipulation and the cost of inhibiting potential hedging
activity that could be used for legitimate economic purposes. To
achieve this balance, the Exchange proposes to increase GBTC's position
and exercise limits from 25,000 contracts to 250,000 contracts and to
apply this aggregated limit to FLEX and non-FLEX GBTC options. The
Exchange believes this proposed aggregated limit is appropriate for the
reasons set forth below.
First, the Exchange reviewed GBTC's data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables. As noted above, as of November 25,
2024, there were 19,787,762 bitcoins in circulation.\25\ At a price of
$94,830,\26\ that equates to a market capitalization of greater than
$1.876 trillion. If an aggregated position limit of 250,000 contracts
were considered, the exercisable risk would represent 9.13% \27\ of the
outstanding shares outstanding of GBTC. Since GBTC has a creation and
redemption process managed through the issuer (whereby bitcoin is used
to create GBTC shares), the position limit can be compared to the total
market capitalization of the entire bitcoin market, and in that case,
the exercisable risk for options on GBTC would represent less than
0.10% of all bitcoin outstanding.\28\ Assuming a scenario where all
options on GBTC shares were exercised, given the proposed 250,000-
contract position (and exercise) limit, this would have a virtually
unnoticed impact on the entire bitcoin market. This analysis
demonstrates that the proposed 250,000 per same side position (and
exercise) limit for GBTC options is appropriate given GBTC's liquidity.
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\25\ See https://www.coingecko.com/en/coins/bitcoin.
\26\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\27\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/273,950,100 shares
outstanding).
\28\ This number was arrived at with this calculation: ((250,000
limit * 100 shares per option * $75.42 settle)/(19,787,762 BTC
outstanding * $94,830 BTC price)).
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Next, the Exchange reviewed the proposed position limit by
comparing it to position limits for derivative products regulated by
the Commodity Futures Trading Commission (``CFTC''). While the CFTC,
through the relevant Designated Contract Markets, only regulates
options positions based upon delta equivalents (creating a less
stringent standard), the Exchange examined equivalent bitcoin futures
position limits. In particular, the Exchange looked to the CME bitcoin
futures contract \29\ that has a position limit of 8,000 futures. On
October 22, 2024, CME bitcoin futures settled at $94,945.\30\ On
October 22, 2024, GBTC settled at $53.64, which would equate to greater
than 17,700,410 shares of GBTC if the CME notional position limit was
utilized.\31\ Since substantial portions of any distributed options
portfolio is likely to be out of the money on expiration, an options
position limit equivalent to the CME position limit for bitcoin futures
(considering that all options deltas are <=1.00) should be a bit higher
than the CME implied 175,578 limit. Of note, 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).\32\ 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.\33\ 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. Based on this analysis, the
Exchange believes that the proposed 250,000 contracts for position and
exercise limits on GBTC options is appropriate.
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\29\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\30\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
\31\ 2,000 futures at a 5-bitcoin multiplier (per the contract
specifications) equates to $949,450,000 (2,000 contracts * 5 BTC per
contract * $94,945 price of November BTC future) of notional value.
\32\ See https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm.
\33\ Id.
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Finally, the Exchange analyzed a position and exercise limit of
250,000 for GBTC against other options on commodity ETFs, namely SPDR
Gold Shares (``GLD'') and iShares Silver Trust (``SLV'').\34\ GLD has a
float of 306.1 million shares \35\ and a position limit of 250,000
contract. SLV has a float of 520.7 million shares \36\ and a position
limit of 250,000 contracts. As previously noted, position and exercise
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. A
position limit exercise in GLD would represent 8.17% of the float of
GLD; and a position limit exercise in SLV would represent 4.8% of the
float of SLV. In comparison, a 250,000-contract position limit in GBTC
would represent 9.13% of the float of GBTC. The proposed 250,000 GBTC
options position and exercise limit is comparable with the standard
applied to GLD and SLV and is therefore appropriate. The Exchange
believes that GBTC options has demonstrated that it has more than
sufficient liquidity to garner an increased position and exercise limit
of 250,000 contracts. The Exchange believes that any concerns related
to manipulation and protection of investors are mollified by the
significant liquidity provision in GBTC.
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\34\ GLD and SLV each hold one asset in trust similar to GBTC.
\35\ See https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld.
\36\ See https://www.ishares.com/us/products/239855/ishares-silver-trust-fund.
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The Exchange believes that increasing the position (and exercise)
limits for GBTC options would lead to a more liquid and competitive
market environment for GBTC options, which will benefit customers that
trade these options. Further, the reporting requirement for such
options would remain unchanged. Thus, the Exchange will still require
that each member that maintains positions in GBTC options on the same
side of the market, for its own account or for the account of a
customer, report certain information to the Exchange. This information
includes, but would not be limited to, the options positions, whether
such positions are hedged and, if so, a description of the hedge(s).
Market Makers would continue to be exempt from this reporting
requirement, however, the Exchange may access Market Maker position
information.\37\
[[Page 9768]]
Moreover, the Exchange's requirement that members file reports with the
Exchange for any customer who held aggregate large long or short
positions on the same side of the market of 200 or more option
contracts of any single class for the previous day will remain at this
level.\38\
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\37\ The Options Clearing Corporation (``OCC'') through the
Large option Position Reporting (``LOPR'') system acts as a
centralized service provider for OTP Holder compliance with position
reporting requirements by collecting data from each OTP Holder or
OTP Firm, consolidating the information, and ultimately providing
detailed listings of each TPH's report to the Exchange, as well as
Financial Industry Regulatory Authority, Inc. (``FINRA''), acting as
its agent pursuant to a regulatory services agreement (``RSA'').
\38\ See Rule 6.6-O. Reporting of Options Positions.
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The Exchange also has no reason to believe that the growth in
trading volume in GBTC options will not continue. Rather, the Exchange
expects continued options volume growth in GBTC as opportunities for
investors to participate in the options markets increase and evolve.
The Exchange believes that the current position and exercise limits in
GBTC options are restrictive and will hamper the listed options markets
from being able to compete fairly and effectively with the over-the-
counter (``OTC'') markets. OTC transactions occur through bilateral
agreements, the terms of which are not publicly disclosed to the
marketplace. As such, OTC transactions do not contribute to the price
discovery process on a public exchange or other lit markets. The
Exchange believes that without the proposed changes to position and
exercise limits for GBTC options, market participants will find the
25,000-contract position limit an impediment to their business and
investment objectives as well as an impediment to efficient pricing. As
a result, market participants may find the less transparent OTC markets
a more attractive alternative to achieve their investment and hedging
objectives, leading to a retreat from the listed options markets, where
trades are subject to reporting requirements and daily surveillance.
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are capable of properly
identifying disruptive and/or manipulative trading activity. The
Exchange also represents that it has adequate surveillances in place to
detect potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. These
procedures monitor market activity to identify unusual activity in both
options and the underlying equities.
FLEX GBTC Options
The Exchange also proposes to permit FLEX GBTC options, which would
be subject to aggregated position (and exercise) limits of 250,000
contracts on all GBTC options (i.e., FLEX and non-FLEX). This proposed
aggregated limit effectively restricts a market participant from
holding positions that could result in the receipt of more than
25,000,000 shares (if that market participant exercised all its GBTC
options).
The share creation and redemption process is designed to ensure
that an ETF's price closely tracks the value of its underlying asset.
For example, if a market participant exercised a long call position for
25,000 contracts and purchased 2,500,000 shares of GBTC and this
purchase resulted in the value of GBTC shares to trade at a premium to
the value of the (underlying) bitcoin held by GBTC, the Exchange
believes that other market participants would attempt to arbitrage this
price difference by selling short GBTC shares while concurrently
purchasing bitcoin. Those market participants (arbitrageurs) would then
deliver cash to GBTC and receive shares of GBTC, which would be used to
close out any previously established short position in GBTC. Thus, this
creation and redemptions process would significantly reduce the
potential risk of price dislocation between the value of GBTC shares
and the value of bitcoin holdings.
The Exchange understands that FLEX Options on ETFs are currently
traded in the OTC market by a variety of market participants, e.g.,
hedge funds, proprietary trading firms, and pension funds, to name a
few. The Exchange believes there is room for significant growth if a
comparable product were introduced for trading on a regulated market.
The Exchange expects that users of these OTC products would be among
the primary users of FLEX GBTC options. The Exchange also believes that
the trading of FLEX GBTC options would allow these same market
participants to better manage the risk associated with the volatility
of GBTC (the underlying ETF) positions given the enhanced liquidity
that an exchange-traded product would bring. Additionally, the Exchange
believes that FLEX GBTC options traded on the Exchange would have three
important advantages over the contracts that are traded in the OTC
market. First, because of greater standardization of contract terms,
exchange-traded contracts should develop more liquidity. Second,
counter-party credit risk would be mitigated by the fact that the
contracts are issued and guaranteed by OCC. Finally, the price
discovery and dissemination provided by the Exchange and its members
would lead to more transparent markets. The Exchange believes that its
ability to offer FLEX GBTC options would aid it in competing with the
OTC market and at the same time expand the universe of products
available to interested market participants. The Exchange believes that
an exchange-traded alternative may provide a useful risk management and
trading vehicle for market participants and their customers.
The Exchange has 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 FLEX GBTC options. The Exchange believes any additional
traffic that would be generated from the trading of FLEX GBTC options
would be manageable. The Exchange believes OTP Holders will not have a
capacity issue as a result of this proposed rule change. The Exchange
also represents that it does not believe this proposed rule change will
cause fragmentation of liquidity. The Exchange will monitor the trading
volume associated with the additional options series listed as a result
of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.
The Exchange represents that the same surveillance procedures
applicable to the Exchange's other options products listed and traded
on the Exchange, including non-FLEX GBTC options, will apply to FLEX
GBTC options, and that it has the necessary systems capacity to support
such options. FLEX options products (and their respective symbols) are
integrated into the Exchange's existing surveillance system
architecture and are thus subject to the relevant surveillance
processes. The Exchange's market surveillance staff (including staff of
FINRA who perform surveillance and investigative work on behalf of the
Exchange pursuant to a regulatory services agreement) conducts
surveillances with respect to GBTC (the underlying ETF) and, as
appropriate, would review activity in GBTC when conducting
surveillances for market abuse or manipulation in the FLEX GBTC
options.\39\ The Exchange does not believe that allowing FLEX GBTC
options would render the marketplace for non-FLEX GBTC options, or
equity options in general, more susceptible to manipulative practices.
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\39\ See supra note 7, GBTC Option Approval Order, 89 FR at
84966-68 (regarding surveillance procedures applicable to GBTC and
other funds that hold bitcoin).
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The Exchange represents that its existing trading surveillances are
adequate to monitor the trading in GBTC and subsequent trading of FLEX
[[Page 9769]]
GBTC options on the Exchange. Additionally, the Exchange 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. For surveillance purposes, the Exchange
would therefore have access to information regarding trading activity
in the pertinent underlying securities. In addition, and as referenced
above, the Exchange has a regulatory services agreement with FINRA,
pursuant to which FINRA conducts certain surveillances on behalf of the
Exchange. Further, pursuant to a multi-party 17d-2 joint plan, all
options exchanges allocate regulatory responsibilities to FINRA to
conduct certain options-related market surveillances.\40\ The Exchange
will implement any additional surveillance procedures it deems
necessary to effectively monitor the trading of GBTC options.
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\40\ 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 proposed rule change is designed to allow investors seeking to
trade options on GBTC to utilize FLEX GBTC options. The Exchange
believes that offering innovative products flows to the benefit of the
investing public. A robust and competitive market requires that
exchanges respond to member's evolving needs by constantly improving
their offerings. Such efforts would be stymied if exchanges were
prohibited from offering innovative products such as the proposed FLEX
GBTC options. The Exchange believes that introducing FLEX GBTC options
would further broaden the base of investors that use FLEX Options (and
options on GBTC in general) to manage their trading and investment
risk, including investors that currently trade in the OTC market for
customized options. The proposed rule change is also designed to
encourage market makers to shift liquidity from the OTC market on the
Exchange, which, it believes, will enhance the process of price
discovery conducted on the Exchange through increased order flow.
Implementation
The Exchange will announce the implementation date by Trader Update
within sixty (60) days of the rule approval.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (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 prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\41\ 15 U.S.C. 78f(b).
\42\ 15 U.S.C. 78f(b)(5).
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Increased Position Limits
The Exchange believes increasing the aggregated position (and
exercise limits) for GBTC options from 25,000 contracts to 250,000
contracts will remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest, because it will provide
market participants with the ability to more effectively execute their
trading and hedging activities. Also, increasing the aggregated
position (and exercise) limits for GBTC options may allow Market Makers
to maintain their liquidity in these options in amounts commensurate
with the continued demand in GBTC options. The proposed higher position
and exercise limit may also encourage other liquidity providers to
continue to trade on the Exchange rather than shift their volume to OTC
markets, which will enhance the process of price discovery conducted on
the Exchange through increased order flow. The Exchange notes that a
higher position and exercise limit would further allow institutional
investors to utilize GBTC options for prudent risk management purposes.
The Exchange analyzed several data points that supported the
appropriateness of the proposed aggregated 250,000-contract position
(and exercise) limit on GBTC options. As noted above, a comparison of
GBTC's market capitalization to the bitcoin market in terms of exercise
risk and availability of deliverables revealed that the exercisable
risk of the proposed 250,000-contract limit represented 9.13% of the
GBTC outstanding. Further, since GBTC has a creation and redemption
process managed through the issuer (whereby bitcoin is used to create
GBTC shares), the proposed position limit as compared to the market
capitalization of the bitcoin market, indicated that the exercisable
risk for GBTC options represented less than 0.10% of all bitcoin
outstanding. Moreover, a comparison of the proposed GBTC position limit
to the (actual) position limits for equivalent bitcoin futures revealed
that the proposed 250,000-contracts limit is appropriate. Finally, the
Exchange's comparison of the proposed position limit against current
position limits on commodity-based ETFs, namely GLD and SLV revealed a
position limit exercise in GLD represents 8.17% of its float and a
position limit exercise in SLV represents 4.8% of its float. By
comparison, a 250,000-contract position limit in GBTC options would
represent 9.13% of the GBTC float. As noted above, although, the
proposed 250,000-contract limit on GBTC options is not as conservative
as the standard applied to GLD and SLV, it is comparable and is
therefore appropriate.
FLEX GBTC Options
The Exchange believes that the proposal to permit FLEX GBTC options
would remove impediments to and perfect the mechanism of a free and
open market. The Exchange believes that offering FLEX GBTC options will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of bitcoin and
provide a hedging vehicle to meet their investment needs in connection
with a bitcoin-related product. Moreover, the proposal would broaden
the base of investors that use FLEX Options to manage their trading and
investment risk, including investors that currently trade in the OTC
market for customized options. By trading a product in an exchange-
traded environment (that is currently being used in the OTC market),
the Exchange would be able to compete more effectively with the OTC
market. The Exchange believes the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that it would
lead to the migration of options currently trading in the OTC market to
trading to the Exchange. Also, any migration to the Exchange from the
OTC market would result in increased market transparency and enhance
the process of price discovery conducted on the Exchange through
increased order flow. The
[[Page 9770]]
Exchange also believes that offering FLEX GBTC options may open up the
market for options on GBTC to more retail investors.
Additionally, the Exchange believes the proposed rule change is
designed to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest because FLEX GBTC options are
designed to create greater trading and hedging opportunities and
flexibility. The proposed rule change should also result in enhanced
efficiency in initiating and closing out positions and heightened
contra-party creditworthiness due to the role of OCC as issuer and
guarantor of FLEX GBTC options. Further, the proposed rule change would
result in increased competition by permitting the Exchange to offer
products that are currently used in the OTC market.
The Exchange believes that offering innovative products flows to
the benefit of the investing public. A robust and competitive market
requires that exchanges respond to member's evolving needs by
constantly improving their offerings. Such efforts would be stymied if
exchanges were prohibited from offering innovative products such as the
proposed FLEX GBTC options. The Exchange does not believe that allowing
FLEX GBTC options would render the marketplace for equity options more
susceptible to manipulative practices.
Finally, the Exchange represents that it has an adequate
surveillance program in place to detect manipulative trading in FLEX
GBTC options. Regarding the proposed FLEX GBTC options, the Exchange
would use the same surveillance procedures currently utilized for FLEX
Options listed on the Exchange (as well as for non-FLEX GBTC options).
For surveillance purposes, the Exchange would have access to
information regarding trading activity in GBTC (the underlying
ETF).\43\ In light of surveillance measures related to both options and
GBTC (the underlying ETF), 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 FLEX GBTC options.
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\43\ See supra note 7, GBTC Options Approval Order, 89 FR at
84966-68 (regarding surveillance procedures applicable to GBTC and
other funds that hold bitcoin).
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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.
Increased Position Limits. The Exchange believes that its proposal
to increase the aggregated position limit for GBTC options will not
burden intra-market competition because the increased limit would be
available to all similarly-situated market participants and would
provide additional opportunities for market participants to continue to
efficiently achieve their investment and trading objectives for equity
options on the Exchange. The proposed rule change will not impose any
burden on inter-market competition as the proposal is not competitive
in nature. The Exchange expects that all option exchanges will adopt
substantively similar proposals for adopting the additional position
limit tiers, such that the Exchange's proposal would benefit
competition. For these reasons, the Exchange does not believe that the
proposed rule change will impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
FLEX GBTC Options. The Exchange believes that the proposal to
permit FLEX GBTC options will not impose any burden on intra-market
competition as all market participants can opt to utilize this product
or not. The proposed rule change is designed to allow investors seeking
option exposure to bitcoin to trade FLEX GBTC options. Moreover, the
Exchange believes that the proposal to permit FLEX GBTC options would
broaden the base of investors that use FLEX Options to manage their
trading and investment risk, including investors that currently trade
in the OTC market for customized options. The Exchange believes that
the proposed FLEX GBTC options will not impose any burden on inter-
market competition but will instead encourage competition by increasing
the variety of options products available for trading on the Exchange,
which products will provide a valuable tool for investors to manage
risk. Should this proposal be approved, competing options exchanges
will be free to offer products like the proposed FLEX GBTC options.
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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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-NYSEARCA-2025-07 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-NYSEARCA-2025-07. 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
[[Page 9771]]
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-NYSEARCA-
2025-07 and should be submitted on or before March 11, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02685 Filed 2-14-25; 8:45 am]
BILLING CODE 8011-01-P