[Federal Register Volume 90, Number 73 (Thursday, April 17, 2025)]
[Notices]
[Pages 16366-16372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-06504]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102826; File No. SR-SAPPHIRE-2025-19]
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 402, Criteria for Underlying Securities To List and Trade
Options on the iShares Ethereum 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, MIAX Sapphire, LLC (``MIAX Sapphire'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend proposes to amend Exchange Rule 402,
Criteria for Underlying Securities to list and trade options on the
iShares Ethereum Trust (the ``Trust'').
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings, at the Exchange's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 402, Criteria for
Underlying Securities,\3\ to allow the Exchange to list and trade
options on the Trust, designating it as appropriate for options trading
on the Exchange.\4\ This is a competitive filing based on a similar
proposal submitted by Nasdaq ISE, LLC (``ISE''), which was approved by
the Securities and Exchange Commission (the ``Commission'').\5\
---------------------------------------------------------------------------
\3\ The Exchange notes that its affiliate options exchanges,
Miami International Securities Exchange, LLC (``MIAX'') and MIAX
Pearl, LLC (``MIAX Pearl''), submitted (or will submit)
substantively similar proposals. The Exchange notes that all the
rules of Chapter III of MIAX, including Exchange Rules 307 and 309,
are incorporated by reference into the MIAX Pearl and MIAX Sapphire
rulebooks. The Exchange also notes that all of the rules of Chapter
III of MIAX, including Exchange Rules 307 and 309, and the rules of
Chapter IV of MIAX, including Exchange Rule 402, are incorporated by
reference into the MIAX Emerald, LLC (``MIAX Emerald'') rulebook.
\4\ See Securities Exchange Act Release Nos. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (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; and 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) (``Ethereum ETP Approval
Order'').
\5\ See Securities Exchange Act Release No. 102798 (April 9,
2025) (Self-Regulatory Organizations; Nasdaq ISE, LLC; 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)
(SR-ISE-2024-35) (``ISE Ether Approval Order'').
---------------------------------------------------------------------------
Current Exchange Rule 402(i)(4) provides that securities deemed
appropriate for options trading include shares or other securities
(``Exchange Traded Fund Shares'' or ``ETFs'') that are traded on a
national securities exchange and are defined as ``NMS stock'' under
Rule 600 of Regulation NMS, and that meet specified criteria enumerated
in the rule. Subparagraph (4) of Exchange Rule 402(i) provides that
such shares or other securities:
(4) are issued by the SPDR[supreg] Gold Trust, the iShares COMEX
Gold Trust, the iShares Silver Trust, the Aberdeen Standard Silver
ETF Trust, the Aberdeen Standard Physical Gold Trust, the Aberdeen
Standard Palladium ETF Trust, the Aberdeen Standard Platinum ETF
Trust, the Goldman Sachs Physical Gold ETF, the Sprott Physical Gold
Trust, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the
Grayscale Bitcoin Mini Trust, the Bitwise Bitcoin ETF, the Fidelity
Wise Origin Bitcoin Fund, or the ARK 21 Shares Bitcoin ETF ; or
In addition to the aforementioned requirements, Exchange Rule
402(i)(5)(i)(A) or (B) must be met to list options on ETFs.\6\
---------------------------------------------------------------------------
\6\ Exchange Rule 402(i)(5)(i)(A) or (B) states 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.
---------------------------------------------------------------------------
Proposal
The Exchange proposes to amend Exchange Rule 402(i)(4) to expand
the list of securities that are appropriate for options trading on the
Exchange to include the Trust.\7\
---------------------------------------------------------------------------
\7\ Specifically, the Exchange proposes to amend Exchange Rule
402(i)(4) to include the name of the Trust to enable options to be
listed on the Trust on the Exchange.
---------------------------------------------------------------------------
Description of the Trust \8\
---------------------------------------------------------------------------
\8\ See SR-NASDAQ-2023-045 for a complete description of the
Trust.
---------------------------------------------------------------------------
The shares are issued by the Trust, a Delaware statutory trust. The
Trust will operate pursuant to a trust agreement (the ``Trust
Agreement'') between the Sponsor, BlackRock Fund Advisors (the
``Trustee'') as the trustee of the Trust and will appoint Wilmington
Trust, National Association, as Delaware Trustee of the Trust (the
``Delaware Trustee'') by such time that the Registration Statement is
effective. The Trust issues shares representing fractional undivided
beneficial interests in its net assets. The assets of the Trust will
consist only of Ether (``Ether'' or ``Ethereum'') held by a custodian
on behalf of the Trust, except under limited circumstances when
transferred through the Trust's prime broker temporarily (described
below), and cash. Neither the Trust, nor the Sponsor, nor the Ether
Custodian (as defined below), nor any other person associated with the
Trust
[[Page 16367]]
will, directly or indirectly, engage in action where any portion of the
Trust's Ether becomes subject to the Ethereum proof-of-stake validation
or is used to earn additional Ether or generate income or other
earnings. Coinbase Custody Trust Company, LLC (the ``Ether
Custodian''), is the custodian for the Trust's Ether holdings, and
maintains a custody account for the Trust (``Custody Account'');
Coinbase, Inc. (the ``Prime Execution Agent''), an affiliate of the
Ether Custodian, is the prime broker for the Trust and maintains a
trading account for the Trust (``Trading Account''); and The Bank of
New York Mellon is the custodian for the Trust's cash holdings (the
``Cash Custodian'' and together with the Ether Custodian, the
``Custodians'') and the administrator of the Trust (the ``Trust
Administrator''). Under the Trust Agreement, the Trustee may delegate
all or a portion of its duties to any agent, and has delegated the bulk
of the day-today responsibilities to the Trust Administrator and
certain other administrative and recordkeeping functions to its
affiliates and other agents. The Trust is not an investment company
registered under the Investment Company Act of 1940, as amended.
The investment objective of the Trust is to reflect generally the
performance of the price of Ether. The Trust seeks to reflect such
performance before payment of the Trust's expenses and liabilities. The
Shares are intended to constitute a simple means of making an
investment similar to an investment in Ether through the public
securities market rather than by acquiring, holding and trading Ether
directly on a peer-to-peer or other basis or via a digital asset
platform. The Shares have been designed to remove the obstacles
represented by the complexities and operational burdens involved in a
direct investment in Ether, while at the same time having an intrinsic
value that reflects, at any given time, the investment exposure to the
Ether owned by the Trust at such time, less the Trust's expenses and
liabilities. Although the Shares are not the exact equivalent of a
direct investment in Ether, they provide investors with an alternative
method of achieving investment exposure to Ether through the public
securities market, which may be more familiar to them.
Custody of the Trust's Ether and Creation and Redemption
An investment in the shares is backed by Ether held by the Ether
Custodian on behalf of the Trust. All of the Trust's Ether will be held
in the Custody Account, other than the Trust's Ether which is
temporarily maintained in the Trading Account under limited
circumstances, i.e., in connection with creation and redemption Basket
\9\ activity or sales of Ether deducted from the Trust's holdings in
payment of Trust expenses or the Sponsor's fee (or, in extraordinary
circumstances, upon liquidation of the Trust). The Custody Account
includes all of the Trust's Ether held at the Ether Custodian, but does
not include the Trust's Ether temporarily maintained at the Prime
Execution Agent in the Trading Account from time to time. The Ether
Custodian will keep all of the private keys associated with the Trust's
Ether held in the Custody Account in ``cold storage''.\10\ The
hardware, software, systems, and procedures of the Ether Custodian may
not be available or cost effective for many investors to access
directly.
---------------------------------------------------------------------------
\9\ The Trust issues and redeems Shares only in blocks of 40,000
or integral multiples thereof. A block of 40,000 shares is called a
``Basket.'' These transactions take place in exchange for ether.
\10\ The term ``cold storage'' refers to a safeguarding method
by which the private keys corresponding to the Trust's ether are
generated and stored in an offline manner, subject to layers of
procedures designed to enhance security. Private keys are generated
by the Ether Custodian in offline computers that are not connected
to the internet so that they are more resistant to being hacked.
---------------------------------------------------------------------------
The Exchange believes that offering options on the Trust will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to spot Ether as well as a
hedging vehicle to meet their investment needs in connection with Ether
products and positions. Similar to other commodity ETFs in which
options may be listed on the Exchange (e.g., the SPDR[supreg] Gold
Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, the
Aberdeen Standard Physical Gold Trust, the iShares Bitcoin Trust, the
Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, Bitwise
Bitcoin ETF, the Fidelity Wise Origin Bitcoin Fund, or the ARK 21Shares
Bitcoin ETF),\11\ the proposed ETF is a trust that essentially offers
the same objectives and benefits to investors.
---------------------------------------------------------------------------
\11\ See Exchange Rule 402(i)(4).
---------------------------------------------------------------------------
Options on the Trust will trade in the same manner as any other ETF
options on the Exchange. Exchange Rules that currently apply to the
listing and trading of all ETFs options on the Exchange, including, for
example, Exchange Rules that govern listing criteria, expiration and
exercise prices, minimum increments, position and exercise limits
(including as proposed in the filing submitted by Exchange's affiliate,
MIAX), margin requirements, customer accounts and trading halt
procedures will apply to the listing and trading of options on the
Trust on the Exchange. Today, these rules apply to options on the
various commodities ETFs deemed appropriate for options trading on the
Exchange pursuant to current Exchange Rule 402(i)(4).
The Exchange's initial listing standards for ETFs on which options
may be listed and traded on the Exchange will apply to the Trust. The
initial listing standard as set forth in Exchange Rule 402(a) provides
that:
Underlying securities with respect to which put or call options
contracts are approved for listing and trading on the Exchange must
meet the following criteria: (1) the security must be registered and
be an ``NMS stock'' as defined in Rule 600 of Regulation NMS under
the Exchange Act; and (2) the security shall be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.
Pursuant to Exchange Rule 402, ETFs on which options may be listed
and traded must satisfy the listing standards set forth in Exchange
Rule 402(5). Specifically, the Trust must:
(1) meet the criteria and standards set forth in Exchange Rule
402(a) or 402(b),\12\ or
---------------------------------------------------------------------------
\12\ Subparagraphs a. and b. of Exchange Rule 402 provide for
guidelines to be used by the Exchange when evaluating potential
underlying securities for Exchange option transactions.
---------------------------------------------------------------------------
(2) be available for creation or redemption each business day
from or through the issuer in cash or in kind at a price related to
net asset value, and the issuer must be obligated to issue ETFs in a
specified aggregate number even if some or all of the investment
assets required to be deposited have not been received by the
issuer, subject to the condition that the person obligated to
deposit the investments has undertaken to deliver the investment
assets as soon as possible and such undertaking is secured by the
delivery and maintenance of collateral consisting of cash or cash
equivalents satisfactory to the issuer, as provided in the
respective prospectus.
Options on the Trust will also be subject to the Exchange's
continued listing standards set forth in Exchange Rule 403(g).
Specifically, options approved for trading pursuant to Exchange Rule
402(i) will not be deemed not to meet the requirements for continued
approval, and the Exchange shall not open for trading any additional
series of option contracts of the class covering that such ETFs, if the
ETFs cease to be an NMS stock or the ETFs, are delisted from trading
pursuant to Exchange Rule 403(b)(4), or the ETFs are halted or
suspended from trading in
[[Page 16368]]
their primary market.\13\ 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:
---------------------------------------------------------------------------
\13\ See Exchange Rule 403(g).
(1) in the case of options covering ETFs approved for trading
under Exchange Rule 402(i)(5)(i)(A), in accordance with the terms of
paragraphs (b)(1), (2), and (3) of Exchange Rule 403; \14\
---------------------------------------------------------------------------
\14\ Exchange Rules 403(b)(1) through (4) provides, if: (1)
there are fewer than 6,300,000 shares of the underlying security
held by persons other than those who are required to report their
security holdings under Section 16(a) of the Act, (2) there are
fewer than 1,600 holders of the underlying security, (3) the trading
volume (in all markets in which the underlying security is traded)
has been less than 1,800,000 shares in the preceding twelve (12)
months, or (4) the underlying security ceases to be an `NMS stock'
as defined in Rule 600 of Regulation NMS under the Act.
---------------------------------------------------------------------------
(2) in the case of options covering ETFs approved for trading
under Exchange Rule 402(i)(5)(i)(B), following the initial twelve-
month period beginning upon the commencement of trading in the ETFs
on a national securities exchange and are defined as an NMS stock,
there are fewer than 50 record and/or beneficial holders of such
ETFs for 30 or more consecutive trading days;
(3) the value of the index or portfolio of securities, non-U.S.
currency, or portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts and/or options on physical commodities and/or financial
instruments and money market instruments on which the ETFs are based
is no longer calculated or available; or
(4) such other event shall occur or condition exist that in the
opinion of the Exchange makes further dealing in such options on the
Exchange inadvisable.
Options on the Trust would be physically settled contracts with
American-style exercise.\15\ Consistent with current Exchange Rule 404,
which governs the opening of options series on a specific underlying
security (including ETFs), the Exchange will open at least one
expiration month for options on the Trust \16\ at the commencement of
trading on the Exchange and may also list series of options on the
Trust for trading on a weekly,\17\ monthly,\18\ or quarterly \19\
basis. The Exchange may also list long-term equity option series
(``LEAPS'') that expire from 12 to 39 months from the time they are
listed.\20\
---------------------------------------------------------------------------
\15\ See Exchange Rule 401, which provides that the rights and
obligations of holders and writers are set forth in the Rules of the
Options Clearing Corporation (``OCC''); see also OCC Rules, Chapters
VIII (which governs exercise and assignment) and Chapter IX (which
governs the discharge of delivery and payment obligations arising
out of the exercise of physically settled stock option contracts).
\16\ See Exchange Rule 404(b). The monthly expirations are
subject to certain listing criteria for underlying securities
described within Exchange Rule 404 and its Interpretations and
Policies. Monthly listings expire the third Friday of the month. The
term ``expiration date'' (unless separately defined elsewhere in the
OCC By-Laws), when used in respect of an option contract (subject to
certain exceptions), means the third Friday of the expiration month
of such option contract, or if such Friday is a day on which the
exchange on which such option is listed is not open for business,
the preceding day on which such exchange is open for business. See
OCC By-Laws Article I, Section 1. Pursuant to Exchange Rule 404(c),
additional series of options of the same class may be opened for
trading on the Exchange when the Exchange deems it necessary to
maintain an orderly market, to meet customer demand or when the
market price of the underlying stock moves more than five strike
prices from the initial exercise price or prices. Pursuant to
Exchange Rule 404(e), new series of options on an individual stock
may be added until the beginning of the month in which the options
contract will expire. Due to unusual market conditions, the
Exchange, in its discretion, may add a new series of options on an
individual stock until the close of trading on the business day
prior to expiration.
\17\ See Exchange Rule 404, Interpretations and Policy.02.
\18\ See Exchange Rule 404, Interpretations and Policy.13.
\19\ See Exchange Rule 404, Interpretations and Policy.03.
\20\ See Exchange Rule 406.
---------------------------------------------------------------------------
Pursuant to Exchange Rule 404, Interpretations and Policies .06,
which governs strike prices of series of options on ETFs, the interval
between strike prices of series of options on ETFs approved for options
trading pursuant to Exchange Rule 402(i) shall be fixed at a price per
share which is reasonably close to the price per share at which the
underlying security is traded in the primary market at or about the
same time such series of options is first open for trading on the
Exchange, or at such intervals as may have been established on another
options exchange prior to the initiation of trading on the Exchange.
With respect to the Short Term Options Series or Weekly Program, during
the month prior to expiration of an option class that is selected for
the Short Term Option Series Program, the strike price intervals for
the related non-Short Term Option (``Related non-Short Term Option'')
shall be the same as the strike price intervals for the Short Term
Option.\21\ Specifically, the Exchange may open for trading Short Term
Option Series at strike price intervals of (i) $0.50 or greater where
the strike price is less than $100, and $1 or greater where the strike
price is between $100 and $150 for all option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150.\22\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\23\ the $0.50 Strike
Program,\24\ and the $2.50 Strike Price Program.\25\ Pursuant to
Exchange Rule 510, where the price of a series of options on the Trust
is less than $3.00, the minimum increment will be $0.05, and where the
price is $3.00 or higher, the minimum increment will be $0.10 \26\
consistent with the minimum increments for options on other ETFs listed
on the Exchange. Any and all new series of Trust options that the
Exchange lists will be consistent and comply with the expirations,
strike prices, and minimum increments set forth in Exchange Rules 404
and 510, as applicable.
---------------------------------------------------------------------------
\21\ See Exchange Rule 404, Interpretations and Policy .02(e).
\22\ Id.
\23\ See Exchange Rule 404, Interpretation and Policy .01.
\24\ See Exchange Rule 404, Interpretation and Policy .04.
\25\ See Exchange Rule 404(f).
\26\ See Exchange Rule 510.
---------------------------------------------------------------------------
Trust options will trade in the same manner as any other ETF
options on the Exchange. The Exchange Rules that currently apply to the
listing and trading of all ETFs options on the Exchange, including, for
example, Exchange Rules that govern listing criteria, expiration and
exercise prices, minimum increments, position and exercise limits
(including as proposed in the filing submitted by the Exchange's
affiliate, MIAX), margin requirements, customer accounts and trading
halt procedures will apply to the listing and trading of Trust options
on the Exchange in the same manner as they apply to other options on
all other ETFs that are listed and traded on the Exchange, including
the precious-metal backed commodity ETFs already deemed appropriate for
options trading on the Exchange pursuant to current Exchange Rule
402(i)(4).
Position and exercise limits for options on ETFs, including options
on the Trust, are determined pursuant to MIAX Rules 307 and 309,
respectively, as incorporated by reference into the MIAX Sapphire
Rulebook. Position and exercise limits for ETF options vary according
to the number of outstanding shares and the trading volumes of the
underlying ETF over the past six months, where the largest in
capitalization and the most frequently traded ETFs have an option
position and exercise limit of 250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market; and
smaller capitalization ETFs have position and exercise limits of
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market.
[[Page 16369]]
The Exchange further notes that MIAX Rule 1502, which governs
margin requirements applicable to trading on the Exchange, including
options on ETFs, will also apply to the trading of the Trust options,
as MIAX Chapter XV (Margins) is also incorporated by reference into the
MIAX Sapphire Rulebook. Notwithstanding the position limits in MIAX
Rule 307(d) and exercise limits in MIAX Rule 309, the Exchange proposes
the position and exercise limits for the Trust to be 25,000 contracts
on the same side pursuant to proposed Interpretations and Policy .01 to
MIAX Rule 307 and proposed Interpretations and Policy .01 to MIAX Rule
309.
The Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Trust. Also the
Exchange represents that it has the necessary systems capacity to
support the new option series. The Exchange believes that its existing
surveillance and reporting safeguards are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading options on ETFs, including the proposed Trust
options.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to the Trust options that it applies to the Exchange's other
options products.\27\ The Exchange's staff will have access to the
surveillance programs conducted by its affiliate exchanges, MIAX and
MIAX Pearl, with respect to trading in the shares of the underlying
Ether Trust when conducting surveillances for market abuse or
manipulation in the options on the Trust. Additionally, the Exchange is
a member of the Intermarket Surveillance Group (``ISG'') under the
Intermarket Surveillance Group Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition to obtaining
surveillance data from MIAX and MIAX Pearl, the Exchange will be able
to obtain information regarding trading in the shares of the underlying
Trust from Nasdaq, ISE, and Cboe and other markets through ISG. In
addition, the Exchange has a Regulatory Services Agreement with the
Financial Industry Regulatory Authority (``FINRA''). Pursuant to a
multi-party 17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillance that are common to rules of all options exchanges.\28\
---------------------------------------------------------------------------
\27\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\28\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot Ethereum exchange-traded products
(``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 Ethereum-based ETPs,
[e]ach Exchange has a comprehensive surveillance sharing agreement
with the [Chicago Mercantile Exchange (``CME'')] via their common
membership in the Intermarket Surveillance Group. This facilitates
the sharing of information that is available to the CME through its
surveillance of its markets, including its surveillance of the CME
Ethereum futures market.\29\
---------------------------------------------------------------------------
\29\ See Ethereum ETP Approval Order, 89 FR at 46938.
The Exchange states that in the Ethereum ETP Approval Order, given
the consistently high correlation between the CME Ethereum futures
market and the spot Ethereum market, as confirmed by the Commission
through robust correlation analysis, the Commission was able to
conclude that such surveillance sharing agreements could reasonably be
``expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [Ethereum ETPs].''
\30\
---------------------------------------------------------------------------
\30\ See Ethereum ETP Approval Order, 89 FR at 46939.
---------------------------------------------------------------------------
In light of surveillance measures related to both options and
futures as well as the Trust,\31\ the Exchange believes that existing
surveillance procedures are designed to deter and detect possible
manipulative behavior which might potentially arise from listing and
trading the proposed options on the Trust. Further, the Exchange
represents that it will implement any new surveillance procedures it
deems necessary to effectively monitor the trading of options on the
Trust. Additionally, the Exchange may obtain trading information via
ISG from other exchanges who are members or affiliates of the ISG.
---------------------------------------------------------------------------
\31\ See Ethereum ETP Approval Order.
---------------------------------------------------------------------------
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and 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 Trust up to the number of expirations
currently permissible under the Rules. Because the proposal is limited
to one class, the Exchange believes any additional traffic that may be
generated from the introduction of the Trust options will be
manageable.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\32\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \33\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \34\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
\34\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Trust 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 Trust
will provide investors with a greater opportunity to realize the
benefits of utilizing options on an ETF based on spot Ethereum,
including cost
[[Page 16370]]
efficiencies and increased hedging strategies. The Exchange believes
that offering options on a competitively priced ETF based on spot
Ethereum will benefit investors by providing them with an additional,
relatively lower-cost risk management tool, allowing them to manage,
more easily, their positions and associated risks in their portfolios
in connection with exposure to spot Ethereum. Today, the Exchange lists
options on other commodity ETFs structured as a trust, which
essentially offer the same objectives and benefits to investors, and
for which the Exchange has not identified any issues with the continued
listing and trading of options on those ETFs.
The Exchange also believes the proposal to permit options on the
Trust will remove impediments to and perfect the mechanism of a free
and open market and a national market system, because options on the
Trust will comply with current Exchange Rules. Options on the Trust
satisfy the initial listing standards and continued listing standards
currently in the Exchange Rules applicable to options on all ETFs,
including ETFs that hold other commodities already deemed appropriate
for options trading on the Exchange pursuant to Exchange Rule
402(i)(4). Additionally, as demonstrated above, the Trust is
characterized by a substantial number of shares that are widely held
and actively traded. Further, Rules that currently govern the listing
and trading of options on ETFs, including permissible expirations,
strike prices, minimum increments, position and exercise limits
(including as proposed in the filing submitted by Exchange's affiliate,
MIAX), and margin requirements, will govern the listing and trading of
options on the Trust.
The Exchange believes the proposed position and exercise limits, as
proposed in the filing submitted by Exchange's affiliate, MIAX, are
designed to prevent fraudulent and manipulative acts and practices and
promote just and equitable principles of trade, as they are designed to
address potential manipulative schemes and adverse market impacts
surrounding the use of options, such as disrupting the market in the
security underlying the options. The proposed position and exercise
limits for options for the Trust is 25,000 contracts, which is
currently the lowest limit applicable to any equity options (including
ETF options) and the position and exercise limits that apply to
comparable ETFs that hold Bitcoin. The Exchange believes the proposed
position and exercise limits, as proposed in the filing submitted by
Exchange's affiliate, MIAX, are extremely conservative for the Trust
options given the trading volume and outstanding shares for the Trust.
The Exchange represents that it has the necessary systems capacity
to support the new Trust options. As discussed above, the Exchange
believes that its existing surveillance and reporting safeguards are
designed to deter and detect possible manipulative behavior which might
arise from listing and trading ETF options, including Trust options.
The Exchange's existing surveillance and reporting safeguards are
designed to deter and detect possible manipulative behavior which might
arise from listing and trading options on ETFs and ETPs, such as
(existing) precious metal-commodity backed ETP options as well as the
proposed options on the Trust. The Exchange's existing surveillance and
reporting safeguards are designed to deter and detect possible
manipulative behavior which might arise from listing and trading
options on ETFs and ETPs, such as (existing) precious metal-commodity
backed ETP options as well as the proposed options on the Trust. The
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of options on the Trust in all trading
sessions and to deter and detect violations of Exchange rules.
Specifically, the Exchange's market surveillance staff will have access
to surveillances that it conducts, and that FINRA conducts on its
behalf, with respect to the Trust and, as appropriate, would review
activity in the underlying Fund when conducting surveillances for
market abuse or manipulation in the options on the Trust. Additionally,
the Exchange is a member of the ISG under the Intermarket Surveillance
Group Agreement. ISG members work together to coordinate surveillance
and investigative information sharing in the stock, options, and
futures markets. In addition to obtaining surveillance data from MIAX
and MIAX Pearl, the Exchange will be able to obtain information from
Nasdaq, ISE, Cboe and other markets through ISG. In addition, the
Exchange has a Regulatory Services Agreement with FINRA. Pursuant to a
multi-party 17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillance that are common to rules of all options exchanges.\35\
---------------------------------------------------------------------------
\35\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``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 Ethereum-based
ETPs:
[e]ach Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group.\36\ 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.\37\
---------------------------------------------------------------------------
\36\ See Ethereum ETP Approval Order.
\37\ Id.
The Exchange states that in the Ethereum ETP Approval Order, given
the consistently high correlation between the CME Ethereum futures
market and the spot Ethereum market, as confirmed by the Commission
through robust correlation analysis, the Commission was able to
conclude that such surveillance sharing agreements could reasonably be
``expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [Ether ETPs].'' \38\
---------------------------------------------------------------------------
\38\ See Ethereum ETP Approval Order, 89 FR at 46941.
---------------------------------------------------------------------------
In light of surveillance measures related to both options and
futures as well as the underlying Trust,\39\ 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 Trust. Options on the
Trust must satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules, applicable to options on all
ETFs, including options on other commodity ETFs already deemed
appropriate for options trading on the Exchange pursuant to Exchange
Rule 402(i)(4).
---------------------------------------------------------------------------
\39\ See Ethereum ETP Approval Order.
---------------------------------------------------------------------------
Further, the Exchange represents that it will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on the Trust.
Finally, the Commission has previously approved the listing and
[[Page 16371]]
trading of options on other cryptocurrency backed commodity ETFs
structured as trusts.\40\
---------------------------------------------------------------------------
\40\ See Securities Exchange Act Release Nos. 101699 (November
21, 2024), 89 FR 93757 (November 27, 2024) (SR-SAPPHIRE-2024-36)
(Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 402, Criteria for Underlying Securities To List and
Trade Options on the iShares Bitcoin Trust); 101745 (November 25,
2024), 89 FR 94784 (December 2, 2024) (SR-SAPPHIRE-2024-37) (Self-
Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 402, Criteria for Underlying Securities, To List and Trade
Options on the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini
Trust, and the Bitwise Bitcoin ETF); 101730 (November 25, 2024), 89
FR 95301 (December 2, 2024) (SR-SAPPHIRE-2024-38) (Self-Regulatory
Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 402,
Criteria for Underlying Securities To List and Trade Options on the
Fidelity Wise Origin Bitcoin Fund (the ``Fidelity Fund'') and the
ARK 21Shares Bitcoin ETF (the ``ARK 21 Fund'').
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. In this regard and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to the filing submitted by ISE.\41\
---------------------------------------------------------------------------
\41\ See supra note 5.
---------------------------------------------------------------------------
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as options on the
Trust will be equally available to all market participants who wish to
trade such options and will trade generally in the same manner as other
options. Moreover, options on the Trust will be subject to Exchange
Rules that currently govern the listing and trading of options on ETFs,
including permissible expirations, strike prices, minimum increments,
position and exercise limits (including as proposed in the filing
submitted by Exchange's affiliate, MIAX), and margin requirements.
Also, and as stated above, the Exchange already lists options on other
cryptocurrency backed commodity ETFs structured as trusts.\42\ Further,
the Trust would need to satisfy the maintenance listing standards set
forth in the Exchange Rules in the same manner as any other ETF for the
Exchange to continue listing options on it.
---------------------------------------------------------------------------
\42\ See Exchange Rule 402(i)(4).
---------------------------------------------------------------------------
The Exchange does not believe that the proposal to list and trade
options on the Trust 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 the Trust options trading on
the Exchange may make the Exchange a more attractive marketplace to
market participants at other exchanges, such market participants are
free to elect to become market participants on the Exchange.
Additionally, other options exchanges are free to amend their listing
rules, as applicable, to permit them to list and trade options on
Trust. The Exchange notes that listing and trading Trust options on the
Exchange will subject such options to transparent exchange-based rules
as well as price discovery and liquidity, as opposed to alternatively
trading such options in the OTC market.
The Exchange believes that the proposed rule change may relieve any
burden on, or otherwise promote, competition as it is designed to
increase competition for order flow on the Exchange in a manner that is
beneficial to investors by providing them with a lower-cost option to
hedge their investment portfolios. The Exchange notes that it operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues that offer similar products.
Ultimately, the Exchange believes that offering the Trust options for
trading on the Exchange will promote competition by providing investors
with an additional, relatively low-cost means to hedge their portfolios
and meet their investment needs in connection with Ethereum prices and
Ethereum-related products and positions on a listed options exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \43\ and Rule 19b-4(f)(6) thereunder.\44\
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 \45\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\46\
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78s(b)(3)(A)(iii).
\44\ 17 CFR 240.19b-4(f)(6).
\45\ 15 U.S.C. 78s(b)(3)(A)(iii).
\46\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file 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 has waived the pre-filing requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \47\ 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),\48\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative immediately upon filing. The
Commission previously approved the listing and trading of options on
the iShares Ethereum Trust (the ``Trust'').\49\ The Exchange has
provided information regarding the underlying Trust, including, among
other things, information regarding trading volume, the number of
beneficial holders, and the market capitalization of the Trust. The
proposal also establishes position and exercise limits for options on
the Trust and provides information regarding the surveillance
procedures that will apply to Trust options. The Commission believes
that waiver of the operative delay could benefit investors by providing
an additional venue for trading 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.\50\
---------------------------------------------------------------------------
\47\ 17 CFR 240.19b-4(f)(6).
\48\ 17 CFR 240.19b-4(f)(6)(iii).
\49\ See supra note 5.
\50\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of
[[Page 16372]]
the purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-SAPPHIRE-2025-19 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-SAPPHIRE-2025-19. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-SAPPHIRE-2025-19 and should
be submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\51\
---------------------------------------------------------------------------
\51\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06504 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P