[Federal Register Volume 90, Number 73 (Thursday, April 17, 2025)]
[Notices]
[Pages 16388-16402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-06501]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102823; File No. SR-ISE-2025-11]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Its
Rules To Allow the Exchange To List Options on the Fidelity Ethereum
Fund, the Bitwise Ethereum ETF, the Grayscale Ethereum Trust, and the
Grayscale Ethereum Mini Trust
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, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Exchange filed the proposal as
a ``non-controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 4, Section 3, Criteria for
Underlying Securities, to list and trade options on the (1) Fidelity
Ethereum Fund (the ``Fidelity Fund''); (2) Bitwise Ethereum ETF
(``Bitwise Fund'' or ``ETHW''); (3) the Grayscale Ethereum Trust
(``Grayscale Fund'' or ``ETHE''); (4) and Grayscale Ethereum Mini Trust
(``Grayscale Mini Fund'' or ``ETH'').
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rulefilings,
at the principal office of the Exchange, and at the Commission's Public
Reference Room.
[[Page 16389]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 4, Section 3, Criteria for
Underlying Securities, to allow the Exchange to list and trade options
on the (1) Fidelity Ethereum Fund (the ``Fidelity Fund''); (2) Bitwise
Ethereum ETF (``Bitwise Fund'' or ``ETHW''); (3) the Grayscale Ethereum
Trust (``Grayscale Fund'' or ``ETHE''); (4) and Grayscale Ethereum Mini
Trust (``Grayscale Mini Fund'' or ``ETH''), (collectively ``Ether
Trusts'') as ``Units'' deemed appropriate for options trading on the
Exchange.\5\ Options on each Ether Trust were approved for trading on
other options exchanges.\6\
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\5\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (SR-Cboe-2024-035) (Notice of
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2
and 3, To Permit the Listing and Trading of Options on Ether
Exchange-Traded Funds). See also Securities Exchange Act Release
Nos. 100224 (May 23, 2024), 89 FR 46937 (May 30, 2024) (SR-NYSEARCA-
2023-70; SR-NYSEARCA-2024-31) (order approving the listing and
trading of, among other Ether-Based Exchange-Traded Products, the
Bitwise Ethereum ETF and the Grayscale Ethereum Trust (ETH)); and
100541 (July 17, 2024), 89 FR 59786 (July 23, 2024) (SRNYSEARCA-
2024-44) (order approving the listing and trading of, among others,
the Grayscale Ethereum Trust Mini).
\6\ See Securities Exchange Act Release Nos. 102797 (April 9,
2025) (SR-Cboe-2024-036) (not yet published) (``Cboe Proposal'');
102799 (April 9, 2025), (not yet published) (SR-NYSEAMER-2024-45)
(``NYSE American Proposal'').
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Currently, Options 4, Section 3(h) provides that securities deemed
appropriate for options trading shall include shares or other
securities (``Exchange-Traded Fund Shares'' or ``ETFs'') that are
traded on a national securities exchange and are defined as an ``NMS''
stock under Rule 600 of Regulation NMS, and that meet certain criteria
specified in Options 4, Section 3(h), including that they:
(i) represent interests in registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts or similar entities that hold
portfolios of securities and/or financial instruments, including,
but not limited to, stock index futures contracts, options on
futures, options on securities and indices, equity caps, collars and
floors, swap agreements, forward contracts, repurchase agreements
and reverse repurchase agreements (the ``Financial Instruments''),
and money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements (the ``Money Market
Instruments'') comprising or otherwise based on or representing
investments in broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market Instruments (or that hold
securities in one or more other registered investment companies that
themselves hold such portfolios of securities and/or Financial
Instruments and Money Market Instruments) or
(ii) represent interests in a trust or similar entity that holds
a specified non-U.S. currency or currencies deposited with the trust
when aggregated in some specified minimum number may be surrendered
to the trust or similar entity by the beneficial owner to receive
the specified non-U.S. currency or currencies and pays the
beneficial owner interest and other distributions on the deposited
non-U.S. currency or currencies, if any, declared and paid by the
trust (``Currency Trust Shares'') or
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing portfolios or
baskets of securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs'') or
(iv) represent interests in the SPDR[supreg] Gold Trust, the
iShares COMEX Gold Trust, the iShares Silver Trust, the Aberdeen
Standard Physical Gold Trust, or the iShares Ether Trust or
(v) represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management company
or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies,
which is issued in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities and/or a cash
amount with a value equal to the next determined net asset value
(``NAV''), and when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to
the next determined NAV (``Managed Fund Share'').
In addition to the aforementioned requirements, Options 4, Section
3(h)(1) and (2) must be met to list options on ETFs.\7\
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\7\ Options 4, Section 3(h)(1) and (2) state that the Exchange-
Traded Fund Shares either (i) meet the criteria and guidelines set
forth in paragraphs (a) and (b) described herein; or (ii) the
Exchange-Traded Fund Shares are available for creation or redemption
each business day from or through the issuing trust, investment
company, commodity pool or other entity in cash or in kind at a
price related to net asset value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in a specified aggregate number
even if some or all of the investment assets and/or cash required to
be deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investment assets
has undertaken to deliver them as soon as possible and such
undertaking is secured by the delivery and maintenance of collateral
consisting of cash or cash equivalents satisfactory to the issuer of
the Exchange-Traded Fund Shares, all as described in the Exchange-
Traded Fund Shares' prospectus. Also, the Exchange-Traded Fund
Shares based on international or global indexes, or portfolios that
include non-U.S. securities, shall meet the criteria in Options 4,
Section 3(h)(2)(A)-(F).
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Proposal
The Exchange proposes to expand the list of ETFs that are
appropriate for options trading on the Exchange in Options 3, Section
4(h)(iv) to include the Ether Trusts.\8\
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\8\ Specifically, the Exchange proposes to amend Options 3,
Section 4(h)(iv) to include the name of each Ether Trust to enable
options to be listed on the Ether Trusts on the Exchange.
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The Ether Trusts are Ether-backed commodity ETFs structured as
trusts. Similar to any Unit currently deemed appropriate for options
trading under Options 3, Section 4(h), the investment objective of each
Ether 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. As is the case for Units currently deemed appropriate for
options trading, a Ether Trust'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.\9\ The
Ether Trusts provide investors with cost-efficient alternatives that
allow a level of participation in the Ether market through the
securities market. The primary substantive difference between Ether
Trusts and Units currently deemed appropriate for options trading are
that Units may hold securities, certain financial instruments, and
specified precious metals (which are deemed commodities), while Ether
Trusts hold Ether (which is also deemed a commodity).
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\9\ The trust may include minimal cash.
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The Exchange believes each Ether Trust satisfies the Exchange's
initial
[[Page 16390]]
listing standards for Units on which the Exchange may list options.
Specifically, each Ether Trust satisfies the initial listing standards
set forth in Options 3, Section 4(h), as is the case for other Units on
which the Exchange lists options (including trusts that hold
commodities). Currently, Options 4, Section 3(h)(1) and (2) requires
that Units must either (i) meet the criteria and guidelines set forth
in paragraphs (a) and (b) described herein; or (ii) be available for
creation or redemption each business day from or through the issuing
trust, investment company, commodity pool or other entity in cash or in
kind at a price related to net asset value, and the issuer is obligated
to issue Exchange-Traded Fund Shares in a specified aggregate number
even if some or all of the investment assets and/or cash required to be
deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investment assets
has undertaken to deliver them as soon as possible and such undertaking
is secured by the delivery and maintenance of collateral consisting of
cash or cash equivalents satisfactory to the issuer of the Exchange-
Traded Fund Shares, all as described in the Exchange-Traded Fund
Shares' prospectus. Each Ether Trust Fund satisfies Options 4, Section
3(h)(1) and (2), as each is subject to this creation and redemption
process.
While not required by the Rules for purposes of options listings,
the Exchange believes each Ether Trust satisfies the criteria and
guidelines set forth in Options 4, Section 3(b).\10\ Options 4, Section
3(a), a security (which includes a Unit) on which options may be listed
and traded on the Exchange must be duly registered (with the
Commission) and be an NMS stock (as defined in Rule 600 of Regulation
NMS under the Securities Exchange Act of 1934, as amended (the
``Act'')), and be characterized by a substantial number of outstanding
shares that are widely held and actively traded.\11\ Each Ether Trust
is an NMS Stock as defined in Rule 600 of Regulation NMS under the
Act.\12\ The Exchange believes each Ether Trust is characterized by a
substantial number of outstanding shares that are widely held and
actively traded.
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\10\ ISE Options 4, Section 3(b) states that, in addition, the
Exchange shall from time to time establish guidelines to be
considered in evaluating potential underlying securities for
Exchange options transactions. There are many relevant factors which
must be considered in arriving at such a determination, and the fact
that a particular security may meet the guidelines established by
the Exchange does not necessarily mean that it will be selected as
an underlying security. Further, in exceptional circumstances an
underlying security may be selected by the Exchange even though it
does not meet all of the guidelines. The Exchange may also give
consideration to maintaining diversity among various industries and
issuers in selecting underlying securities. Notwithstanding the
forgoing, however, absent exceptional circumstances, an underlying
security will not be selected unless: (1) There are a minimum of
seven (7) million shares of the underlying security which are owned
by persons other than those required to report their stock holdings
under Section 16(a) of the Exchange Act; (2) There are a minimum of
2,000 holders of the underlying security; (3) The issuer is in
compliance with any applicable requirements of the Exchange Act; (4)
Trading volume (in all markets in which the underlying security is
traded) has been at least 2,400,000 shares in the preceding twelve
(12) months; (5) Either: (i) If the underlying security is a
``covered security'' as defined under Section 18(b)(1)(A) of the
Securities Act of 1933: (A) the market price per share of the
underlying security has been at least $3.00 for the previous three
consecutive business days preceding the date on which the Exchange
submits a certificate to the Clearing Corporation for listing and
trading, as measured by the closing price reported in the primary
market in which the underlying security is traded; however, (B) the
requirements set forth in (5)(i)(A) will be waived during the three
days following its initial public offering day for an underlying
security having a market capitalization of at least $3 billion based
upon the offering price of its initial public offering, and may be
listed and traded starting on or after the second business day
following the initial public offering day; or (ii) If the underlying
security is not a ``covered security,'' the market price per share
of the underlying security has been at least $7.50 for the majority
of business days during the three calendar months preceding the date
of selection, as measured by the lowest closing price reported in
any market in which the underlying security traded on each of the
subject days. Notwithstanding the requirements set forth in
Paragraphs 1, 2, 4 and 5 above, the Exchange may list and trade an
options contract if (i) the underlying security meets the guidelines
for continued approval in Options 4, Section 4; and (ii) options on
such underlying security are traded on at least one other registered
national securities exchange.
\11\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Options 4, Section
3(b), subject to exceptions.
\12\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
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Fidelity Fund
Based on data filed in the Cboe Proposal, 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 is generally required to list options on
that stock pursuant to Options 4, Section 3(b)(1). The Cboe Proposal
noted that it believed that this demonstrates that the Fidelity Fund is
characterized by a substantial number of outstanding shares. Further,
the Cboe Proposal noted that 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 generally required
for corporate stock in order to list options on that stock pursuant to
Options 4, Section 3(b)(2). Therefore, the Cboe Proposal noted that it
believed the shares of the Fidelity Fund were widely held and actively
traded. Further, the Cboe Proposal noted that 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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Trading volumes (shares) ADV (shares) ADV (notional $)
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115,589,047........................ 1,070,269 33,864,193
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The Cboe Proposal noted that, as demonstrated above, 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 generally required
for a corporate stock in order to list options on that security as set
forth in ISE Options 4, Section 3(b). 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 Cboe Proposal noted that this data
demonstrates the Fidelity Fund is characterized as having shares that
are actively traded.
[[Page 16391]]
Grayscale Fund, Grayscale Mini Fund or Bitwise Fund (``NYSE Ether
Funds'')
The NYSE American Proposal noted that, as of November 29, 2024, the
NYSE Ether Funds had the following number of shares outstanding (and
corresponding market capitalization):
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Market capitalization
NYSE Ether Fund Shares outstanding (11/29/24)
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ETHE.......................................................... 177,838,500 $5,425,852,635
ETH........................................................... 45,220,787 1,547,003,157
ETHW.......................................................... 16,600,000 430,886,200
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The NYSE American Proposal noted that, as shown above, each of the
NYSE 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 Options 4, Section 5(d).\13\ The NYSE American Proposal
stated that it believed this demonstrates that each NYSE Ether Fund is
characterized by a substantial number of outstanding shares. The NYSE
American Proposal provided the below table, noting that it contained
information regarding the number of beneficial holders of the Ether
Funds as of December 31, 2024.
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\13\ NYSE American noted that on November 19, 2024, ETH
underwent a reverse stock split, reducing the number of shares
outstanding--and increasing the share price--tenfold.
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Beneficial
Ether Fund holders (as of 12/
31/24)
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ETHE................................................. 112,320
ETH.................................................. 17,396
ETHW................................................. 5,992
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The NYSE American Proposal noted that, as this table shows, each
NYSE Ether Fund has significantly more than 2,000 beneficial holders
(approximately 56, 9, and 3 times more, respectively), which is the
minimum number of holders that is generally required for corporate
stock in order to list options on that stock pursuant to pursuant to
Options 4, Section 5(b)(2).\14\ NYSE American noted that it believed
that the shares of each NYSE Ether Fund are widely held and that, based
on trading volume since the Funds began trading on July 23, 2024,
shares of the NYSE Ether Funds are actively traded. In particular, the
table below sets forth the total trading volume (by shares and
notional) from the inception of trading through either November 29,
2024 (for ETHE and ETH) or December 31, 2024 (for ETHW). The NYSE
American Proposal noted that, in addition, the below table illustrates
the average daily volume (``ADV'') over the 30-day period of either
October 29, 2024--through November 29, 2024 (for ETHE and ETH) or
November 29, 2024--through December 31, 2024 (for ETHW).\15\
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\14\ The number of beneficial holders of ETH may have been
impacted by the 10:1 reverse stock split, as investors with fewer
than 10 shares would have received a cash payout. See id.
\15\ See FactSet, 11/29/2024 and 12/31/24, https://www.factset.com/data-attribution.
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Trading volume Trading volume
NYSE Ether Fund (shares) (notional $) ADV (shares)
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ETHE...................................................... 427,312,540 $10,289,781,199 4,237,811
ETH....................................................... 172,400,020 4,614,428,230 3,065,796
ETHW...................................................... 44,477,060 959,491,343 291,627
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The NYSE American Proposal noted that, as demonstrated above, even
though the NYSE Ether Funds have been trading for less than one year,
the trading volume for each NYSE Ether Fund is substantially higher
than 2,400,000 shares (roughly 178, 72, and 16 times that amount),
which is the minimum 12-month volume that is generally required for a
security in order to list options on that security as set forth in
Options 4, Section 3(b)(4). The NYSE American Proposal noted that this
data demonstrated that each NYSE Ether Fund was characterized by a
substantial number of outstanding shares that are actively traded.
Options on the Ether Trusts will be subject to the Exchange's
continued listing standards for options on ETFs set forth in Options 4,
Section 4(g). Specifically, options approved for trading pursuant to
Options 4, Section 3(h) will not be deemed to meet the requirements for
continued approval, and the Exchange shall not open for trading any
additional series of option contracts of the class covering such ETFs
if the ETFs are delisted from trading as provided in subparagraph
(b)(5) of Options 4, Section 4 \16\ or the ETFs are halted or suspended
from trading on their primary market.\17\ In addition, the Exchange
shall consider the suspension of opening transactions in any series of
options of the class covering ETFs in any of the following
circumstances:
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\16\ Options 4, Section 4(b)(5) provides, If an underlying
security is approved for options listing and trading under the
provisions of Options 4, Section 3(c), the trading volume of the
Original Security (as therein defined) prior to but not after the
commencement of trading in the Restructure Security (as therein
defined), including `when-issued' trading, may be taken into account
in determining whether the trading volume requirement of (3) of this
paragraph (b) is satisfied.
\17\ See Options 4, Section 4(g).
(1) in the case of options covering Exchange-Traded Fund Shares
approved pursuant to Options 4, Section 3(h)(A)(i), in accordance
with the terms of subparagraphs (b)(1), (2), (3) and (4) of Options
4, Section 4;
(2) in the case of options covering Fund Shares approved
pursuant to Options 4, Section 3(h)(A)(ii), following the initial
twelve-month period beginning upon the commencement of trading in
the Exchange-Traded Fund Shares on a national securities exchange
and are defined as an ``NMS stock'' under Rule 600 of Regulation
NMS, there were fewer than 50 record and/or beneficial holders of
such Exchange-Traded Fund Shares for 30 or more consecutive trading
days;
(3) the value of the index or portfolio of securities or non-
U.S. currency, portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts, options on physical commodities and/or Financial
Instruments and Money Market Instruments, on which the Exchange-
Traded Fund Shares are based is no longer calculated or available;
or
(4) such other event occurs or condition exists that in the
opinion of the Exchange makes further dealing in such options on the
Exchange inadvisable.
[[Page 16392]]
Options on the Ether Trusts would be physically settled contracts
with American-style exercise.\18\ Consistent with current Options 4,
Section 5, which governs the opening of options series on a specific
underlying security (including ETFs), the Exchange will open at least
one expiration month for options on the Ether Trusts and may also list
series of options on the Ether Trusts for trading on a weekly \19\ or
quarterly \20\ basis. The Exchange may also list long-term equity
option series (``LEAPS'') \21\ that expire from twelve to thirty-nine
from the time they are listed.
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\18\ See Options 4, Section 2, Rights and Obligations of Holders
and Writers, which provides that the rights and obligations of
holders and writers shall be as set forth in the Rules of the
Clearing Corporation. See also OCC Rules, Chapter VIII, which
governs exercise and assignment, and Chapter IX, which governs the
discharge of delivery and payment obligations arising out of the
exercise of physically settled stock option contracts. OCC Rules can
be located at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occ_rules.pdf.
\19\ See Supplementary .03 to Options 4, Section 5.
\20\ See Supplementary .04 to Options 4, Section 5.
\21\ See Options 4, Section 8.
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Pursuant to Options 4, Section 5(d), which governs strike prices of
series of options on ETFs, the interval between strike prices of series
of options on ETFs approved for options trading pursuant to Section
3(h) of Options 4 shall be fixed at a price per share which is
reasonably close to the price per share at which the underlying
security is traded in the primary market at or about the same time such
series of options is first open for trading on the Exchange, or at such
intervals as may have been established on another options exchange
prior to the initiation of trading on the Exchange. With respect to the
Short Term Options Series or Weekly Program, during the month prior to
expiration of an option class that is selected for the Short Term
Option Series Program, the strike price intervals for the related non-
Short Term Option (``Related non-Short Term Option'') shall be the same
as the strike price intervals for the Short Term Option.\22\
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.\23\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\24\ the $0.50 Strike
Program,\25\ the $2.50 Strike Price Program,\26\ and the $5 Strike
Program.\27\ Options 3, Section 3 governs the minimum increment for
bids and offers for both equity and index options. Pursuant to Options
3, Section 3, where the price of a series of options for the Ether
Trusts is less than $3.00 the minimum increment will be $0.05, and
where the price is $3.00 or higher, the minimum increment will be $0.10
\28\ consistent with the minimum increments for options on other ETFs
listed on the Exchange. Any and all new series of options on the Ether
Trusts that the Exchange lists will be consistent and comply with the
expirations, strike prices, and minimum increments set forth in Options
4, Section 5 and Options 3, Section 3, as applicable.
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\22\ See Supplementary Material .03(e) to Options 4, Section 5.
\23\ Id.
\24\ See Supplementary Material .01 to Options 4, Section 5.
\25\ See Supplementary Material .05 to Options 4, Section 5.
\26\ See Supplementary Material .02 to Options 4, Section 5.
\27\ See Supplementary Material .06 to Options 4, Section 5.
\28\ Options that are eligible to participate in the Penny
Interval Program have a minimum increment of $0.01 below $3.00 and
$0.50 above $3.00. See Supplementary Material .01 to Options 3,
Section 3.
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Based on the foregoing and notwithstanding the position limits in
Options 9, Section 13(d) and exercise limits in Options 9, Section
15(c), ISE proposes the position and exercise limits for the options on
the Fidelity Ethereum Fund, the Bitwise Ethereum ETF, the Grayscale
Ethereum Trust, and the Grayscale Ethereum Mini Trust to be 25,000
contracts on the same side pursuant to proposed Supplementary Material
.01 to Options 9, Section 13 and proposed Supplementary Material .01 to
Options 9, Section 15. Further, Exchange Rules that currently govern
the listing and trading of options on ETFs, including permissible
expirations, strike prices, minimum increments, and margin
requirements, will govern the listing and trading of options on the
Ether Trusts. The proposed position limit, and exercise limit, is
consistent with the Act as it addresses concerns related to
manipulation and protection of investors because the position limit
(and exercise limit) is conservative and appropriate given the Ether
Trusts are actively traded.
Fidelity Fund
The Cboe Proposal noted that, with respect to the Fidelity Fund,
Cboe determined these proposed position and exercise limits
considering, among other things, the ADV (since trading of the Fidelity
Fund began on July 23, 2024) and outstanding shares of the Fidelity
Fund (which as discussed above demonstrate that the Fidelity Fund is
widely held and actively traded and thus justify these conservatively
proposed position limits), as set forth below, along with market
capitalization (as of December 23, 2024):
------------------------------------------------------------------------
Market
ADV (shares) Outstanding shares capitalization ($)
------------------------------------------------------------------------
1,070,269....................... 41,700,000 1,433,229,000
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Cboe then compared the number of outstanding shares of the Fidelity
Fund to those of other ETFs. The Cboe Proposal stated that the
approximate average position (and exercise limit) of ETF options with
similar outstanding shares (as of December 31, 2024) was approximately
102,703 contracts, which is significantly higher (approximately 4
times) than the proposed position and exercise limit of 25,000
contracts for Fidelity Fund options.\29\ The Cboe Proposal noted that,
as discussed above, shares of the Fidelity Fund are actively held and
widely traded: (1) the Fidelity Fund (as of December 23, 2024) had
significantly more than 7,000,000 shares outstanding, which is the
minimum number of shares of a corporate stock that is generally
required to list options on that stock pursuant to Options 4, Section
3(ab)(1); (2) the Fidelity Fund (as of November 26, 2024) had
significantly more than 2,000 beneficial holders, which is the minimum
number of holders is generally required for corporate stock in order to
list options
[[Page 16393]]
on that stock pursuant to Options 4, Section 3(b)(2) and (3) the
Fidelity Fund had a trading volume in the approximately five-month time
period since it began trading substantially higher than 2,400,000
shares, which is the minimum 12-month volume is generally required for
a security in order to list options on that security as set forth in
Options 4, Section 3(b).
---------------------------------------------------------------------------
\29\ The position limits for those ETF options for which the
underlying ETFs had similar outstanding shares were all 50,000 or
above, and nearly half of them had position limits of 200,000 or
250,000 contracts.
---------------------------------------------------------------------------
The Cboe Proposal noted that with respect to outstanding shares, if
a market participant held the maximum number of positions possible
pursuant to the proposed position and exercise limits, the equivalent
shares represented by the proposed position/exercise limit would
represent approximately 6.0% of the 41,700,000 current outstanding
shares of the Fidelity Fund. Therefore, Cboe noted that if a market
participant held the maximum permissible options positions in Fidelity
Fund options and exercised all of them at the same time, that market
participant would control a small percentage of the outstanding shares
of the Fidelity Fund.
Options 9, Section 13(d), provides two methods of qualifying for a
position limit tier above 25,000 option contracts. The first method is
based on six-month trading volume in the underlying security, and the
second method is based on slightly lower six-month trading volume and
number of shares outstanding in the underlying security. An underlying
stock or ETF that qualifies for method two based on trading volume and
number of shares outstanding would be required to have the minimum
number of outstanding shares as shown in middle column of the table
below. The Cboe Proposal noted that the below table, which provides the
equivalent shares of the position limits applicable to equity options,
including ETFs, represents the percentages of the minimum number of
outstanding shares that an underlying stock or ETF must have to qualify
for that position limit (under the second method described above).
------------------------------------------------------------------------
Minimum Percentage of
Position/exercise limit (in outstanding outstanding
equivalent shares) shares shares
------------------------------------------------------------------------
2,500,000......................... 6,300,000 40.0
5,000,000......................... 40,000,000 12.5
7,500,000......................... 120,000,000 6.3
20,000,000........................ 240,000,000 8.3
25,000,000........................ 300,000,000 8.3
------------------------------------------------------------------------
The equivalent shares represented by the proposed position and
exercise limits for the Fidelity Fund as a percentage of outstanding
shares of the Fidelity Fund is significantly lower than the percentage
for the lowest possible position limit for equity options of 25,000,
which is the position limit Cboe proposed for Fidelity Fund
options.\30\
---------------------------------------------------------------------------
\30\ As these percentages are based on the minimum number of
outstanding shares an underlying security must have to qualify for
the applicable position limit, these are the highest possible
percentages that would apply to any option subject to that position
and exercise limit. 6,300,000 is the minimum number of outstanding
shares an underlying security must have for the Exchange to continue
to list options on that security, so this would be the smallest
number of outstanding shares permissible for any corporate option
that would have a position limit of 25,000 contract. See Options 4,
Section 5(d). This rule applies to corporate stock options but not
ETF options, which currently have no requirement regarding
outstanding shares of the underlying ETF for the Exchange to
continue listing options on that ETF. Therefore, there may be ETF
options trading for which the 25,000 contract position limit
represents an even larger percentage of outstanding shares of the
underlying ETF than set forth above.
---------------------------------------------------------------------------
Further, Cboe noted that the proposed position and exercise limit
for Fidelity Fund options is equal to the lowest position and exercise
limits available in the options industry for equity options, are
extremely conservative and more than appropriate given the market
capitalization, average daily volume, and high number of outstanding
shares of the Fidelity Fund. The Cboe Proposal stated that the proposed
position and exercise limit for the Fidelity Fund is also equal to the
position and exercise limits for ETFs that hold Bitcoin, as recently
approved by the Commission.\31\
---------------------------------------------------------------------------
\31\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (SR-CBOE-2024-035) (``Bitcoin
ETF Option Approval'').
---------------------------------------------------------------------------
The Cboe Proposal concluded that all of the above information
demonstrated that the proposed position and exercise limits for
Fidelity Fund options are more than reasonable and appropriate. The
trading volume, ADV, and outstanding shares of the Fidelity Fund
demonstrate that its shares are actively traded and widely held, and
proposed position and exercise limit is well below those of options on
other ETFs with similar market characteristics. The proposed position
and exercise limit would be the lowest position and exercise limit
available for equity options in the industry, are extremely
conservative, and, Cboe noted, are more than appropriate given the
Fidelity Fund's market capitalization, ADV, and high number of
outstanding shares.
Further, given that the issuer of the Fidelity Fund may create and
redeem shares that represent an interest in Ethereum, the Cboe Proposal
noted that it believed it is relevant to compare the size of a position
limit to the market capitalization of the Ethereum market. The Cboe
Proposal noted that, as of December 23, 2024, the global supply of
Ethereum was approximately 120,000,000 coins, and the price of one
Ethereum coin was approximately $3,494.25 \32\ which equates to a
market capitalization of approximately $419.31 billion. The Cboe
Proposal noted that in consideration of the proposed position and
exercise limit of 25,000 option contracts for the Fidelity Fund option.
Cboe noted that a position and exercise limit of 25,000 same side
contracts effectively restricts a market participant from holding
positions that could result in the receipt of no more than 2,500,000 of
Fidelity Fund shares (if that market participant exercised all its
options). The Cboe Proposal noted that using a share price of $34.37 on
December 23, 2024, the value of 2,500,000 shares of the Fidelity Fund
at that price is $85,925,000, and the approximate percentage of that
value of the size of the Ethereum market is 0.02%. Therefore, Cboe
noted, if a market participant with the maximum 25,000 same side
contracts in Fidelity Fund options exercised all positions at one time,
such an event would have no practical impact on the Ethereum market.
Cboe noted that it also believed that the proposed position and
exercise limits are appropriate given position limits for Ethereum
futures. For example, Cboe noted, the Chicago Mercantile Exchange
(``CME'') imposes a position limit of 8,000 futures (for the initial
spot month) on its Ethereum
[[Page 16394]]
futures contract.\33\ The Cboe Proposal noted that, on December 23,
2024, CME Dec 24 Ethereum Futures settled at approximately $3,418.00.
Cboe stated that a position of 8,000 CME Ethereum futures, therefore,
would have a notional value of $1,367,200,000. A position of
approximately 397,789 option contracts would equate to that notional
value.\34\ Cboe noted that this approximate number of option contracts
for the Fidelity Fund that equate to the notional value of CME Ethereum
futures is significantly higher than the proposed limit of 25,000
options contract for the Fidelity Fund option. The fact that many
options ultimately expire out-of-the-money and thus are not exercised
for shares of the underlying, while the delta of a Ethereum Future is
1, Cboe stated, further demonstrates how conservative the proposed
limit of 25,000 options contracts are for the Fidelity Fund options.
---------------------------------------------------------------------------
\32\ See Ethereum Price (ETH), Market Cap, Price Today & Chart
History--Blockworks.
\33\ See CME Rulebook Chapter 349 (description of CME Ether
Futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME Ethereum futures contract is valued at 50 Ethereum as
defined by the CME CF Ether Reference Rate (``BRR''). See CME Rule
35001.
\34\ The notional value of the futures is calculated as follows:
8,000 futures x 50 (the futures multiplier) x $3,418 (the price of
one future) = $1,367,200,000. The number of option contracts that
equates to that notional value is calculated as follows:
$1,367,200,000/notional value of one option contract ($34.37 (share
price of Fidelity Fund) x 100 (option multiplier)) = 397,789 option
contracts.
---------------------------------------------------------------------------
The Cboe Proposal noted that, unlike options contracts, CME
position limits are calculated on a net futures-equivalent basis by
contract and include contracts that aggregate into one or more base
contracts according to an aggregation ratio(s).\35\ Therefore, Cboe
noted that if a portfolio includes positions in options on futures, CME
would aggregate those positions into the underlying futures contracts
in accordance with a table published by CME on a delta equivalent value
for the relevant spot month, subsequent spot month, single month and
all month position limits.\36\ If a position exceeds position limits
because of an option assignment, CME permits market participants to
liquidate the excess position within one business day without being
considered in violation of its rules. Additionally, if at the close of
trading, a position that includes options exceeds position limits for
futures contracts, when evaluated using the delta factors as of that
day's close of trading but does not exceed the limits when evaluated
using the previous day's delta factors, then the position shall not
constitute a position limit violation. The Cboe Proposal noted that,
considering CME's position limits on futures for Ethereum, the Exchange
believes that that the proposed same side position limits are more than
appropriate for Fidelity Fund options. Cboe believed the proposed
position and exercise limits for Fidelity Fund will have no material
impact to the supply of Ethereum. The Cboe Proposal noted that, for
example, consider again the proposed position limit of 25,000 option
contracts for the Fidelity Fund option. As noted above, Cboe stated
that a position limit of 25,000 same side contracts effectively
restricts a market participant from holding positions that could result
in the receipt of no more than 2,500,000 shares of the Fidelity Fund
(if that market participant exercised all its options). The Cboe
Proposal noted that as of December 23, 2024, the Fidelity Fund had
41,700,000 shares outstanding. Cboe stated that this means that the
approximate number of market participants that could hold the maximum
of 25,000 same side positions in the Fidelity Fund that would equate to
the number of shares outstanding of that Fund is 16. This means if 16
market participants had 25,000 same side positions in Fidelity Fund
options, each of them would have to simultaneously exercise all of
those options to create a scenario that may put the underlying security
under stress. Cboe noted that it believed it is highly unlikely for
such an event to occur; however, even if either such event did occur,
it would not expect the Fidelity Fund to be under stress because such
an event would merely induce the creation of more shares through the
trust's creation and redemption process.
---------------------------------------------------------------------------
\35\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\36\ Id.
---------------------------------------------------------------------------
Cboe noted that as of December 23, 2024, the global supply of
Ethereum was approximately 120,000,000, and the price of one Ethereum
coin was approximately $3,418.00,\37\ which equates to a market
capitalization of approximately $419.31 billion. The Cboe Proposal
noted that based on the $34.37 price of a Fidelity Fund share on
December 23, 2024, a market participant could have redeemed one
Ethereum for approximately 99 Fidelity Fund shares. Cboe stated that
another 11,880,000,000 Fidelity Fund shares could be created before the
then-circulating global supply of Ethereum was exhausted. As a result,
4,752 market participants would have to simultaneously exercise 25,000
same side positions in Fidelity Fund options to receive shares of the
Fidelity Fund holding the entire global supply of Ethereum. The Cboe
Proposal noted that, unlike the Fidelity Fund, the number of shares
that corporations may issue is limited. However, like corporations,
which authorize additional shares, repurchase shares, or split their
shares, the Fidelity Fund may create, redeem, or split shares in
response to demand. Additionally, Cboe stated that the supply of
Ethereum is unlimited.\38\ Cboe provided that the current supply of
Ethereum is larger than the available supply of most securities.\39\
Given the significant unlikelihood of any of these events ever
occurring, Cboe did not believe options on the Fidelity Fund should be
subject to position and exercise limits even lower than those proposed
(which are already equal to the lowest available limit for equity
options in the industry) to protect the supply of Ethereum. Cboe
believed that the available supply of Ethereum is not relevant to the
determination of position and exercise limits for options overlying the
Fidelity Fund.\40\ Further, the Cboe Proposal noted that position and
exercise limits are not a tool that should be used to address a
potential limited supply of the underlying of the instrument underlying
the option (in this case, the Ethereum being held within the Fidelity
Fund).
[[Page 16395]]
Cboe stated that position and exercise limits do not limit the total
number of options that may be held, but rather they limit the number of
positions a single customer may hold or exercise at one time.\41\ Cboe
noted that, ``[s]ince the inception of standardized options trading,
the options exchanges have had rules imposing limits on the aggregate
number of options contracts that a member or customer could hold or
exercise.'' \42\ Further, Cboe noted that position and exercise limit
rules are intended ``to prevent the establishment of options positions
that can be used or might create incentives to manipulate or disrupt
the underlying market so as to benefit the options position. In
particular, Cboe provided that position and exercise limits are
designed to minimize the potential for mini-manipulations and for
corners or squeezes of the underlying market. In addition, Cboe stated
that such limits serve to reduce the possibility for disruption of the
options market itself, especially in illiquid options classes.'' \43\
---------------------------------------------------------------------------
\37\ See Ethereum Price (ETH), Market Cap, Price Today & Chart
History--Blockworks.
\38\ See Ethereum Price (ETH), Market Cap, Price Today & Chart
History--Blockworks; see also Amendment No. 5 to Form S-1
Registration Statement No. 333-278249, Fidelity Fund, filed July 17,
2024, at 17 (noting that approximately 1,700 Ethereum are issued per
day, subject to various factors); and Amendment No. 3 to Form S-1
Registration Statement No. 333-257474, ARK 21 Fund, filed May 10,
2024, at 15-16 (noting that approximately 1,700 Ethereum are issued
per day, subject to various factors).
\39\ The market capitalization of Ethereum would rank in the top
25 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
\40\ The Exchange is unaware of any proposed rule change related
to position and exercise limits for any equity option (including
commodity ETF options) for which the Commission required
consideration of whether the available supply of an underlying
(whether it be a corporate stock or an ETF) or the contents of an
ETF (commodity or otherwise) should be considered when an exchange
proposed to establish those limits, other than recently with respect
to ETFs that hold Bitcoin. See, e.g., Securities Exchange Act
Release No. 57894 (May 30, 2008), 73 FR 32061 (June 5, 2008) (SR-
CBOE-2005-11) (approval order in which the Commission stated that
the ``listing and trading of Gold Trust Options will be subject to
the exchanges' rules pertaining to position and exercise limits and
margin''); compare to Bitcoin ETF Option Approval. The Exchange
notes when the Commission approved the filing to list options on an
ETF holding gold, filing, the position limits in Rule 8.30 were the
same as they are today. For reference, the current position and
exercise limits for options on SPDR Gold Shares ETF (``GLD'') and
options on iShares Silver Trust (``SLV'') are 250,000 contracts, or
10 times that proposed position and exercise limit for the Fidelity
Fund options.
\41\ For example, suppose an option has a position limit of
25,000 option contracts and there are a total of 10 investors
trading that option. If all 10 investors max out their positions,
that would result in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide to begin trading
that option and also max out their positions. This would result in
500,000 option contracts outstanding at that time. An increase in
the number of investors could cause an increase in outstanding
options even if position limits remain unchanged.
\42\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\43\ See id.
---------------------------------------------------------------------------
Cboe noted that a Registration Statement on Form S-1 was filed with
the Commission for the Fidelity Fund, which described the supply of
Ethereum and the potential limits to that supply.\44\ The Registration
Statement permits an unlimited number of shares of the Fidelity Fund to
be created. Further, the Commission approved the listing and trading of
shares of the Fidelity Fund, which approval did not comment on the
sufficient supply of Ethereum or address whether there was a risk that
permitting an unlimited number of shares for the Fidelity Fund would
impact the supply of Ethereum.\45\ Cboe noted that it believed the
Commission had ample time and opportunity to consider whether the
supply of Ethereum was sufficient to permit the creation of unlimited
Fidelity Fund shares, and does not believe considering this supply with
respect to the establishment of position and exercise limits is
appropriate given its lack of relevance to the purpose of position and
exercise limits. However, the Cboe Proposal noted that given the
significant size of the Ethereum supply, the proposed positions limit
is more than sufficient to protect investors and the market.
---------------------------------------------------------------------------
\44\ See Amendment No. 5 to Form S-1 Registration Statement No.
333-278249, Fidelity Fund, filed July 17, 2024, at 17.
\45\ See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (SR-NYSEArca-2023-70; SR-NYSEArca-
2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023069; SR-CboeBZX-2023-
070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095; and SRCboeBZX-2024-
018) (Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, to List and Trade Shares of
Ether-Based Exchange-Traded Products).
---------------------------------------------------------------------------
Based on the above information demonstrating, among other things,
Cboe believed that that the Fidelity Fund is characterized by a
substantial number of outstanding shares that are actively traded and
widely held, Cboe believed that the proposed position and exercise
limits are extremely conservative compared to those of ETF options with
similar market characteristics. Also, Cboe believed that the proposed
position and exercise limits reasonably and appropriately balance the
liquidity provisioning in the market against the prevention of
manipulation. The Cboe Proposal noted that 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 as well as the Ethereum market.\46\
---------------------------------------------------------------------------
\46\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------
Grayscale Fund, Grayscale Mini Fund or Bitwise Fund (``NYSE Ether
Funds'')
The NYSE American Proposal noted that Exchange Rules set forth
position (and exercise) limits for options, which vary according to the
number of shares outstanding and the amount of trading in underlying
during the most recent six-month period pursuant to NYSE American
Commentary 07(a)-(d) to Rule 904. NYSE American believes that the
trading volume in each Fund is sufficient to qualify the Funds for
position limits in excess of the proposed 25,000-contract limit, as
shown below.\47\
---------------------------------------------------------------------------
\47\ See FactSet, 11/29/2024 and 12/31,24, https://www.factset.com/data-attribution. The Exchange notes that the
Commission approved a 25,000-contract position limit for options
trading on the Grayscale Bitcoin Mini Trust BTC which traded
335,492,9030 shares during its first two months of trading--well
over the minimum requisite of 100,000,000 shares as required by
Commentary .07(a) to Rule 904. See On October 19, 2024, the
Commission approved the Exchange's proposal to list and trade
options on the Grayscale Bitcoin Trust (BTC), the Grayscale Bitcoin
Mini Trust BTC, and the Bitwise Bitcoin ETF. See Securities Exchange
Act Release No. 101386 (October 18, 2024), 89 FR 84960 (October 24,
2024) (SRNYSEARCA-2024-49) (the ``BTC Approval Order'').
------------------------------------------------------------------------
NYSE Ether Fund Total volume
------------------------------------------------------------------------
ETHE...................................... 427,312,540 (7/23/24-11/29/
24).
ETH....................................... 172,400,020 (7/23/24-11/29/
24).
ETHW...................................... 44,477,060 (7/23/24-12/31/
24).
------------------------------------------------------------------------
Specifically, the NYSE American Proposal noted that the most-recent
trading volume in ETHE and ETH well exceeds the requisite minimum of
100,000,000 shares necessary to qualify for the 250,000-contract
position and exercise limits.\48\ By comparison, the NYSE American
Proposal noted that other options symbols with less trading volume for
the most-recent six months than ETHE and ETH are eligible for position
and exercise limits of at least 250,000.\49\ Further, the NYSE American
Proposal noted that the most-recent trading volume for ETHW well
exceeded the requisite minimum of 40,000,000 shares necessary to
qualify for the 75,000-contract position (and exercise) limit, which is
three times the proposed 25,000-contract limit.\50\ Finally, the NYSE
American Proposal noted that the proposed 25,000-contract position
limit is the default for options that do not otherwise qualify for a
[[Page 16396]]
higher limit and is therefore an adequate limit for each NYSE Ether
Fund.\51\ With respect to the outstanding shares of each NYSE Ether
Fund, the NYSE American Proposal noted that if a market participant
held the maximum number of contracts possible pursuant to the proposed
position and exercise limits (25,000 contracts), the equivalent shares
represented by the proposed position/exercise limit (2,500,000 shares)
would represent the following approximate percentage of current
outstanding shares:
---------------------------------------------------------------------------
\48\ Options 9, Section 13(d)(5), to qualify for the 250,000-
contract position limit for options, the underlying security must
(i) have trading volume of at least 100,000,000 shares during the
most recent six-month trading period; or (ii) have trading volume of
at least 75,000,000 shares during the most recent six-month trading
period and have at least 300,000,000 shares currently outstanding.
\49\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search (including the following
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR,
SGOL).
\50\ Options 9, Section 13(d)(3), to qualify for the 75,000-
contract position limit for options, the underlying security must
(i) have trading volume of at least 40,000,000 shares during the
most recent six-month trading period; or (ii) have trading volume of
at least 30,000,000 shares during the most recent six-month trading
period and have at least 120,000,000 shares currently outstanding.
\51\ Per Options 9, Section 13(d)(1), ``[t]he position limit
shall be 25,000 for all other options'' that do not satisfy the
criteria for the higher position limits set forth in Options 9,
Section 13(d)(2)-(5).
----------------------------------------------------------------------------------------------------------------
Proposed position/ Outstanding Percentage of
NYSE Ether Fund exercise limits in shares (11/29/ outstanding
equivalent shares 24) shares
----------------------------------------------------------------------------------------------------------------
ETHE.................................................. 2,500,000 177,838,500 1.4
ETH................................................... 2,500,000 45,220,787 5.5
ETHW.................................................. 2,500,000 16,600,000 15.1
----------------------------------------------------------------------------------------------------------------
The NYSE American Proposal noted that, as this table demonstrates,
if a market participant held the maximum permissible options positions
in one of the NYSE Ether Fund options and exercised all of them at the
same time, that market participant would control a small percentage of
the outstanding shares of the underlying NYSE Ether Fund. For example,
the NYSE American Proposal stated that, as noted above, a position
limit of 25,000 same side contracts effectively restricts a market
participant from holding positions that could result in the receipt of
no more than 2,500,000 shares of the applicable NYSE Ether Fund (if
that market participant exercised all its options). Based on the number
of shares outstanding for each NYSE Ether Fund as of November 29, 2024,
the NYSE American Proposal noted that the table below sets forth the
approximate number of market participants that could hold the maximum
of 25,000 same side positions in each NYSE Ether Fund that would equate
to the number of shares outstanding of that NYSE Ether Fund:
----------------------------------------------------------------------------------------------------------------
Number of market
NYSE Ether Fund Shares participants with 25,000
outstanding same side positions
----------------------------------------------------------------------------------------------------------------
ETHE............................................................... 177,838,500 71
ETH................................................................ 45,220,787 18
ETHW............................................................... 16,600,000 7
----------------------------------------------------------------------------------------------------------------
The NYSE American Proposal noted that this means if 71 market
participants had 25,000 same side positions in options on ETHE, each of
them would have to simultaneously exercise all those options to create
a scenario that may put the underlying security under stress.
Similarly, NYSE American noted that this means if 18 market
participants had 25,000 same side positions in options on ETH, each of
them would have to simultaneously exercise all those options to create
a scenario that may put the underlying security under stress. Finally,
NYSE American noted this means if 7 market participants had 25,000 same
side positions in options on ETHW, each of them would have to
simultaneously exercise all those options to create a scenario that may
put the underlying security under stress. NYSE American noted that it
believed it was highly unlikely for any of these scenarios to occur;
however, even if such event did occur, the Exchange would not expect
any of the Ether Funds to be under stress because such an event would
merely induce the creation of more shares through the trust's creation
and redemption process.
Further, given that the issuer of each NYSE Ether Fund may create
and redeem shares that represent an interest in ether, the NYSE
American Proposal noted that it believed it is relevant to compare the
size of a position limit to the market capitalization of the ether
market. The NYSE American Proposal noted that, as of November 29, 2024,
the global supply of ether was approximately 120.44 million, and the
price of one ether was approximately $3,593.49,\52\ which equates to a
market capitalization of approximately $439.78 billion. Consider the
proposed position and exercise limit of 25,000 option contracts for
each NYSE Ether Fund option. The NYSE American Proposal noted that a
position and exercise limit of 25,000 same side contracts effectively
restricts a market participant from holding positions that could result
in the receipt of no more than 2,500,000 shares of ETHE, ETH, and ETHW,
as applicable (if that market participant exercised all its options).
NYSE American noted that the following table shows the share price of
each NYSE Ether Fund on November 29, 2024, the value of 2,500,000
shares of the NYSE Ether Fund at that price, and the approximate
percentage of that value of the size of the ether market:
---------------------------------------------------------------------------
\52\ See https://finance.yahoo.com/quote/ETH-USD/history/.
----------------------------------------------------------------------------------------------------------------
Value of 2,500,000
NYSE Ether Fund Nov. 29th share shares of Ether Percentage of
price ($) Fund ($) Ether market
----------------------------------------------------------------------------------------------------------------
ETHE................................................... $30.15 $75,250,000 0.017
ETH.................................................... 33.84 84,600,000 0.020
ETHW................................................... 25.80 64,500,000 0.015
----------------------------------------------------------------------------------------------------------------
[[Page 16397]]
Therefore, if a market participant with the maximum 25,000 same
side contracts in options on any of ETHE, ETH, or ETHW exercised all
positions at one time, the NYSE American Proposal noted that such an
event would have no practical impact on the ether.
The NYSE American Proposal noted also reviewed the market
capitalization of each NYSE Ether Fund relative to the market
capitalization of the entire ether market, as of November 29, 2024.
----------------------------------------------------------------------------------------------------------------
Market
Ether/shares capitalization (11/ Percent of total
outstanding 29/2024) Ether market
----------------------------------------------------------------------------------------------------------------
Total Ether Market..................................... 120,440,000 $432,799,935,600 100.00
ETHE................................................... 177,838,500 5,425,852,635 1.25
ETH.................................................... 45,220,787 1,547,003,157 0.36
ETHW................................................... 16,600,000 430,886,200 0.10
----------------------------------------------------------------------------------------------------------------
As shown above, the NYSE American Proposal noted that the NYSE
Ether Funds collectively represent approximately 1.71% of the global
supply of ether (120,440,000).\53\ Based on the $30.15 price of a ETHE
share on November 29, 2024, a market participant could have redeemed
one ether for approximately 119 ETHE shares. Another 14,354,890,070
ETHE shares could be created before the supply of ether was exhausted.
As a result, 5,742 market participants would have to simultaneously
exercise 25,000 same side positions in ETHE options to receive shares
of the ETHE holding the entire global supply of ether. Similarly, the
NYSE American Proposal noted that based on the $33.84 price of an ETH
share on November 29, 2024, a market participant could have redeemed
one ether for approximately 106 ETH shares. Another 12,789,596,206 ETH
shares could be created before the supply of ether was exhausted. As a
result, 5,116 market participants would have to simultaneously exercise
25,000 same side positions in ETH options to receive shares of ETH
holding the entire global supply of ether. Similarly, the NYSE American
Proposal noted that based on the $25.80 price of a ETHW share on
November 29, 2024, a market participant could have redeemed one ether
for approximately 139 ETHW shares. Another 16,775,191,302 ETHW shares
could be created before the supply of ether was exhausted. As a result,
6,710 market participants would have to simultaneously exercise 25,000
same side positions in ETHW options to receive shares of ETHW holding
the entire global supply of ether. Unlike the NYSE Ether Funds, the
NYSE American Proposal noted that the number of shares that
corporations may issue is limited. However, like corporations, which
authorize additional shares, repurchase shares, or split their shares,
the NYSE Ether Funds may create, redeem, or split shares in response to
demand. The NYSE American Proposal noted that the supply of ether is
larger than the available supply of most securities.\54\ Given the
significant unlikelihood of any of these events ever occurring, the
NYSE American Proposal noted that it does not believe options on the
Ether Funds should be subject to position and exercise limits even
lower than those proposed (which are already equal to the lowest
available limit for equity options in the industry) to protect the
supply of ether.
---------------------------------------------------------------------------
\53\ See id.
\54\ The market capitalization of ether would rank in the top 20
among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
---------------------------------------------------------------------------
The NYSE American Proposal noted that it also believed the proposed
limits are appropriate given position limits for ether futures. For
example, the Chicago Mercantile Exchange (``CME'') imposes a position
limit of 8,000 futures (for the initial spot month) on its ether
futures contract.\55\ The NYSE American Proposal noted that on November
29,2024, CME Jan 25 ether futures settled at $3,629.69. A position of
8,000 CME ether futures, therefore, would have a notional value of
$1,451,876,000. The NYSE American Proposal provided the following table
that shows the share price of each Ether Fund on November 29, 2024, and
the approximate number of option contracts that equates to that
notional value:
---------------------------------------------------------------------------
\55\ See CME Rulebook Chapter 349 (description of CME ether
futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME ether futures contract is valued at fifty ethers as defined
by the CME CF Ether Reference Rate (``ERR''). See CME Rulebook
Chapter 349.
----------------------------------------------------------------------------------------------------------------
Nov. 29th
NYSE Ether Fund share price Number of option contracts
----------------------------------------------------------------------------------------------------------------
ETHE............................................................. $30.15 481,551
ETH.............................................................. 33.84 429,041
ETHW............................................................. 25.80 562,743
----------------------------------------------------------------------------------------------------------------
The approximate number of option contracts for each NYSE Ether Fund
that would equate to the notional value of CME ether futures NYSE
American noted is significantly higher than the proposed limit of
25,000 options contract for each NYSE Ether Fund option. The fact that
many options ultimately expire out-of-the-money and thus are not
exercised for shares of the underlying, while the delta of an ether
future is 1, the NYSE American Proposal noted further demonstrates how
conservative the proposed limits of 25,000 options contracts are for
the NYSE Ether Fund options.
NYSE American noted, unlike options contracts, CME position limits
are calculated on a net futures-equivalent basis by contract and
include contracts that aggregate into one or more base contracts
according to an aggregation ratio(s).\56\ Therefore, if a portfolio
includes positions in options on futures, CME would aggregate those
positions into the underlying futures contracts in accordance with a
table published by CME on a delta equivalent value for the relevant
spot month, subsequent spot month, single month and all month
[[Page 16398]]
position limits.\57\ If a position exceeds position limits because of
an option assignment, CME permits market participants to liquidate the
excess position within one business day without being considered in
violation of its rules. Additionally, if at the close of trading, a
position that includes options exceeds position limits for futures
contracts, when evaluated using the delta factors as of that day's
close of trading but does not exceed the limits when evaluated using
the previous day's delta factors, then the position shall not
constitute a position limit violation. The NYSE American Proposal noted
that considering CME's position limits on futures for ether, it
believed that that the proposed same side position limits are more than
appropriate for the NYSE Ether Fund options.
---------------------------------------------------------------------------
\56\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\57\ Id.
---------------------------------------------------------------------------
Consistent with its position regarding the irrelevance of bitcoin
supply to position limits for options on bitcoin ETPs, the NYSE
American Proposal noted that it likewise believed the available supply
of ether is not relevant to the determination of position and exercise
limits for NYSE Ether Fund options.\58\ The NYSE American Proposal
noted that position and exercise limits are not a tool that should be
used to address a potential limited supply of the underlying of an
underlying. Position and exercise limits do not limit the total number
of options that may be held, but rather they limit the number of
positions a single customer may hold or exercise at one time.\59\ NYSE
American noted that ``[s]ince the inception of standardized options
trading, the options exchanges have had rules imposing limits on the
aggregate number of options contracts that a member or customer could
hold or exercise.'' \60\ The NYSE American Proposal noted that position
and exercise limit rules are intended ``to prevent the establishment of
options positions that can be used or might create incentives to
manipulate or disrupt the underlying market so as to benefit the
options position. In particular, the NYSE American Proposal noted that
position and exercise limits are designed to minimize the potential for
mini-manipulations and for corners or squeezes of the underlying
market. In addition, such limits serve to reduce the possibility for
disruption of the options market itself, especially in illiquid options
classes.'' \61\
---------------------------------------------------------------------------
\58\ See BTC Approval Order, 89 FR at 84965, n. 48 (asserting
that, outside of the bitcoin context, the Exchange is unaware of any
proposed rule change related to position and exercise limits for any
equity option (including commodity ETF options) for which the
Commission required consideration of whether the available supply of
an underlying (whether it be a corporate stock or an ETF) or the
contents of an ETF (commodity or otherwise) should be considered
when an exchange proposed to establish those limits). See, e.g.,
Securities Exchange Act Release No. 57894 May 30, 2008), 73 FR 32061
(June 5, 2008) (SR-CBOE-2005-11) (approval order in which the
Commission stated that the ``listing and trading of Gold Trust
Options will be subject to the exchanges' rules pertaining to
position and exercise limits and margin''). The Exchange notes when
the Commission approved this filing, the position limits in Rule 904
were the same as they are today. For reference, the current position
and exercise limits for options on SPDR Gold Shares ETF (``GLD'')
and options on iShares Silver Trust (``SLV'') are 250,000 contracts,
or 10 times that proposed position and exercise limit for the Ether
Fund options.
\59\ For example, suppose an option has a position limit of
25,000 option contracts and there are a total of 10 investors
trading that option. If all 10 investors max out their positions,
that would result in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide to begin trading
that option and also max out their positions. This would result in
500,000 option contracts outstanding at that time. An increase in
the number of investors could cause an increase in outstanding
options even if position limits remain unchanged.
\60\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\61\ Id.
---------------------------------------------------------------------------
The NYSE American Proposal noted that notes that a Registration
Statement on Form S-1 was filed with the Commission for each NYSE Ether
Fund, each of which described the supply of ether as being
unlimited.\62\ Each Registration Statement permits an unlimited number
of shares of the applicable NYSE Ether Fund to be created. Further, the
Commission approved proposed rule changes that permitted the listing
and trading of shares of each NYSE Ether Fund, which approval did not
comment on the sufficient supply of ether or address whether there was
a risk that permitting an unlimited number of shares for a Ether Fund
would impact the supply of ether.\63\ Therefore, NYSE American believed
the Commission had ample time and opportunity to consider whether the
supply of ether was sufficient to permit the creation of unlimited NYSE
Ether Fund shares, and does not believe considering this supply with
respect to the establishment of position and exercise limits is
appropriate given its lack of relevance to the purpose of position and
exercise limits. However, given the significant size of the ether
supply, the proposed positions limits are more than sufficient to
protect investors and the market.
---------------------------------------------------------------------------
\62\ See, e.g., ETHE Form S-1 Registration Statement, at p. 77,
https://www.sec.gov/Archives/edgar/data/2020455/000119312524106957/d756153ds1.htm; ETH Amendment No. 5 to Form S-1 Registration
Statement, at p. 79, https://www.sec.gov/Archives/edgar/data/2020455/000119312524181081/d756153ds1a.htm; and ETHW Form S-1
Registration Statement 1, at p. 17, https://www.sec.gov/Archives/edgar/data/2013744/000199937124007581/bitwise-s1a_061824.htm
(``Ether Funds Reg. Stmts.'').
\63\ See BTC Approval Order.
---------------------------------------------------------------------------
Based on the foregoing, the NYSE American Proposal noted that it
believed the proposal to list options on the NYSE 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 NYSE Ether Funds. The
NYSE American Proposal noted that the proposed position and exercise
limits reasonably and appropriately balance the liquidity provisioning
in the market against the prevention of manipulation. NYSE American
believed 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 NYSE Ether
Funds as well as the ether market.
Options 3A, Section 3(a) permits the Exchange to authorize 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
Options 4, Section 3. At this time, the Exchange is not proposing to
permit the Ether Trusts to trade as a FLEX Option. The Exchange
therefore proposes to modify Options 3A, Section 3(a) to specify this
exception, which will add clarity and transparency to the Exchange
Rules.\64\
---------------------------------------------------------------------------
\64\ The Exchange will continue ongoing discussions with the
Commission regarding appropriate position limits for the Trust and
plans to submit a separate rule filing that would permit the
Exchange to authorize for trading FLEX options on the Trust (which
filing may propose changes to existing FLEX option position limits
for such options if appropriate).
---------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. ISE intends to apply those same program procedures to
options on the Ether Trusts that it applies to the Exchange's other
options products.\65\ ISE's market surveillance staff would have access
to the surveillances conducted by Nasdaq \66\ with respect to the Ether
Trusts and would review activity in the underlying Ether Trusts when
conducting surveillances for market abuse or manipulation in the
options on the Ether Trusts. Additionally, ISE is a member of the
[[Page 16399]]
Intermarket Surveillance Group (``ISG'') under the Intermarket
Surveillance Group Agreement. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. In addition to the surveillance that is
conducted by ISE's market surveillance staff, ISE would also be able to
obtain information regarding trading in shares of the Ether Funds on
other exchanges though ISG. Further, ISE has a Regulatory Services
Agreement with the Financial Industry Regulatory Authority (``FINRA'').
Pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate regulatory responsibilities to FINRA to conduct certain
options-related market surveillance that are common to rules of all
options exchanges.\67\
---------------------------------------------------------------------------
\65\ 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).
\66\ The Nasdaq Stock Market LLC is an affiliated market of ISE.
\67\ 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 at 4691. See 15
U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act
allows the Commission to relieve an SRO of certain responsibilities
with respect to members of the SRO who are also members of another
SRO (``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot ethereum ETPs, including the Trust,
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, including the Trust (``Ethereum ETP Order''):
\68\
---------------------------------------------------------------------------
\68\ See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937, 46941 (May 23, 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 Shares of Ether-Based Exchange-Traded Products).
Each 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
ether futures market.\69\
---------------------------------------------------------------------------
\69\ Id. at 46941.
The Exchange states that in the Ethereum ETP Order, 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].'' \70\
---------------------------------------------------------------------------
\70\ Id. at 46938.
---------------------------------------------------------------------------
In light of surveillance measures related to both options and
futures as well as the underlying Ether Trusts,\71\ 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 Trusts.
---------------------------------------------------------------------------
\71\ See Securities Exchange Act Release No. 100016 (April 23,
2024), 89 FR 33414, 33425-33426 (April 292, 2024) (SR-NASDAQ-2023-
045) (Notice of Filing of Amendment No. 2 to Proposed Rule Change to
List and Trade Shares of the iShares Ethereum Trust Under Nasdaq
Rule 5711(d) (Commodity-Based Trust Shares).
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority or
``OPRA'' have the necessary systems capacity to handle the additional
traffic associated with the listing of new series that may result from
the introduction of options on the Ether Trusts up to the number of
expirations currently permissible under the Exchange Rules. Because the
proposal is limited to one class, the Exchange believes any additional
traffic that may be generated from the introduction of the options on
the Ether Trust will be manageable.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\72\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\73\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Additionally, the Exchange
believes the proposed rule change is consistent with the Section
(6)(b)(5) \74\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\72\ 15 U.S.C. 78f(b).
\73\ 15 U.S.C. 78f(b)(5).
\74\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Ether Trusts 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 Ether Trusts will provide investors with an opportunity to realize
the benefits of utilizing options on a Ether Trust, including cost
efficiencies and increased hedging strategies. The Exchange believes
that offering options on the Ether Trusts will benefit investors by
providing them with a relatively lower-cost risk management tool, which
will allow them to manage their positions and associated risk in their
portfolios more easily in connection with exposure to the price of
Ether and with Ether-related products and positions. Additionally, the
Exchange's offering of options on the Ether Trusts will provide
investors with the ability to transact in such options in a listed
market environment as opposed to in the unregulated OTC options market,
which would increase market transparency and enhance the process of
price discovery conducted on the Exchange through increased order flow
to the benefit of all investors. The Exchange also notes that it
already lists options on other commodity-based Units,\75\ which, as
described above, are trusts structured in substantially the same manner
as Ether Trusts 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 Unit options it currently lists for trading.
---------------------------------------------------------------------------
\75\ See Options 4, Section 3(h)(iv).
---------------------------------------------------------------------------
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 Trusts satisfy the initial listing standards and continued
listing standards currently in the Exchange Rules applicable to options
on all Units, including Units that hold other commodities already
deemed appropriate for options trading on the Exchange. Additionally,
as demonstrated above, each Ether Trust is characterized by a
substantial number of shares that are widely held and actively traded.
Options on the Ether Trusts will
[[Page 16400]]
trade in the same manner as any other Unit options--the same Exchange
Rules that currently govern the listing and trading of all Unit
options, including permissible expirations, strike prices and minimum
increments, and applicable margin requirements, will govern the listing
and trading of options on Ether Trusts in the same manner.
The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules previously filed with the Commission. Options on Ether
Trusts satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules applicable to options on all
ETFs and ETPs, including ETPs that hold other commodities already
deemed appropriate for options trading on the Exchange. Additionally,
as demonstrated above, each Ether Trust is characterized by a
substantial number of shares that are widely held and actively traded.
Options on the Ether Trust will trade in the same manner as any other
ETF or ETP options--the same Exchange Rules that currently govern the
listing and trading of options, including permissible expirations,
strike prices, minimum increments, and margin requirements, will govern
the listing and trading of options on Ether Trusts in the same manner.
The proposed position and exercise limit for options on the Ether
Trusts is 25,000 contracts. These position and exercise limits are the
lowest position and exercise limits available in the options industry,
are extremely conservative and more than appropriate given the Ether
Trusts' market capitalization, average daily volume, number of
beneficial holders, and high number of outstanding shares as described
herein for each Ether Trust. The proposed position and exercise limits
are consistent with the Act as they addresses concerns related to
manipulation and protection of investors because the position and
exercise limits are extremely conservative and more than appropriate
given the Ether Trusts are actively traded.
The Exchange believes the proposed rule change to exclude the Ether
Trusts from being eligible for trading as a FLEX Option is consistent
with the Act, because it will permit the Exchange to continue to
participate in ongoing discussions with the Commission regarding
appropriate position and exercise limits for options on the Ether
Trusts. The Exchange also believes the proposed rule change to Options
3A, Section 3(a), to make clear that options on the Ether Trusts are
not eligible for FLEX Trading, will remove impediments to and perfect
the mechanism of a free and open market and a national market system
because it adds clarity and transparency to Exchange Rules making them
easier to navigate and understand to the benefit of investors and the
public interest.\76\
---------------------------------------------------------------------------
\76\ The Exchange will continue ongoing discussions with the
Commission regarding appropriate position limits for the Ether
Trusts and plans to submit a separate rule filing that would permit
the Exchange to authorize for trading FLEX options on the Ether
Trusts (which filing may propose changes to existing FLEX option
position limits for such options if appropriate).
---------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options the Ether Trusts that it applies to the
Exchange's other options products.\77\ ISE's market surveillance staff
would have access to the surveillances conducted by Nasdaq \78\ with
respect to the Ether Trusts and would review activity in the underlying
Ether Trusts when conducting surveillances for market abuse or
manipulation in the options on the Ether Trusts. Additionally, ISE is a
member of the Intermarket Surveillance Group (``ISG'') under the
Intermarket Surveillance Group Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition 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 Trusts on other exchanges though ISG. Further, ISE
has a Regulatory Services Agreement 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.\79\ Further, the Exchange will
implement any new surveillance procedures it deems necessary to
effectively monitor the trading of options on the Ether Trusts.
---------------------------------------------------------------------------
\77\ 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).
\78\ The Nasdaq Stock Market LLC is an affiliated market of ISE.
\79\ 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.
---------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. ISE intends to apply those same program procedures to
options on the Ether Trusts that it applies to the Exchange's other
options products.\80\ ISE's market surveillance staff would have access
to the surveillances conducted by Nasdaq \81\ with respect to the Ether
Trusts and would review activity in the underlying Ether Trusts when
conducting surveillances for market abuse or manipulation in the
options on the Ether Trusts. Additionally, ISE is a member of the
Intermarket Surveillance Group (``ISG'') under the Intermarket
Surveillance Group Agreement. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. In addition, ISE has a Regulatory
Services Agreement with the Financial Industry Regulatory Authority
(``FINRA''). Pursuant to a multi-party 17d-2 joint plan, all options
exchanges allocate regulatory responsibilities to FINRA to conduct
certain options-related market surveillance that are common to rules of
all options exchanges.\82\
---------------------------------------------------------------------------
\80\ 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).
\81\ The Nasdaq Stock Market LLC is an affiliated market of ISE.
\82\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot ethereum ETPs, including the Trust,
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
[[Page 16401]]
shares of spot ether-based exchange-traded products, including the
Trust (``Ethereum ETP Order''): \83\
---------------------------------------------------------------------------
\83\ See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937, 46941 (May 23, 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 Shares of Ether-Based Exchange-Traded Products).
Each 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
ether futures market.\84\
---------------------------------------------------------------------------
\84\ Id. at 46941.
The Exchange states that in the Ethereum ETP Order, 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].'' \85\
---------------------------------------------------------------------------
\85\ Id. at 46938.
---------------------------------------------------------------------------
In light of surveillance measures related to both options and
futures as well as the underlying Ether Trusts,\86\ 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 Trusts.
---------------------------------------------------------------------------
\86\ See Securities Exchange Act Release No. 100016 (April 23,
2024), 89 FR 33414, 33425-33426 (April 292, 2024) (SR-NASDAQ-2023-
045) (Notice of Filing of Amendment No. 2 to Proposed Rule Change to
List and Trade Shares of the iShares Ethereum Trust Under Nasdaq
Rule 5711(d) (Commodity-Based Trust Shares).
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority or
``OPRA'' have the necessary systems capacity to handle the additional
traffic associated with the listing of new series that may result from
the introduction of options on the Ether Trusts up to the number of
expirations currently permissible under the Exchange Rules. Because the
proposal is limited to one class, the Exchange believes any additional
traffic that may be generated from the introduction of the options on
the Ether Trust will be manageable.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as options on
Ether Trusts would need to satisfy the initial listing standards set
forth in the Exchange Rules in the same manner as any other option on
ETFs before the Exchange could list options on them. Additionally,
options on the Ether Trusts will be equally available to all market
participants who wish to trade such options. The Exchange Rules
currently applicable to the listing and trading of options on ETFs on
the Exchange will apply in the same manner to the listing and trading
of all options on Ether Trusts. Also, and as stated above, the Exchange
already lists options on other commodity-based ETPs.
The Exchange does not believe that the proposal to list and trade
options on Ether Trusts will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. To the extent that the advent of options on the
Ether Trusts trading on the Exchange may make the Exchange a more
attractive marketplace to market participants at other exchanges, such
market participants are free to elect to become market participants on
the Exchange. As noted herein, this is a competitive filing as the
Commission recently approved the listing and trading of options on an
ETP that, like the Ether Trusts, holds ether.\87\ Additionally, other
options exchanges are free to amend their listing rules, as applicable,
to permit them to list and trade options on Ether Trusts. The Exchange
notes that listing and trading options on Ether Trust on the Exchange
will subject such options to transparent exchange-based rules as well
as price discovery and liquidity, as opposed to alternatively trading
such options in the OTC market.
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\87\ See supra note 4.
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The Exchange believes that the proposed rule change may relieve any
burden on, or otherwise promote, competition as it is designed to
increase competition for order flow on the Exchange in a manner that is
beneficial to investors by providing them with a lower-cost option to
hedge their investment portfolios. The Exchange notes that it operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues that offer similar products.
Ultimately, the Exchange believes that offering options on the Ether
Trusts for trading on the Exchange will promote competition by
providing investors with an additional, relatively low-cost means to
hedge their portfolios and meet their investment needs in connection
with 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 either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \88\ and Rule 19b-4(f)(6) thereunder.\89\
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 \90\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\91\
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\88\ 15 U.S.C. 78s(b)(3)(A)(iii).
\89\ 17 CFR 240.19b-4(f)(6).
\90\ 15 U.S.C. 78s(b)(3)(A)(iii).
\91\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission waives this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \92\ 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),\93\ 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 iShares
Ethereum
[[Page 16402]]
Trust, the Fidelity Ethereum Fund, the Bitwise Ethereum ETF, the
Grayscale Ethereum Trust, and the Grayscale Ethereum Mini Trust.\94\
The Exchange has provided information regarding the underlying Bitcoin
Trusts, including, among other things, information regarding trading
volume, the number of beneficial holders, and the market capitalization
of the Ether Trusts. The proposal also establishes position and
exercise limits for options on the Ether Trusts and provides
information regarding the surveillance procedures that will apply to
Ether Trust options. The Commission believes that waiver of the
operative delay could benefit investors by providing an additional
venue for trading Bitcoin Trust options. Therefore, the Commission
believes that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Accordingly, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change as operative upon filing.\95\
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\92\ 17 CFR 240.19b-4(f)(6).
\93\ 17 CFR 240.19b-4(f)(6)(iii).
\94\ See Securities Exchange Act Release No. 102797 (April 9,
2025), (SR-Cboe-2024-036) (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) See also Securities
Exchange Act Release No. 102798 (April 9, 2025), (SR-ISE-2024-35)
(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 the iShares Ethereum
Trust). See also Securities Exchange Act Release No. 102799 (April
9, 2025), (SR-NYSEAMER-2024-45) (Notice of Filing of Amendment No. 2
and Order Granting Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment No. 2, to Amend Exchange Rule 915 To Permit
the Listing and Trading of Options on the Bitwise Ethereum ETF, the
Grayscale Ethereum Trust, and the Grayscale Ethereum Mini Trust).
\95\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-ISE-2025-11 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-ISE-2025-11. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-ISE-2025-11 and should be
submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\96\
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\96\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06501 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P