[Federal Register Volume 90, Number 73 (Thursday, April 17, 2025)]
[Notices]
[Pages 16332-16339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-06498]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102820; File No. SR-SAPPHIRE-2025-20]
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 402, Criteria for Underlying Securities To List and Trade
Options on the Fidelity Ethereum Fund
April 11, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 9, 2025, MIAX Sapphire, LLC (``MIAX Sapphire'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 16333]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend proposes to amend Exchange Rule 402,
Criteria for Underlying Securities to list and trade options on the
Fidelity Ethereum Fund (the ``Fidelity Fund'').
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings, at the Exchange's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 402, Criteria for
Underlying Securities,\3\ to allow the Exchange to list and trade
options on the Fidelity Fund, designating the Fidelity Fund as
appropriate for options trading on the Exchange.\4\ This is a
competitive filing based on similar proposals submitted by Cboe
Exchange, Inc. (``Cboe'').\5\
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\3\ The Exchange notes that its affiliate options exchanges,
Miami International Securities Exchange, LLC (``MIAX'') and MIAX
PEARL, LLC (``MIAX Pearl''), submitted (or will submit)
substantively similar proposals. The Exchange notes that all the
rules of Chapter III of MIAX including MIAX Rules 307 and 309, are
incorporated by reference into the MIAX Pearl and MIAX Sapphire
rulebooks. The Exchange also notes that all of the rules of Chapter
III of MIAX, including MIAX Rules 307 and 309, and the rules of
Chapter IV of the MIAX, including MIAX Rule 402, are incorporated by
reference into the MIAX Emerald, LLC (``MIAX Emerald'') rulebook.
\4\ On May 23, 2024, the Securities and Exchange Commission (the
``Commission'') approved proposals by NYSE Arca, Inc., The Nasdaq
Stock Market LLC, and Cboe BZX Exchange, Inc. to list and trade the
shares of 8 ether-based commodity-based trust shares and trust
units. See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (Order Granting Accelerated
Approval of Proposed Rule Changes, as Modified by Amendments
Thereto, To List and Trade Shares of Ether-Based Exchange-Traded
Products) (``Ether ETP Approval Order'').
\5\ See Securities Exchange Act Release No. 102797 (April 9,
2025) (Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, to Permit
the Listing and Trading of Options on Shares of the Fidelity
Ethereum Fund) (``Cboe Ether Approval Order'').
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Current Exchange Rule 402(i)(4) provides that securities deemed
appropriate for options trading include shares or other securities
(``Exchange Traded Fund Shares'' or ``ETFs'') that represent certain
types of interests,\6\ including interests in certain specific trusts
that hold financial instruments, money market instruments, or precious
metals (which are deemed commodities).
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\6\ See Exchange Rule 402(i), which permits options trading on
exchange-traded funds (``ETFs'') that: (1) 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 (``Funds''), including, but not limited to, stock index
futures contracts, options on futures, options on securities and
indices, equity caps, collars and floors, swap agreements, forward
contracts, repurchase agreements and reverse repurchase agreements
(the ``Financial Instruments''), and money market instruments,
including, but not limited to, U.S. government securities and
repurchase agreements (the ``Money Market Instruments'') comprising
or otherwise based on or representing investments in broad-based
indexes or portfolios of securities and/or Financial Instruments and
Money Market Instruments (or that hold securities in one or more
other registered investment companies that themselves hold such
portfolios of securities and/or Financial Instruments and Money
Market Instruments); (2) represent interests in a trust or similar
entity that holds a specified non-U.S. currency or currencies
deposited with the trust which when aggregated in some specified
minimum number may be surrendered to the trust or similar entity by
the beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''); (3)
represent commodity pool interests principally engaged, directly or
indirectly, in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on commodity
futures contracts, swaps, forward contracts and/or options on
physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs''); (4) are issued by the SPDR[supreg] Gold Trust, the iShares
COMEX Gold Trust, the iShares Silver Trust, the Aberdeen Standard
Silver ETF Trust, the Aberdeen Standard Physical Gold Trust, the
Aberdeen Standard Palladium ETF Trust, the Aberdeen Standard
Platinum ETF Trust, the Goldman Sachs Physical Gold ETF, the Sprott
Physical Gold Trust, the iShares Bitcoin Trust, the Grayscale
Bitcoin Trust, the Grayscale Bitcoin Mini Trust, the Bitwise Bitcoin
ETF, the Fidelity Wise Origin Bitcoin Fund, or the ARK 21 Shares
Bitcoin ETF; or (5) represent an interest in a registered investment
company (``Investment Company'') organized as an open-end management
company or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies,
which is issued in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities and/or a cash
amount with a value equal to the next determined net asset value
(``NAV''), and when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to
the next determined NAV (``Managed Fund Share''); provided that all
of the conditions listed in (5)(i) and 5(ii) are met.
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The Fidelity Fund is an Ethereum-backed commodity ETFs [sic]
structured as trusts [sic]. Similar to any ETFs currently deemed
appropriate for options trading under Exchange Rule 402(i), the
investment objective of the Fidelity Fund is for its shares to reflect
the performance of Ethereum (less the expenses of the trust's
operations), offering investors an opportunity to gain exposure to
Ethereum without the complexities of Ethereum delivery. As is the case
for ETFs currently deemed appropriate for options trading, the Fidelity
Fund's shares represent units of fractional undivided beneficial
interest in the trust, the assets of which consist principally of
Ethereum and are designed to track Ethereum or the performance of the
price of Ethereum and offer access to the Ethereum market.\7\ The
Fidelity Fund provides investors with cost-efficient alternatives that
allow a level of participation in the Ethereum market through the
securities market. The primary substantive difference between Fidelity
Fund and ETFs currently deemed appropriate for options trading are that
ETFs may hold securities, certain financial instruments, and specified
precious metals (which are deemed commodities), and Bitcoin (which is
also deemed a commodity), while the Fidelity Fund hold [sic] Ethereum
(which is also deemed a commodity).
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\7\ The trust may include minimal cash.
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The Exchange believes that the Fidelity Fund satisfies the
Exchange's initial listing standards for ETFs on which the Exchange may
list options. Specifically, the Fidelity Fund satisfies the initial
listing standards set forth in Exchange Rule 402(i)(5)(i), as is the
case for other ETFs on which the Exchange lists options (including
trusts that hold commodities). Exchange Rule 402(i)(5)(i) requires that
the ETFs must either (1) meet the criteria and standards set forth in
Exchange Rule 402(a) or 402(b),\8\ or (2) be available for creation or
redemption each business day from or through the issuer in cash or in
kind at a price related to net asset value, and the issuer must be
obligated to issue ETFs in a specified aggregate number even if some or
all of the investment
[[Page 16334]]
assets required to be deposited have not been received by the issuer,
subject to the condition that the person obligated to deposit the
investments has undertaken to deliver the investment assets as soon as
possible and such undertaking is secured by the delivery and
maintenance of collateral consisting of cash or cash equivalents
satisfactory to the issuer, as provided in the respective prospectus.
The Fidelity Fund satisfies Exchange Rule 402(i)(5)(i)(B), as it is
subject to this creation and redemption process.
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\8\ Subparagraphs (a) and (b) of Exchange Rule 402 provide for
guidelines to be used by the Exchange when evaluating potential
underlying securities for Exchange option transactions.
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While not required by the Rules for purposes of options listings,
the Exchange believes that the Fidelity Fund satisfies the criteria and
guidelines set forth in Exchange Rule 402. Pursuant to Exchange Rule
402(a), a security (which includes ETFs) 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.\9\ The
Fidelity Fund is an NMS Stock as defined in Rule 600 of Regulation NMS
under the Act.\10\ The Exchange believes that the Fidelity Fund is
characterized by a substantial number of outstanding shares that are
widely held and actively traded.
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\9\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Exchange Rule
403(b).
\10\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
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Based on the data presented in the Cboe filing,\11\ as of December
23, 2024, the Fidelity Fund had 41,700,000 shares outstanding, which is
nearly six times more than the minimum number of shares of a corporate
stock (i.e., 7,000,000 shares) that the Exchange generally requires to
list options on that stock pursuant to Exchange Rule 402(b)(1). The
Exchange believes this demonstrates that the Fidelity Fund is
characterized by a substantial number of outstanding shares.
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\11\ See supra note 5.
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Further, based on the data presented in the Cboe filing,\12\ as of
November 26, 2024, there were 38,170 beneficial holders of shares of
the Fidelity Fund, which is significantly more than 2,000 beneficial
holders (approximately 19 times more), which is the minimum number of
holders the Exchange generally requires for corporate stock in order to
list options on that stock pursuant to Exchange Rule 402(b)(2).
Therefore, the Exchange believes the shares of the Fidelity Fund are
widely held.
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\12\ See supra note 5.
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The Exchange also believes that the shares of the Fidelity Fund are
actively traded. Based on the data presented in the Cboe filing,\13\ as
of December 23, 2024, the total trading volume (by shares) and the
approximate average daily volume (``ADV'') (in shares and notional)
from July 23, 2024 (the date on which shares of the Fidelity Fund began
trading) to December 23, 2024 for the Fidelity Fund was as follows:
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\13\ See supra note 5.
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Trading volume (shares) ADV (shares) ADV (notional $)
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115,589,047..................... 1,070,269 33,864,193
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As demonstrated above based on the data presented in the Cboe
filing,\14\ despite the fact that the Fidelity Fund has been trading
for approximately five months as of December 23, 2024, its total
trading volume as of that date was substantially higher than 2,400,000
shares (more than 48 times that amount), which is the minimum 12-month
volume the Exchange generally requires for a corporate stock in order
to list options on that security as set forth in Rule 402(b)(4).
Additionally, as of December 23, 2024, the trading volume for the
Fidelity Fund was in the top 5% of all ETFs that are currently trading.
The Exchange believes this data demonstrates the Fidelity Fund is
characterized as having shares that are actively traded.
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\14\ See supra note 5.
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Options on the Fidelity Fund will also be subject to the Exchange's
continued listing standards set forth in Exchange Rule 403(g), for ETFs
deemed appropriate for options trading pursuant to Exchange Rule
402(i). Specifically, Exchange Rule 403(g) provides that ETFs that were
initially approved for options trading pursuant to Exchange Rule 402(i)
shall be deemed not to meet the requirements for continued approval,
and the Exchange shall not open for trading any additional series of
option contracts of the class covering such ETFs, if the ETFs are
delisted from trading pursuant to Exchange Rule 403(b)(4) or the ETFs
are halted or suspended from trading in their primary market.
Additionally, options on ETFs may be subject to the suspension of
opening transactions in any of the following circumstances: (1) in the
case of options covering ETFs approved for trading under Exchange Rule
402(i)(5)(i)(A), in accordance with the terms of paragraphs (b)(1),
(2), and (3) of Exchange Rule 403; (2) in the case of options covering
ETFs approved for trading under Exchange Rule 402(i)(5)(i)(B) (as is
the case for the Fidelity Fund), following the initial twelve-month
period beginning upon the commencement of trading in the ETFs on a
national securities exchange and are defined as an NMS stock, there are
fewer than 50 record and/or beneficial holders of such ETFs for 30 or
more consecutive trading days; (3) the value of the index or portfolio
of securities, non-U.S. currency, or portfolio of commodities including
commodity futures contracts, options on commodity futures contracts,
swaps, forward contracts and/or options on physical commodities and/or
financial instruments and money market instruments on which the ETFs
are based is no longer calculated or available; or (4) such other event
shall occur or condition exist that in the opinion of the Exchange
makes further dealing in such options on the Exchange inadvisable.
Options on the Fidelity Fund will be physically settled contracts
with American-style exercise.\15\ Consistent with current Exchange Rule
404, which governs the opening of options series on a specific
underlying security (including ETFs), the Exchange will open at least
one expiration month for options on the Fidelity Fund \16\ at the
commencement
[[Page 16335]]
of trading on the Exchange and may also list series of options on the
Fidelity Fund for trading on a weekly,\17\ monthly,\18\ or quarterly
\19\ basis. The Exchange may also list long-term equity option series
(``LEAPS'') that expire from 12 to 39 months from the time they are
listed.\20\
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\15\ See Exchange Rule 401, which provides that the rights and
obligations of holders and writers are set forth in the Rules of the
Options Clearing Corporation (``OCC''); see also OCC Rules, Chapters
VIII (which governs exercise and assignment) and Chapter IX (which
governs the discharge of delivery and payment obligations arising
out of the exercise of physically settled stock option contracts).
\16\ See Exchange Rule 404(b). The monthly expirations are
subject to certain listing criteria for underlying securities
described within Exchange Rule 404 and its Interpretations and
Policies. 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 Exchange Rule 404(c),
additional series of options of the same class may be opened for
trading on the Exchange when the Exchange deems it necessary to
maintain an orderly market, to meet customer demand or when the
market price of the underlying stock moves more than five strike
prices from the initial exercise price or prices. Pursuant to
Exchange Rule 404(e), new series of options on an individual stock
may be added until the beginning of the month in which the options
contract will expire. Due to unusual market conditions, the
Exchange, in its discretion, may add a new series of options on an
individual stock until the close of trading on the business day
prior to expiration.
\17\ See Exchange Rule 404, Interpretation and Policy .02.
\18\ See Exchange Rule 404, Interpretation and Policy.13.
\19\ See Exchange Rule 404, Interpretation and Policy.03.
\20\ See Exchange Rule 406(a).
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Pursuant to Exchange Rule 404, Interpretation and Policy .06, which
governs strike prices of series of options on ETFs, the interval
between strike prices of series of options on ETFs approved for options
trading pursuant to Exchange Rule 402(i) or shall be fixed at a price
per share which is reasonably close to the price per share at which the
underlying security is traded in the primary market at or about the
same time such series of options is first open for trading on the
Exchange, or at such intervals as may have been established on another
options exchange prior to the initiation of trading on the Exchange.
With respect to the Short Term Options Series or Weekly Program, during
the month prior to expiration of an option class that is selected for
the Short Term Option Series Program, the strike price intervals for
the related non-Short Term Option (``Related non-Short Term Option'')
shall be the same as the strike price intervals for the Short Term
Option.\21\ Specifically, the Exchange may open for trading Short Term
Option Series at strike price intervals of (i) $0.50 or greater where
the strike price is less than $100, and $1 or greater where the strike
price is between $100 and $150 for all option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150.\22\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\23\ the $0.50 Strike
Program,\24\ and the $2.50 Strike Price Program.\25\ Pursuant to
Exchange Rule 510, where the price of a series of options on the
Fidelity Fund 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 \26\ consistent with the minimum increments for options on other
ETFs listed on the Exchange. Any and all new series of the Fidelity
Fund options that the Exchange lists will be consistent and comply with
the expirations, strike prices, and minimum increments set forth in
Rules 404 and 510, as applicable.
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\21\ See Exchange Rule 404, Interpretation and Policy.02(e).
\22\ Id.
\23\ See Exchange Rule 404, Interpretation and Policy .01.
\24\ See Exchange Rule 404, Interpretation and Policy .04.
\25\ See Exchange Rule 404(f).
\26\ See Exchange Rule 510.
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Fidelity Fund options will trade in the same manner as any other
ETF options on the Exchange. The Exchange Rules that currently apply to
the listing and trading of all ETFs options on the Exchange, including,
for example, Exchange Rules that govern listing criteria, expiration
and exercise prices, minimum increments, position and exercise limits,
margin requirements, customer accounts and trading halt procedures will
apply to the listing and trading of the Fidelity Fund options on the
Exchange in the same manner as they apply to other options on all other
ETFs that are listed and traded on the Exchange, including the
precious-metal backed commodity ETFs already deemed appropriate for
options trading on the Exchange pursuant to current Exchange Rule
402(i)(4).
As mentioned above, the rules for position and exercise limits for
options on ETFs, including Fidelity Fund options, are determined
pursuant to MIAX Rules 307 and 309, respectively, as incorporated by
reference into the MIAX Sapphire Rulebook. Position and exercise limits
for ETF options vary according to the number of outstanding shares and
the trading volumes of the underlying ETF over the past six months,
where the largest in capitalization and the most frequently traded ETFs
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 ETFs 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.
The Exchange further notes that MIAX Rule 1502, which governs margin
requirements applicable to trading on the Exchange, including options
on ETFs, will also apply to the trading of the Fidelity Fund options,
as MIAX Chapter XV (Margins) is also incorporated by reference into the
MIAX Sapphire Rulebook. Notwithstanding the position limits in MIAX
Rule 307(d) and exercise limits in MIAX Rule 309, the Exchange proposes
the position and exercise limits for the options on the options on the
[sic] Fidelity Fund to be 25,000 contracts on the same side pursuant to
proposed Interpretation and Policy.01 to MIAX Rule 307 and proposed
Interpretation and Policy.01 to MIAX Rule 309.
The Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Fidelity Fund. Also
the Exchange represents that it has the necessary systems capacity to
support the new option series. The Exchange believes that its existing
surveillance and reporting safeguards are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading options on ETFs, including the proposed Fidelity
Fund options.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to the Fidelity Fund options that it applies to the
Exchange's other options products.\27\ The Exchange's staff will have
access to the surveillance programs conducted by its affiliate
exchanges, MIAX and MIAX Pearl, with respect to trading in the shares
of the underlying Fidelity Fund when conducting surveillances for
market abuse or manipulation in the options on the Fidelity Fund.
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
[[Page 16336]]
stock, options, and futures markets. In addition to obtaining
surveillance data from MIAX and MIAX Pearl, the Exchange will be able
to obtain information regarding trading in the shares of the underlying
Fidelity Fund from Cboe, and other markets through ISG. In addition,
the Exchange has a Regulatory Services Agreement with the Financial
Industry Regulatory Authority (``FINRA''). Pursuant to a multi-party
17d-2 joint plan, all options exchanges allocate regulatory
responsibilities amongst themselves and to FINRA to conduct certain
options-related market surveillance that are common to rules of all
options exchanges.\28\ The underlying shares of spot Ethereum exchange-
traded products (``ETPs''), including the Fidelity Fund, 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 Ethereum-based
ETPs,
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\27\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\28\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
[e]ach Exchange has a comprehensive surveillance sharing agreement
with the [Chicago Mercantile Exchange (``CME'')] via their common
membership in the Intermarket Surveillance Group. This facilitates
the sharing of information that is available to the CME through its
surveillance of its markets, including its surveillance of the CME
bitcoin [sic] futures market.\29\
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\29\ See Ethereum ETP Approval Order, 89 FR 46938.
The Exchange states that, given the consistently high correlation
between the CME Ethereum futures market and the spot Ethereum 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 [Ethereum ETPs].'' \30\ In light of surveillance measures
related to both options and futures as well as the Fidelity Fund,\31\
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
Fidelity Fund. Further, the Exchange represents that it will implement
any new surveillance procedures it deems necessary to effectively
monitor the trading of options on Fidelity Fund.
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\30\ See Ethereum ETP Approval Order, 89 FR 46939.
\31\ See Ethereum ETP Approval Order.
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The Exchange has also analyzed its capacity and represents that it
believes the Exchange and Options Price Reporting Authority(``OPRA'')
have the necessary systems capacity to handle the additional traffic
associated with the listing of new series that may result from the
introduction of options on the Fidelity Fund up to the number of
expirations currently permissible under the Rules. Because the proposal
is limited to one class, the Exchange believes any additional traffic
that may be generated from the introduction of the Fidelity Fund
options will be manageable.
The Exchange believes that offering options on the Fidelity Fund
will benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Ethereum and
hedging vehicle to meet their investment needs in connection with
Ethereum-related products and positions. The Exchange expects investors
will transact in options on the Fidelity Fund in the unregulated over-
the-counter (``OTC'') options market,\32\ but may prefer to trade such
options in a listed environment to receive the benefits of trading
listing [sic] 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 the Fidelity 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 ETFs that hold financial instruments,
money market instruments, or precious metal commodities on which the
Exchange may already list and trade options are trusts structured in
substantially the same manner as the Fidelity Fund and essentially
offer the same objectives and benefits to investors, just with respect
to different assets. The Exchange notes that it has not identified any
issues with the continued listing and trading of any options on ETFs,
including ETFs that hold commodities (i.e., precious metals) that it
currently lists and trades on the Exchange. The Exchange notes that
quotation and last sale information for shares of the Fidelity Fund are
available from the CTA high-speed lines. Quotation and last sale
information for options on the Fidelity Fund will be available from
OPRA and market data vendors.
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\32\ The Exchange understands from customers that investors have
historically transacted in options on ETFs in the OTC options market
if such options were not available for trading in a listed
environment.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\33\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \34\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \35\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\33\ 15 U.S.C. 78f(b).
\34\ 15 U.S.C. 78f(b)(5).
\35\ Id.
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In particular, the Exchange believes that the proposal to list and
trade options on the Fidelity Fund will remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, protect investors because offering options on
the Fidelity Fund will provide investors with an opportunity to realize
the benefits of utilizing options on the Fidelity Fund, including cost
efficiencies and increased hedging strategies. The Exchange believes
that offering the Fidelity Fund options will benefit investors by
providing them with a relatively lower-cost risk management tool, which
will allow them to manage
[[Page 16337]]
their positions and associated risks in their portfolios more easily in
connection with exposure to the price of Ethereum and with Ethereum-
related products and positions. Additionally, the Exchange's offering
of the Fidelity 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 ETFs,\36\ which, as described above, are trusts
structured in substantially the same manner as the Fidelity Fund and
essentially offer the same objectives and benefits to investors, just
with respect to a different commodity (i.e., Ethereum rather than
Bitcoin or precious metals) and for which the Exchange has not
identified any issues with the continued listing and trading of
commodity-backed ETF options it currently lists for trading.
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\36\ See Exchange Rule 402(i)(4).
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The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules, previously filed with the Commission. Options on
Fidelity Fund satisfy the initial listing standards and continued
listing standards currently in the Exchange Rules applicable to options
on all ETFs, including ETFs that hold other commodities already deemed
appropriate for options trading on the Exchange. Additionally, as
demonstrated above, the Fidelity Fund is characterized by a substantial
number of shares that are widely held and actively traded. Fidelity
Fund options will trade in the same manner as any other ETF options--
the same Exchange Rules that currently govern the listing and trading
of all options on ETFs, including permissible expirations, strike
prices and minimum increments, and applicable position and exercise
limits (including as proposed in the filing submitted by Exchange's
affiliate, MIAX), and margin requirements, will govern the listing and
trading of options on the Fidelity Fund in the same manner.
The Exchange believes the proposed position and exercise limits are
designed to prevent fraudulent and manipulative acts and practices and
promote just and equitable principles of trade, as they are designed to
address potential manipulative schemes and adverse market impacts
surrounding the use of options, such as disrupting the market in the
security underlying the options. The proposed position and exercise
limits for options for the Fidelity Fund is 25,000 contracts, which is
currently the lowest limit applicable to any equity options (including
ETF options) and the position and exercise limits that apply to
comparable ETFs that hold Bitcoin. The Exchange believes the proposed
position and exercise limits are extremely conservative for Fidelity
Fund options given the trading volume and outstanding shares for the
Fidelity Fund.
The Exchange represents that it has the necessary systems capacity
to support the new Fidelity 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 ETF options, including Fidelity Fund options.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options on the Fidelity Fund that it applies to the
Exchange's other options products.\37\ The Exchange's staff will have
access to the surveillance programs conducted by its affiliate
exchanges, MIAX and MIAX Pearl, with respect to the underlying Fidelity
Fund when conducting surveillances for market abuse or manipulation in
the options on the Fidelity Fund. The Exchange will review activity in
the underlying Fidelity Fund when conducting surveillances for market
abuse or manipulation in the options on the Fidelity Fund.
Additionally, the Exchange is a member of the 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. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. In addition to obtaining surveillance
data from MIAX and MIAX Pearl, the Exchange will be able to obtain
information from Cboe and other markets through ISG. In addition, the
Exchange has a Regulatory Services Agreement with FINRA. Pursuant to a
multi-party 17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to amongst themselves and FINRA to conduct certain
options-related market surveillance that are common to rules of all
options exchanges.\38\
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\37\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\38\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
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The Exchange 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
Fidelity Fund. Further, the Exchange represents that it will implement
any new surveillance procedures it deems necessary to effectively
monitor the trading of options on the Fidelity Fund.
Finally, the Commission has previously approved the listing and
trading of options on other cryptocurrency backed commodity ETFs
structured as trusts.\39\
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\39\ See Securities Exchange Act Release Nos. 101699 (November
21, 2024), 89 FR 93757 (November 27, 2024) (SR-SAPPHIRE-2024-36)
(Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 402, Criteria for Underlying Securities To List and
Trade Options on the iShares Bitcoin Trust); 101745 (November 25,
2024), 89 FR 94784 (December 2, 2024) (SR-SAPPHIRE-2024-37) (Self-
Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 402, Criteria for Underlying Securities, To List and Trade
Options on the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini
Trust, and the Bitwise Bitcoin ETF); 101730 (November 25, 2024), 89
FR 95301 (December 2, 2024) (SR-SAPPHIRE-2024-38) (Self-Regulatory
Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 402,
Criteria for Underlying Securities To List and Trade Options on the
Fidelity Wise Origin Bitcoin Fund (the ``Fidelity Fund'') and the
ARK 21Shares Bitcoin ETF (the ``ARK 21 Fund'').
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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. In this regard and as
indicated above, the Exchange notes that the rule change is being
[[Page 16338]]
proposed as a competitive response to the filing submitted by Cboe.\40\
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\40\ See supra note 5.
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The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as options on the
Fidelity Fund will be equally available to all market participants who
wish to trade such options and will trade generally in the same manner
as other options. Moreover, options on the Fidelity Fund will be
subject to Exchange Rules that currently govern the listing and trading
of options on ETFs, including permissible expirations, strike prices,
minimum increments, position and exercise limits (including as proposed
in the filing submitted by Exchange's affiliate, MIAX), and margin
requirements. Also, and as stated above, the Exchange already lists
options on other commodity ETFs structured as a trust.\41\ Further, the
Fidelity Fund would need to satisfy the maintenance listing standards
set forth in the Exchange Rules in the same manner as any other ETF for
the Exchange to continue listing options on them.
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\41\ See Exchange Rule 402(i)(4).
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The Exchange does not believe that the proposal to list and trade
options on the Fidelity Fund 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 Fidelity Fund
options trading on the Exchange may make the Exchange a more attractive
marketplace to market participants at other exchanges, such market
participants are free to elect to become market participants on the
Exchange. Additionally, other options exchanges are free to amend their
listing rules, as applicable, to permit them to list and trade options
on the Fidelity Fund. The Exchange notes that listing and trading
Fidelity Fund options on the Exchange will subject such options to
transparent exchange-based rules as well as price discovery and
liquidity, as opposed to alternatively trading such options in the OTC
market.
The Exchange believes that the proposed rule change may relieve any
burden on, or otherwise promote, competition as it is designed to
increase competition for order flow on the Exchange in a manner that is
beneficial to investors by providing them with a lower-cost option to
hedge their investment portfolios. The Exchange notes that it operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues that offer similar products.
Ultimately, the Exchange believes that offering Fidelity 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 Ethereum
prices and Ethereum-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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \42\ and Rule 19b-4(f)(6) thereunder.\43\
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \44\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\45\
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\42\ 15 U.S.C. 78s(b)(3)(A)(iii).
\43\ 17 CFR 240.19b-4(f)(6).
\44\ 15 U.S.C. 78s(b)(3)(A)(iii).
\45\ 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.
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A proposed rule change filed under Rule 19b-4(f)(6) \46\ 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),\47\ 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 and trading of options on
the Fidelity Fund.\48\ The Exchange has provided information regarding
the underlying Fidelity Fund, including, among other things,
information regarding trading volume, the number of beneficial holders,
and the market capitalization of the Fidelity Fund. The proposal also
establishes position and exercise limits for options on the Fidelity
Fund and provides information regarding the surveillance procedures
that will apply to Fidelity Fund options. The Commission believes that
waiver of the operative delay could benefit investors by providing an
additional venue for trading Fidelity Fund options. Therefore, the
Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\49\
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\46\ 17 CFR 240.19b-4(f)(6).
\47\ 17 CFR 240.19b-4(f)(6)(iii).
\48\ See Securities Exchange Act Release No. 102797 (April 9,
2025) (Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of
a Proposed Rule Change, as Modified by Amendment No. 1, to Permit
the Listing and Trading of Options on Shares of the Fidelity
Ethereum Fund).
\49\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-SAPPHIRE-2025-20 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.
[[Page 16339]]
All submissions should refer to file number SR-SAPPHIRE-2025-20. 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-SAPPHIRE-2025-20 and should
be submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06498 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P