[Federal Register Volume 90, Number 73 (Thursday, April 17, 2025)]
[Notices]
[Pages 16247-16253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-06494]
[[Page 16247]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102816; File No. SR-NYSEAMER-2025-23]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Amend Rules
904, Rule 915, and 916
April 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 April 9, 2025, NYSE American LLC (``NYSE American'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rules 904, Rule 915, and 916 to
allow the Exchange to list and trade options on the iShares Ethereum
Trust ETF and the Fidelity Ethereum Fund. The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 904 (Position Limits), Rule 915
(Criteria for Underlying Securities), and Rule 916 (Withdrawal of
Approval of Underlying Securities) to allow the Exchange to list and
trade options on the following exchange-traded products: the iShares
Ethereum Trust ETF (``ETHA'') and the Fidelity Ethereum Fund (``FETH'')
(each, an ``Ether Fund'' or collectively, the ``Ether Funds'').\4\ This
is a competitive filing based on similar proposals submitted by Nasdaq
ISE, LLC (``ISE'') and Cboe Exchange, Inc. (``Cboe'') and approved by
the Securities and Exchange Commission (the ``Commission'').\5\
---------------------------------------------------------------------------
\4\ See proposed Rule 915, Commentary .10(a).
\5\ See Securities Exchange Act Release Nos. 102798 (April 9,
2025) (SR-ISE-2024-35) (approving the listing and trading of options
on ETHA); 102797 (April 9, 2025) (SR-Cboe-2024-036) (approving the
listing and trading of options on FETH) (collectively, the ``Ether
ETP Options Approval Orders'').
---------------------------------------------------------------------------
Rule 915 provides that, subject to certain other criteria set forth
in the Rule, securities deemed appropriate for options trading include
Exchange-Traded Fund Shares (or ETFs) as defined in Commentary .06,
that represent certain types of interests \6\ and exchange-traded
products (``ETPs'') structured as trusts that hold precious metals
(which are deemed commodities).\7\ Recently, the Exchange received
approval from the Commission to list and trade options on specific
funds that hold bitcoin (also deemed a commodity).\8\ Like ETPs backed
by precious metals and bitcoin (i.e., commodities), the Exchange
proposes to allow options trading on the Ether Funds that hold ether--
which is also deemed a commodity.\9\
---------------------------------------------------------------------------
\6\ See Rule 915, Commentary .06, which permits options trading
on ETFs that are traded on a national securities exchange and are
defined as an ``NMS stock'' in Rule 600(b)(55) [sic] of Regulation
NMS, that represent interests in registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts or similar entities that hold
portfolios of securities and/or financial instruments including, but
not limited to, stock index futures contracts, options on futures,
options on securities and indexes, equity caps, collars and floors,
swap agreements, forward contracts, repurchase agreements and
reverse purchase agreements (the ``Financial Instruments''), and
money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements (the ``Money Market
Instruments'') comprising or otherwise based on or representing
investments in indexes or portfolios of securities and/or Financial
Instruments and Money Market Instruments (or that hold securities in
one or more other registered investment companies that themselves
hold such portfolios of securities and/or Financial Instruments and
Money Market Instruments); interests in a trust or similar entity
that holds a specified non-U.S. currency deposited with the trust or
similar entity when aggregated in some specified minimum number may
be surrendered to the trust by the beneficial owner to receive the
specified non-U.S. currency and pays the beneficial owner interest
and other distributions on deposited non-U.S. currency, if any,
declared and paid by the trust (``Currency Trust Shares'');
commodity pool interests principally engaged, directly or
indirectly, in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on commodity
futures contracts, swaps, forward contracts and/or options on
physical commodities and/or non-U.S. currency (``Commodity Pool
Units''); or represents an interest in a registered investment
company (``Investment Company'') organized as an open-end management
investment company or similar entity, that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies, which is issued in a specified aggregate minimum number in
return for a deposit of a specified portfolio of securities and/or a
cash amount with a value equal to the next determined net asset
value (``NAV''), and when aggregated in the same specified minimum
number, may be redeemed at a holder's request, which holder will be
paid a specified portfolio of securities and/or cash with a value
equal to the next determined NAV (``Managed Fund Share''); provided
that all of the conditions listed in Rules 915 and 916 are met.
\7\ See Rule 915, Commentary .10 (permitting the listing and
trading of options on shares of the following trusts: SPDR Gold
Trust, the iShares COMEX Gold Trust the iShares Silver Trust, the
ETFS Gold Trust, and the ETFS Silver Trust).
\8\ On October 19 [sic], 2024, the Commission approved NYSE
American's proposal to list and trade options on the Grayscale
Bitcoin Trust (BTC) (``GBTC''), the Grayscale Bitcoin Mini Trust BTC
(``BTC''), and the Bitwise Bitcoin ETF (``BITB''). See Securities
Exchange Act Release No. 101386 (October 18, 2024), 89 FR 84960
(October 24, 2024) (SR-NYSEAMER-2024-49). See also Rule 915,
Commentary .10(a) (permitting options trading on bitcoin-backed
ETPs, including GBTC, BTC, and BITB).
\9\ See proposed Rule 915, Commentary .10(a) (permitting the
Exchange to list and trade options on shares of ETHA and FETH,
pursuant to Rule 915 and 916).
---------------------------------------------------------------------------
The Ether Funds are structured as trusts that hold ether. Like ETFs
and ETPs currently deemed appropriate for options trading, the
investment objective of each Ether Fund trust is for its shares to
reflect the performance of ether (less the expenses of the trust's
operations), offering investors an opportunity to gain exposure to
ether without the complexities of ether delivery. Each Ether Fund's
shares represent units of fractional undivided beneficial interest in
the trust, the assets of which consist principally of ether and are
designed to track ether or the performance of the price of ether and
offer access to the ether market.\10\ The Ether Funds provide investors
with cost-efficient alternatives that allow a level of participation in
the ether market through the securities market.
---------------------------------------------------------------------------
\10\ The trust may include minimal cash.
---------------------------------------------------------------------------
[[Page 16248]]
The Exchange believes each Ether Fund satisfies the Exchange's
initial listing standards set forth in Commentary .01 to Rule 915.\11\
The Exchange notes that the Ether Funds also satisfy the listing
standard applied to ETFs traded on the Exchange that they be available
for creation and redemption each business day as set forth in
Commentary .06(a)(ii).\12\
---------------------------------------------------------------------------
\11\ Commentary .01 to Rule 915 provides for guidelines to be
used by the Exchange when evaluating potential underlying securities
for Exchange option transactions.
\12\ Commentary .06(a)(ii) requires that ETFs must be available
for creation or redemption each business day from or through the
issuer in cash or in kind at a price related to net asset value, and
the issuer must be obligated to issue ETFs in a specified aggregate
number even if some or all of the investment assets required to be
deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investments has
undertaken to deliver the investment assets as soon as possible and
such undertaking is secured by the delivery and maintenance of
collateral consisting of cash or cash equivalents satisfactory to
the issuer, as provided in the respective prospectus.
---------------------------------------------------------------------------
First, each of the Ether Funds satisfy the criteria and guidelines
set forth in Rule 915(a). Pursuant to Rule 915(a), a security on which
options may be listed and traded on the Exchange must be duly
registered (with the Commission) and be an NMS stock (as defined in
Rule 600 of Regulation NMS under the Act) and be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.\13\ Each of the Ether Funds is an NMS Stock as defined
in Rule 600 of Regulation NMS under the Act.\14\ The Exchange believes
each Ether Fund is characterized by a substantial number of outstanding
shares that are widely held and actively traded.
---------------------------------------------------------------------------
\13\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Commentary .01 to
Rule 915, subject to exceptions.
\14\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
---------------------------------------------------------------------------
The Ether Funds had the following number of shares outstanding and
corresponding market capitalization.
------------------------------------------------------------------------
Shares Market
Ether Fund outstanding capitalization
------------------------------------------------------------------------
ETHA (as of 10/22/24)............. 57,440,000 1,160,000,000
FETH (as of 12/23/24)............. 41,700,000 1,433,229,000
------------------------------------------------------------------------
As shown above, each of the Ether Funds had significantly more than
7,000,000 shares outstanding, which is the minimum number of shares of
a corporate stock that the Exchange generally requires to list options
on that stock pursuant to the Exchange's rules. The Exchange believes
this demonstrates that each Ether Fund is characterized by a
substantial number of outstanding shares.
Further, the below table contains information regarding the number
of beneficial holders of the Ether Funds.
------------------------------------------------------------------------
Beneficial
Ether Fund holders
------------------------------------------------------------------------
ETHA (as of 12/19/24)................................ 93,352
FETH (as of 11/26/24)................................ 38,170
------------------------------------------------------------------------
As this table shows, each Ether Fund has significantly more than
2,000 beneficial holders (approximately 46 and 19 times more,
respectively), which is the minimum number of holders the Exchange
generally requires for corporate stock to list options on that stock
pursuant to the Exchanges [sic] rules. Therefore, the Exchange believes
the shares of each Ether Fund are widely held.
The Exchange also believes that shares of the Ether Funds are
actively traded. Both Funds began trading on July 23, 2024. Regarding
ETHA, since the inception of trading through December 14, 2024, the
average daily volume was 5,302,533 shares and the average notional
volume for this period is $127,825,276.00. For FETH, since the
inception of trading through December 23, 2024, the average daily
volume was 115,589,047 shares and the average notional volume for this
period is $33,864,193. Even though the Ether Funds have been trading
for less than a year, the trading volume for each Ether Fund is
substantially higher than 2,400,000 shares (roughly 2 and 48 times that
amount), which is the minimum 12-month volume the Exchange generally
requires for a security to list options on that security. The Exchange
believes this data demonstrates each Ether Fund is characterized by a
substantial number of outstanding shares that are actively traded.
In addition to satisfying the Exchange's initial listing standards,
options on Ether Funds will be subject to the Exchange's continued
listing standards as set forth in Commentary .07 to Rule 916.\15\
Pursuant to Commentary .07 to Rule 916, the Exchange will not open for
trading any additional series of option contracts covering a fund
traded on the Exchange if such fund ceases to be an ``NMS stock'' as
provided for Commentary .01(5) to Rule 916 or the fund is halted from
trading on its primary market.\16\ Additionally, options on funds
traded on the Exchange may be subject to the suspension of opening
transactions as follows: (1) the fund no longer meets the terms of
Commentary .01 to Rule 916 (i.e., the continued listing standards); (2)
following the initial twelve-month period beginning upon the
commencement of trading of the fund, there are fewer than 50 record
and/or beneficial holders of the fund for 30 or more consecutive
trading days; (3) the value of the underlying commodity is no longer
calculated or available; or (4) such other event occurs or condition
exists that in the opinion of the Exchange makes further dealing on the
Exchange inadvisable.\17\
---------------------------------------------------------------------------
\15\ The Exchange proposes to modify Commentary .11 to Rule 916
to include the Ether Funds in the list of ETPs deemed ``Exchange-
Traded Fund Shares'' (or ETFs) for purposes of the continued listing
standards set forth in Commentary .07 to Rule 916. See proposed
Commentary .11 to Rule 916.
\16\ See Commentary .07 to Rule 916.
\17\ See id.
---------------------------------------------------------------------------
Options on each Ether Fund will be physically settled contracts
with American-style exercise.\18\ Consistent with Rule 903, which
governs the opening of options series on a specific underlying security
(including ETFs and ETPs), the Exchange will open at least one
expiration month for options on each Ether Fund \19\ at the
commencement of trading on the
[[Page 16249]]
Exchange and may also list series of options on Ether Funds for trading
on a weekly,\20\ monthly,\21\ or quarterly \22\ basis. The Exchange may
also list long-term equity option series (``LEAPS'') that expire from
twelve to thirty-nine months from the time they are listed.\23\
---------------------------------------------------------------------------
\18\ See Rule 902 (Rights and Obligations of Holders and
Writers), which provides that the rights and obligations of holders
and writers of option contracts of any class of options dealt in on
the Exchange shall be as set forth in the Rules of the Clearing
Corporation. See also OCC Rules, Chapter VIII, which governs
exercise and assignment, and Chapter IX, which governs the discharge
of delivery and payment obligations arising out of the exercise of
physically settled stock option contracts. OCC Rules can be located
at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf.
\19\ The monthly expirations are subject to certain listing
criteria for underlying securities described within Rule 915.
Monthly listings expire the third Friday of the month. The term
``expiration date'' (unless separately defined elsewhere in the OCC
By-Laws), when used in respect of an option contract (subject to
certain exceptions), means the third Friday of the expiration month
of such option contract, or if such Friday is a day on which the
exchange on which such option is listed is not open for business,
the preceding day on which such exchange is open for business. See
OCC By-Laws Article I, Section 1. Pursuant to Rule 903(d),
additional series of options of the same class may be opened for
trading on the Exchange when the Exchange deems it necessary to
maintain an orderly market, to meet customer demand or when the
market price of the underlying stock moves more than five strike
prices from the initial exercise price or prices. New series of
options on an individual stock may be added until the beginning of
the month in which the options contract will expire. See Rule 903,
Commentary .04. Due to unusual market conditions, the Exchange, in
its discretion, may add a new series of options on an individual
stock until the close of trading on the business day prior to
expiration. See id.
\20\ See Rule 903(h).
\21\ See Rule 903, Commentary .11.
\22\ See Rule 903, Commentary .09.
\23\ See Rule 903, Commentary .03.
---------------------------------------------------------------------------
Pursuant to Rule 903, Commentary .05(a), which governs strike
prices of series of options on ETFs, the interval between strike prices
of series of options on Ether Funds will be $1 or greater when the
strike price is $200 or less and $5 or greater where the strike price
is over $200.\24\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\25\ the $0.50 Strike
Program,\26\ the $2.50 Strike Price Program,\27\ and the $5 Strike
Program.\28\ Pursuant to Rule 960NY, where the price of a series of a
Ether Fund option is less than $3.00, the minimum increment will be
$0.05, and where the price is $3.00 or higher, the minimum increment
will be $0.10.\29\ Any and all new series of Ether Fund options that
the Exchange lists will be consistent and comply with the expirations,
strike prices, and minimum increments set forth in Rules 903 and 960NY,
as applicable. Further, the Exchange notes that Rule 462, which governs
margin requirements applicable to the trading of all options on the
Exchange, including options on ETFs and ETPs, will also apply to the
trading of Ether Fund options.
---------------------------------------------------------------------------
\24\ The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Monthly Options Series
Program, and the Quarterly Options Series Program, Rules 903(h) and
Commentaries .09 and .11 to Rule 903, specifically set forth
intervals between strike prices on such option series.
\25\ See Rule 903, Commentary .06.
\26\ See Rule 903, Commentary .13.
\27\ See Rule 903, Commentary .07(a).
\28\ See Rule 903, Commentary .12.
\29\ If options on any of the Ether Funds are eligible to
participate in the Penny Interval Program, the minimum increment of
$0.01 below $3.00 and $0.50 above $3.00 would apply. See Rule
960NY(a)(3). See also Rule 960.1NY (which describes the requirements
for the Penny Interval Program).
---------------------------------------------------------------------------
The Exchange may authorize for trading a FLEX option class on any
equity security if it may authorize for trading a non-FLEX option class
on that equity security pursuant to Rule 915, subject to specified
exceptions.\30\ At this time, the Exchange is not proposing to permit
Ether Fund options to trade as FLEX options.\31\
---------------------------------------------------------------------------
\30\ See Rule 903G(a)(1). See generally Section 15 (Flexible
Exchange (``FLEX'') Options).
\31\ See Rule 903G(a)(1) (providing that the Exchange may
authorize FLEX trading of on any equity security that is eligible
for non-FLEX trading under Rule 915 ``except those set forth in
Commentary .10(a) to Rule 915,'' i.e., the Ether Funds). The
Exchange may submit a subsequent rule filing that would permit the
Exchange to authorize FLEX trading of Ether Fund options, which
filing may propose changes to existing FLEX option position limits
for such options as appropriate.
---------------------------------------------------------------------------
Position and Exercise Limits
Position and exercise limits for options, including options on
Ether Funds, are determined pursuant to Rules 904 and 905,
respectively. Position and exercise limits for options vary according
to the number of outstanding shares and the trading volumes of the
underlying security over the past six months, where the largest in
capitalization and the most frequently traded funds have an option
position and exercise limit of 250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market; and
smaller capitalization funds have position and exercise limits of
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market.\32\
---------------------------------------------------------------------------
\32\ See Commentary .07(a)-(d) to Rule 904. For an option to be
eligible for the 50,000-contract limit, the security underlying the
option must have most recent six-month trading volume of at least
20,000,000 shares, or most recent six-month trading volume of at
least 15,000,000 shares and at least 40,000,000 shares currently
outstanding. For an option to be eligible for the 75,000-contract
limit, the underlying security must have most recent six-month
trading volume of at least 40,000,000 shares, or most recent six-
month trading volume of at least 30,000,000 shares and at least
120,000,000 shares currently outstanding. For an option to be
eligible for the 200,000-contract limit, the underlying security
must have most recent six-month trading volume of at least
80,000,000 shares, or most recent six-month trading volume of at
least 60,000,000 shares and at least 240,000,000 shares currently
outstanding. For an option to be eligible for the 250,000-contract
limit, the security underlying the option must have most recent six-
month trading volume of at least 100,000,000 shares, or most recent
six-month trading volume of at least 75,000,000 shares and at least
300,000,000 shares currently outstanding. The 25,000-contract
position limit applies to options on underlying securities that do
not qualify for a higher contract limit. See Commentary .07(e) to
Rule 904. In addition, Commentary .07(f) to Rule 904 establishes
higher position limits for options on certain ETFs.
---------------------------------------------------------------------------
Position limits are designed to limit the number of options
contracts traded on the Exchange in an underlying security that an
investor, acting alone or in concert with others directly or
indirectly, may control. The purpose of position limits, which are set
forth in Rule 904, is to address potential manipulative schemes and
adverse market impacts surrounding the use of options, such as
disrupting the market in the security underlying the options.
Accordingly, position limits must balance concerns regarding mitigating
potential manipulation and the cost of inhibiting potential hedging
activity that investors may use for legitimate economic purposes. To
achieve this balance, the Exchange proposes to set the position and
exercise limits for the options on the Ether Funds at 25,000 contracts,
a limit which has already been approved for options on ETPs that hold
bitcoin.\33\ Capping the position limit at 25,000 contracts, the lowest
limit available in options, would address concerns related to
manipulation and protection of investors as this number is conservative
for the Ether Funds and therefore appropriate given their liquidity.
---------------------------------------------------------------------------
\33\ See proposed Rule 904, Commentary .07(f) (proposing a
25,000-contract position limit for Ether Fund options, the same
limit that has been approved for options on bitcoin-backed ETPs as
set forth in current Commentary .07(f)). The exercise limit for
Ether Fund options will be the same as the position limit (i.e.,
25,000-contract). See Rule 905(a)(i).
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes the proposal to list
options on the Ether Funds with positions and exercise limits of 25,000
on the same side, the lowest position limit available in the options
industry, is conservative and appropriate given the market
capitalization, average daily volume, and high number of outstanding
shares for each of the Ether Funds.\34\ The proposed position and
exercise limits reasonably and appropriately balance the liquidity
provisioning in the market against the prevention of manipulation. The
Exchange believes these proposed limits are effectively designed to
prevent an individual customer or entity from establishing options
positions that could be used to manipulate the market of the underlying
Ether Funds as well as the ether market.
---------------------------------------------------------------------------
\34\ The Exchange may file a subsequent rule change to amend the
position and exercise limit for options on any or all the Ether
Funds based on additional data regarding trading activity, to
continue to balance any concerns regarding manipulation. A higher
position limit would allow institutional investors to utilize
options on the Ether Funds for prudent risk management purposes.
---------------------------------------------------------------------------
As described herein, options on Ether Funds will trade in the same
manner as any other ETF or ETP options on the Exchange, except that the
Ether Funds will not be eligible for FLEX option trading. The Exchange
Rules that currently apply to the listing and trading of options on the
Exchange, including, for example, Rules that govern listing criteria,
expiration and exercise prices, minimum increments, margin
requirements, customer accounts and trading halt procedures will apply
to the listing and trading of Ether Funds
[[Page 16250]]
on the Exchange in the same manner as they apply to all other ETFs and
ETPs that are listed and traded on the Exchange, including the precious
metal-backed commodity ETPs already deemed appropriate for options
trading on the Exchange. Further, as described above, Exchange Rules
regarding position and exercise limits will likewise apply to options
on the Ether Funds except that, as proposed, the position and exercise
limits will be set at 25,000 on the same side.
The Exchange notes that options on Ether Funds would not be
available for trading until The Options Clearing Corporation (``OCC'')
represents to the Exchange that it is fully able to clear and settle
such options. The Exchange has also analyzed its capacity and
represents that it and The Options Price Reporting Authority (``OPRA'')
have the necessary systems capacity to handle the additional traffic
associated with the listing of options on Ether Funds. The Exchange
believes any additional traffic that would be generated from the
trading of options on Ether Funds would be manageable. The Exchange
represents that Exchange members will not have a capacity issue as a
result of this proposed rule change.
The Exchange represents that the same surveillance procedures
applicable to all other options currently listed and traded on the
Exchange will apply to options on Ether Funds, and that it has the
necessary systems capacity to support the new option series. The
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal-commodity backed ETP options, as well as the proposed
options on Ether Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Ether Funds in all trading sessions and to deter and detect violations
of Exchange rules. Specifically, the Exchange's market surveillance
staff will have access to surveillances that it conducts, and that the
Financial Industry Regulatory Authority (``FINRA'') conducts on its
behalf, with respect to the Ether Funds and, as appropriate, would
review activity in the underlying Funds when conducting surveillances
for market abuse or manipulation in the options on the Ether Funds.
Additionally, the Exchange is a member of the Intermarket Surveillance
Group (``ISG'') under the ISG Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition to the surveillance
that is conducted by the Exchange's market surveillance staff, the
Exchange would also be able to obtain information regarding trading in
shares of the Ether Funds on other exchanges though ISG. Further, the
Exchange has a Regulatory Services Agreement (``RSA'') with FINRA.
Pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate regulatory responsibilities to FINRA to conduct certain
options-related market surveillances.\35\ The Exchange notes that it
will implement any new surveillance procedures it deems necessary to
effectively monitor the trading of options on the Ether Funds.
---------------------------------------------------------------------------
\35\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot ether ETPs, including the Ether
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in its order approving
proposals of several exchanges to list and trade shares of spot ether-
based exchange-traded products:
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 ether futures market.\36\
---------------------------------------------------------------------------
\36\ See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937, 46938 (May 30, 2024) (File Nos. SR-NYSEARCA-
2023-70; SR-NYSEARCA-2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023-
069; SR-CboeBZX-2023-070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095;
SR-CboeBZX-2024-018) (Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, to List
and Trade Ether-Based Commodity-Based Trust Shares and Trust Units)
(``Ether ETP Approval Order'').
The Exchange states that, given the consistently high correlation
between the CME ether futures market and the spot ether 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 Ether ETPs].'' \37\ In light of surveillance measures related
to both options and futures as well as the underlying Ether Funds,\38\
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
Ether Funds.
---------------------------------------------------------------------------
\37\ See Ether ETP Approval Order, 89 FR, at 46941.
\38\ See id.
---------------------------------------------------------------------------
Finally, quotation and last sale information for ETFs is available
via the Consolidated Tape Association (``CTA'') high speed line.
Quotation and last sale information for such securities is also
available from the exchange on which such securities are listed.
Quotation and last sale information for options on Ether Funds will be
available via OPRA and major market data vendors.
The Exchange believes that offering options on Ether Funds will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of ether and
hedging vehicle to meet their investment needs in connection with
ether-related products and positions. The Exchange expects investors
will transact in options on Ether Funds in the unregulated over-the-
counter (``OTC'') options market,\39\ but may prefer to trade such
options in a listed environment to receive the benefits of trading
listed options, including (1) enhanced efficiency in initiating and
closing out position; (2) increased market transparency; and (3)
heightened contra-party creditworthiness due to the role of OCC as
issuer and guarantor of all listed options. The Exchange believes that
listing Ether Fund options may cause investors to bring this liquidity
to the Exchange, would increase market transparency and enhance the
process of price discovery conducted on the Exchange through increased
order flow. The Exchange notes that the ETPs that hold precious metal
commodities on which the Exchange may already list and trade options
are trusts structured in substantially the same manner as Ether Funds
and essentially offer the same objectives and benefits to investors,
just with respect to different assets. The Exchange notes that it has
not identified any issues with the
[[Page 16251]]
continued listing and trading of options on any ETFs or ETPs that hold
commodities (i.e., precious metals) that it currently lists and trades
on the Exchange.
---------------------------------------------------------------------------
\39\ The Exchange understands from customers that investors have
historically transacted in options on ETFs in the OTC options market
if such options were not available for trading in a listed
environment.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \40\ in general and furthers the
objectives of Section 6(b)(5) of the Act \41\ in particular, in that it
is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system, and, in general, to protect
investors and the public interest.
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78f(b).
\41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade Ether Fund options will remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, protect investors because offering options on Ether Funds
will provide investors with an opportunity to realize the benefits of
utilizing options on an Ether Fund, including cost efficiencies and
increased hedging strategies.
The Exchange believes that offering Ether Fund options will benefit
investors by providing them with a relatively lower-cost risk
management tool, which will allow them to manage their positions and
associated risk in their portfolios more easily in connection with
exposure to the price of ether and with ether-related products and
positions. Additionally, the Exchange's offering of Ether Fund options
will provide investors with the ability to transact in such options in
a listed market environment as opposed to in the unregulated OTC
options market, which would increase market transparency and enhance
the process of price discovery conducted on the Exchange through
increased order flow to the benefit of all investors. The Exchange also
notes that it already lists options on other commodity-based ETPs,\42\
which, as described above, are trusts structured in substantially the
same manner as Ether Funds and essentially offer the same objectives
and benefits to investors, just with respect to a different commodity
(i.e., ether rather than precious metals) and for which the Exchange
has not identified any issues with the continued listing and trading of
commodity-backed ETP options it currently lists for trading.
---------------------------------------------------------------------------
\42\ See Rule 915, Commentaries .10 (permitting the listing and
trading of options on shares of ETPs that hold precious metals) and
.10(a) (permitting the listing and trading of options on shares of
ETPs that hold bitcoin).
---------------------------------------------------------------------------
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
Ether Funds satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules applicable to options on all
ETFs and ETPs, including ETPs that hold other commodities already
deemed appropriate for options trading on the Exchange. Additionally,
as demonstrated above, each Ether Fund is characterized by a
substantial number of shares that are widely held and actively traded.
Ether Fund options will trade in the same manner as any other ETF or
ETP options--the same Exchange Rules that currently govern the listing
and trading of options, including permissible expirations, strike
prices, minimum increments, and margin requirements, will govern the
listing and trading of options on Ether Funds in the same manner.
The Exchange believes the proposal to exclude Ether Fund options
from eligibility for FLEX trading is consistent with the Act because it
will permit the Exchange to continue to participate in ongoing
discussions with the Commission regarding appropriate position limits
for options on these Funds.\43\ In addition, this proposal benefits
investors and in public interest because adds clarity and transparency
to Exchange rules making them easier to navigate and understand, which
in turn removes impediments to and perfects the mechanism of a free and
open market and a national market system.
---------------------------------------------------------------------------
\43\ The Exchange may submit a subsequent rule filing that would
permit the Exchange to authorize for trading FLEX options on the
Ether Funds (which filing may propose changes to existing FLEX
option position limits for such options if appropriate).
---------------------------------------------------------------------------
The proposed position and exercise limit for options on the Ether
Funds is 25,000 contracts, which proposed limits were recently approved
for ETPs that hold bitcoin.\44\ 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 Ether Funds' market capitalization, average daily volume, number of
beneficial holders, and high number of outstanding shares. The proposed
position and exercise limits are consistent with the Act as they
addresses [sic] concerns related to manipulation and protection of
investors because the position and exercise limits are extremely
conservative and more than appropriate given the Ether Funds are
actively traded.
---------------------------------------------------------------------------
\44\ See Rule 904, Commentary .07(f) (providing that options on
bitcoin-backed ETPs are subject to a 25,000-contract position limit)
and Rule 905(a)(i) (providing that the exercise limit for Ether Fund
options is the same as the position limit established per Rule 904).
---------------------------------------------------------------------------
The Exchange represents that it has the necessary systems capacity
to support the new Ether Fund options. The Exchange believes that its
existing surveillance and reporting safeguards are designed to deter
and detect possible manipulative behavior which might arise from
listing and trading options, including Ether Fund options. The
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal-commodity backed ETP options as well as the proposed
options on Ether Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Ether Funds in all trading sessions and to deter and detect violations
of Exchange rules. Specifically, the Exchange's market surveillance
staff will have access to surveillances that it conducts, and that
FINRA conducts on its behalf, with respect to the Ether Funds and, as
appropriate, would review activity in the underlying Funds when
conducting surveillances for market abuse or manipulation in the
options on the Ether Funds. Additionally, the Exchange is a member of
the ISG under the ISG Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition to the surveillance
that is conducted by the Exchange's market surveillance staff, the
Exchange would also be able to obtain information regarding trading in
shares of the Ether Funds on other exchanges though ISG. Further, the
Exchange has an RSA with the FINRA and as noted herein, pursuant to a
multi-party 17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillances. The Exchange will implement any new surveillance
procedures it deems necessary to effectively monitor the trading of
options on the Ether Funds.
The underlying shares of spot ether ETPs, including the Ether
Funds, are also subject to safeguards related to addressing market
abuse and
[[Page 16252]]
manipulation. As the Commission stated in its order approving proposals
of several exchanges to list and trade shares of spot ether-based ETPs,
``[e]ach Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that is
available to the CME through its surveillance of its markets, including
its surveillance of the CME ether futures market.'' \45\ The Exchange
states that, given the consistently high correlation between the CME
ether futures market and the spot ether 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 [Ether ETPs].'' \46\
In light of surveillance measures related to both options and futures
as well as the underlying Ether Funds,\47\ 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 Ether Funds. Further,
the Exchange will implement any new surveillance procedures it deems
necessary to effectively monitor the trading of options on Ether ETPs.
---------------------------------------------------------------------------
\45\ See Ether ETP Approval Order, 89 FR 46938.
\46\ See Ether ETP Approval Order, 89 FR 46941.
\47\ See id.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intramarket Competition: The Exchange does not believe that the
proposed rule change will impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act as Ether Fund options would need to satisfy the initial listing
standards set forth in the Exchange Rules in the same manner as any
other option on an ETF before the Exchange could list these options.
Additionally, Ether Fund options will be equally available to all
market participants who wish to trade such options. The Exchange Rules
currently applicable to the listing and trading of options on ETFs on
the Exchange will apply in the same manner to the listing and trading
of all options on Ether Funds. Also, and as stated above, the Exchange
already lists options on other commodity-based ETPs.\48\
---------------------------------------------------------------------------
\48\ See Rule 915, Commentaries .10 (permitting the listing and
trading of options on shares of ETPs that hold precious metals) and
.10(a) (permitting the listing and trading of options on shares of
ETPs that hold bitcoin).
---------------------------------------------------------------------------
Intermarket Competition: The Exchange does not believe that the
proposal to list and trade options on Ether Funds will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the extent that the
advent of Ether Fund options trading on the Exchange may make the
Exchange a more attractive marketplace to market participants at other
exchanges, such market participants are free to elect to become market
participants on the Exchange. As noted herein, this filing based on
similar proposals submitted by ISE and Cboe and approved by the
Commission.\49\ Additionally, other options exchanges are free to amend
their listing rules, as applicable, to permit them to list and trade
options on the Ether Funds. The Exchange notes that listing and trading
Ether Fund options on the Exchange will subject such options to
transparent exchange-based rules as well as price discovery and
liquidity, as opposed to alternatively trading such options in the OTC
market.
---------------------------------------------------------------------------
\49\ See supra note 5, Ether ETP Options Approval Orders.
---------------------------------------------------------------------------
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 Ether Fund options for
trading on the Exchange will promote competition by providing investors
with an additional, relatively low-cost means to hedge their portfolios
and meet their investment needs in connection with ether prices and
ether-related products and positions on a listed options exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
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 \50\ and Rule 19b-4(f)(6) thereunder.\51\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \52\ and Rule
19b-4(f)(6) \53\ thereunder.
---------------------------------------------------------------------------
\50\ 15 U.S.C. 78s(b)(3)(A)(iii).
\51\ 17 CFR 240.19b-4(f)(6).
\52\ 15 U.S.C. 78s(b)(3)(A)(iii).
\53\ 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 Exchange has satisfied this requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \54\ 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),\55\ 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 Ether
Funds.\56\ The Exchange has provided information regarding the
underlying Ether Funds, including, among other things, information
regarding trading volume, the number of beneficial holders, and the
market capitalization of the Ether Funds. The proposal also establishes
position and exercise limits for options on the Ether Funds and
provides information regarding the surveillance procedures that will
apply to Ether Funds options. The Commission
[[Page 16253]]
believes that waiver of the operative delay could benefit investors by
providing an additional venue for trading Ether Funds 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.\57\
---------------------------------------------------------------------------
\54\ 17 CFR 240.19b-4(f)(6).
\55\ 17 CFR 240.19b-4(f)(6)(iii).
\56\ See Ether ETP Options Approval Orders, supra note 5.
\57\ 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).
---------------------------------------------------------------------------
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 will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSEAMER-2025-23 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEAMER-2025-23. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEAMER-2025-23 and should
be submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
---------------------------------------------------------------------------
\58\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06494 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P