[Federal Register Volume 90, Number 73 (Thursday, April 17, 2025)]
[Notices]
[Pages 16272-16283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-06555]
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-102846; File No. SR-MIAX-2025-21]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Amend Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange
Rule 309, Exercise Limits To Allow the Exchange to List and Trade
Options on the Grayscale Ethereum Trust, the Grayscale Ethereum Mini
Trust, and the Bitwise Ethereum ETF
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 11, 2025, Miami International Securities Exchange, LLC
(``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange
Rule 309, Exercise Limits, to list and trade options on the Grayscale
Ethereum Trust (the ``Grayscale Fund'' or ``ETHE''), the Grayscale
Ethereum Mini Trust (the ``Grayscale Mini Fund'' or ``ETH''), and the
Bitwise Ethereum ETF (the ``Bitwise Fund'' or ``ETHW'' and,
collectively, the ``Ether Funds'' or ``Funds'').
The text of the proposed rule change is available on the Exchange's
website at https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings, at MIAX's principal office, and
[[Page 16273]]
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, Exchange Rule 307, Position Limits, and Exchange
Rule 309, Exercise Limits,\3\ to allow the Exchange to list and trade
options on the Ether Funds, designating them as appropriate for options
trading on the Exchange.\4\ This is a competitive filing based on a
similar proposal submitted by NYSE American, LLC (``NYSE American''),
which was approved by the Securities and Exchange Commission (the
``Commission'').\5\
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\3\ The Exchange notes that its affiliate options exchanges,
MIAX PEARL, LLC (``MIAX Pearl'') and MIAX Sapphire, LLC (``MIAX
Sapphire''), 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 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) (``Ether ETP Approval
Order''); and 100541 (July 17, 2024), 89 FR 59786 (July 23, 2024)
(SR-NYSEArca-2024-44; and SR-NYSEArca-2024-53) (Order Granting
Approval of Proposed Rule Changes To List and Trade Shares of the
Grayscale Ethereum Mini Trust and ProShares Ethereum ETF).
\5\ See Securities Exchange Act Release No. 102799 (April 9,
2025) (SR-NYSEAMER-2024-45)(Self-Regulatory Organizations; NYSE
American LLC; 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)(``NYSE
American Ether Approval Order'').
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Exchange Rule 402(i) provides that, subject to certain other
criteria set forth in the Rule, securities deemed appropriate for
options trading include Exchange-Traded Fund Shares (or ETFs) as
defined in Subparagraphs (1)-(5), including Exchange-Traded Fund Shares
that represent certain types of interests, and exchange traded products
(``ETPs''), structured as trusts that hold precious metals (which are
deemed commodities).\6\ Last year, the Exchange received approval from
the Commission to list and trade options on specific funds that hold
bitcoin (also deemed a commodity).\7\ Like ETPs backed by precious
metals and bitcoin (i.e., commodities), the Exchange proposes to allow
options trading on the Ether Funds that hold ether--which is also
deemed a commodity.
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\6\ See Exchange Rule 402(i), which permits options trading on
exchange-traded funds that: (1) represent interests in registered
investment companies (or series thereof) organized as open-end
management investment companies, unit investment trusts or similar
entities that hold portfolios of securities and/or financial
instruments (``Funds''), including, but not limited to, stock index
futures contracts, options on futures, options on securities and
indices, equity caps, collars and floors, swap agreements, forward
contracts, repurchase agreements and reverse repurchase agreements
(the ``Financial Instruments''), and money market instruments,
including, but not limited to, U.S. government securities and
repurchase agreements (the ``Money Market Instruments'') comprising
or otherwise based on or representing investments in broad-based
indexes or portfolios of securities and/or Financial Instruments and
Money Market Instruments (or that hold securities in one or more
other registered investment companies that themselves hold such
portfolios of securities and/or Financial Instruments and Money
Market Instruments); (2) represent interests in a trust or similar
entity that holds a specified non-U.S. currency or currencies
deposited with the trust which when aggregated in some specified
minimum number may be surrendered to the trust or similar entity by
the beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''); (3)
represent commodity pool interests principally engaged, directly or
indirectly, in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on commodity
futures contracts, swaps, forward contracts and/or options on
physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs''); (4) are issued by the SPDR[supreg] Gold Trust, the iShares
COMEX Gold Trust, the iShares Silver Trust, the Aberdeen Standard
Silver ETF Trust, the Aberdeen Standard Physical Gold Trust, the
Aberdeen Standard Palladium ETF Trust, the Aberdeen Standard
Platinum ETF Trust, the Goldman Sachs Physical Gold ETF, the Sprott
Physical Gold Trust, the iShares Bitcoin Trust, the Grayscale
Bitcoin Trust, the Grayscale Bitcoin Mini Trust, the Bitwise Bitcoin
ETF, the Fidelity Wise Origin Bitcoin Fund, the ARK 21 Shares
Bitcoin ETF, the Fidelity Ethereum Fund, or iShares Ethereum Trust;
or (5) represent an interest in a registered investment company
(``Investment Company'') organized as an open-end management company
or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies,
which is issued in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities and/or a cash
amount with a value equal to the next determined net asset value
(``NAV''), and when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to
the next determined NAV (``Managed Fund Share''); provided that all
of the conditions listed in (5)(i) and 5(ii) are met.
\7\ See Securities Exchange Act Release Nos. 101698 (November
21, 2024), 89 FR 93802 (November 27, 2024) (SR-MIAX-2024-40) (Self-
Regulatory Organizations; MIAX Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 402, Criteria for Underlying Securities, Exchange Rule 307,
Position Limits, and Exchange Rule 309, Exercise Limits To Allow the
Exchange To List and Trade Options on the iShares Bitcoin Trust);
101716 November 22, 2024), 89 FR 94856 (November 29, 2024) (SR-MIAX-
2024-42) (Self-Regulatory Organizations; MIAX Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Exchange Rule 402, Criteria for Underlying Securities,
Exchange Rule 307, Position Limits, and Exchange Rule 309, Exercise
Limits To Allow the Exchange To List and Trade Options on the
Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, and the
Bitwise Bitcoin ETF) (``BTC Approval Order''); 101717 (November 22,
2024), 89 FR 94828 (November 29, 2024) (SR-MIAX-2024-43) (Self-
Regulatory Organizations; MIAX Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 402, Criteria for Underlying Securities, Exchange Rule 307,
Position Limits, and Exchange Rule 309, Exercise Limits To Allow the
Exchange To List and Trade Options on the Fidelity Wise Origin
Bitcoin Fund (the ``Fidelity Fund'') and the ARK 21Shares Bitcoin
ETF (the ``ARK 21 Fund'')).
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The Ether Funds are structured as trusts that hold ether. Like ETFs
and ETPs currently deemed appropriate for options trading, the
investment objective of each Ether Fund trust is for its shares to
reflect the performance of ether (less the expenses of the trust's
operations), offering investors an opportunity to gain exposure to
ether without the complexities of ether delivery. Each Ether Fund's
shares represent units of fractional undivided beneficial interest in
the trust, the assets of which consist principally of ether and are
designed to track ether or the performance of the price of ether and
offer access to the ether market.\8\ The Ether Funds provide investors
with cost-efficient alternatives that allow a level of participation in
the ether market through the securities market.
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\8\ The trust may include minimal cash.
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The Exchange believes each Ether Fund satisfies the Exchange's
initial listing standards set forth in Exchange
[[Page 16274]]
Rule 402(b).\9\ The Exchange notes that the Ether Funds also satisfy
the listing standards applied to ETFs traded on the Exchange that they
be available for creation and redemption each business day as set forth
in Exchange Rule 402(i)(5)(i)(B).\10\
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\9\ 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.
\10\ Exchange Rule 402(i)(5)(i)(B) requires that ETFs 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.
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First, each of the Ether Funds satisfy the criteria and guidelines
set forth in Exchange Rule 402(a). Pursuant to Exchange Rule 402(a), a
security on which options may be listed and traded on the Exchange must
be registered (with the Commission) and be an NMS stock (as defined in
Rule 600 of Regulation NMS under the Act) and be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.\11\ Each of the Ether Funds is an NMS Stock as defined
in Rule 600 of Regulation NMS under the Act.\12\ The Exchange believes
each Ether Fund is characterized by a substantial number of outstanding
shares that are widely held and actively traded.
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\11\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Exchange Rule
402(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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Pursuant to the data presented in the NYSE American Ether Approval
Order,\13\ as of November 29, 2024, the Ether Funds had the following
number of shares outstanding (and corresponding market capitalization):
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\13\ See supra note 5.
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Shares Market capitalization
Ether Fund 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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As shown above, each of the Ether Funds had significantly more than
7,000,000 shares outstanding, which is the minimum number of shares of
a corporate stock that the Exchange generally requires to list options
on that stock pursuant to Exchange Rule 402(b)(1).\14\ The Exchange
believes this demonstrates that each Ether Fund is characterized by a
substantial number of outstanding shares.
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\14\ The Exchange notes 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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Further, according to the NYSE American Ether Approval Order,\15\
the below table contains information regarding the number of beneficial
holders of the Ether Funds as of December 31, 2024.
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\15\ See supra note 5.
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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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As this table shows, each 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 the Exchange
generally requires for corporate stock in order to list options on that
stock pursuant to pursuant to Exchange Rule 402(b)(2).\16\ Therefore,
the Exchange believes the shares of each Ether Fund are widely held.
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\16\ 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.
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The Exchange also believes that, based on trading volume since the
Funds began trading on July 23, 2024, shares of the Ether Funds are
actively traded. In particular, according to the NYSE American Ether
Approval Order,\17\ 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).
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).\18\
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\17\ See supra note 5.
\18\ See FactSet, 11/29/2024 and 12/31/24, https://www.factset.com/data-attribution.
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Trading
Ether Fund volume Trading volume ADV (shares)
(shares) (notional $)
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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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As demonstrated above, even though the Ether Funds have been
trading for less than one year, the trading volume for each 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 the Exchange
generally requires for a security in order to list options on that
security as set forth in Exchange Rule 402(b). The Exchange believes
this data demonstrates that each Ether Fund is characterized by a
substantial number of outstanding shares that are actively traded.
In addition to satisfying the Exchange's initial listing standards,
options on the Ether Funds will be
[[Page 16275]]
subject to the Exchange's continued listing standards as set forth in
Exchange Rule 403(g).\19\ Pursuant to Exchange Rule 403(g), the
Exchange will not open for trading any additional series of option
contracts covering a fund traded on the Exchange if such fund ceases to
be an ``NMS stock'' as provided for Exchange Rule 402(b) or the fund is
halted from trading on its primary market.\20\ Additionally, options on
funds traded on the Exchange may be subject to the suspension of
opening transactions as follows: (1) the fund no longer meets the terms
of Exchange Rule 403(b); (2) following the initial twelve-month period
beginning upon the commencement of trading of the fund, there are fewer
than 50 record and/or beneficial holders of the fund for 30 or more
consecutive trading days; (3) the value of the underlying commodity is
no longer calculated or available; or (4) such other event occurs or
condition exists that in the opinion of the Exchange makes further
dealing on the Exchange inadvisable.
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\19\ The Exchange proposes to amend Exchange Rule 402(i)(4) to
include the Ether Funds in the list of ETPs deemed ``Exchange-Traded
Fund Shares''--of ETFs--for purposes of the continued listing
standards set forth in Exchange Rule 403(g). See proposed Exchange
Rule 402(i)(4).
\20\ See Exchange Rule 403(g).
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Options on each Ether Fund will be physically settled contracts
with American-style exercise.\21\ Consistent with Exchange Rule 404,
which governs the opening of options series on a specific underlying
security (including ETFs and ETPs), the Exchange will open at least one
expiration month for options on each Ether Fund \22\ at the
commencement of trading on the Exchange and may also list series of
options on Ether Funds for trading on a weekly,\23\ monthly,\24\ or
quarterly \25\ basis. The Exchange may also list long-term equity
option series (``LEAPS'') that expire from twelve to thirty-nine months
from the time they are listed.\26\
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\21\ See Exchange Rule 401 (Rights and Obligations of Holders
and Writers), which provides that the rights and obligations of
holders and writers of option contracts of any class of options
dealt in on the Exchange shall be as set forth in the Rules of the
Options Clearing Corporation (``OCC''). See also OCC Rules, Chapter
VIII, which governs exercise and assignment, and Chapter IX, which
governs the discharge of delivery and payment obligations arising
out of the exercise of physically settled stock option contracts.
OCC Rules can be located at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf.
\22\ See Exchange Rule 404. The monthly expirations are subject
to certain listing criteria for underlying securities described
within Exchange Rule 402. 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.
\23\ See Exchange Rule 404, Interpretation and Policy .02.
\24\ See Exchange Rule 404, Interpretation and Policy .13.
\25\ See Exchange Rule 404, Interpretation and Policy .03.
\26\ See Exchange Rule 406.
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Pursuant to Exchange Rule 404(g), which governs strike prices of
series of options on ETFs, the interval between strike prices of series
of options on Ether Funds will be $1 or greater when the strike price
is $200 or less and $5 or greater where the strike price is over
$200.\27\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\28\ the $0.50 Strike
Program,\29\ and the $2.50 Strike Price Program.\30\ Pursuant to
Exchange Rule 510, where the price of a series of an Ether Fund option
is less than $3.00, the minimum increment will be $0.05, and where the
price is $3.00 or higher, the minimum increment will be $0.10.\31\ Any
and all new series of Ether Fund options that the Exchange lists will
be consistent and comply with the expirations, strike prices, and
minimum increments set forth in Exchange Rules 404 and 510, as
applicable. Further, the Exchange notes that Exchange Rule 1502, which
governs margin requirements applicable to the trading of all options on
the Exchange, including options on ETFs and ETPs, will also apply to
the trading of Ether Fund options.
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\27\ The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Monthly Options Series
Program, and the Quarterly Options Series Program, Exchange Rules
404, Interpretation and Policies .02, .03, and .13, specifically set
forth intervals between strike prices on Short Term Option Series,
Quarterly Options Series, and Monthly Options Series, respectively.
\28\ See Exchange Rule 404, Interpretation and Policy .01.
\29\ See Exchange Rule 404, Interpretation and Policy .04.
\30\ See Exchange Rule 404(f).
\31\ See Exchange Rule 510(a). If options on an Ether Fund are
eligible to participate in the Penny Interval Program, the minimum
increment of $0.01 below $3.00 and $0.50 above $3.00 would apply.
See Exchange Rule 510(a)(3). See also Exchange Rule 510(c) (which
describes the requirements for the Penny Interval Program).
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Position and Exercise Limits
Position and exercise limits for options, including options on
Ether Funds, are determined pursuant to Exchange Rules 307 and 309,
respectively. Position and exercise limits for options vary according
to the number of outstanding shares and the trading volumes of the
underlying security over the past six months, where the largest in
capitalization and the most frequently traded funds have an option
position and exercise limit of 250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market; and
smaller capitalization funds have position and exercise limits of
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market.\32\
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\32\ See Exchange Rule 307. For an option to be eligible for the
50,000-contract limit, the security underlying the option must have
most recent six-month trading volume of at least 20,000,000 shares,
or most recent six-month trading volume of at least 15,000,000
shares and at least 40,000,000 shares currently outstanding. For an
option to be eligible for the 75,000-contract limit, the underlying
security must have most recent six-month trading volume of at least
40,000,000 shares, or most recent six-month trading volume of at
least 30,000,000 shares and at least 120,000,000 shares currently
outstanding. For an option to be eligible for the 200,000-contract
limit, the underlying security must have most recent six-month
trading volume of at least 80,000,000 shares, or most recent six-
month trading volume of at least 60,000,000 shares and at least
240,000,000 shares currently outstanding. For an option to be
eligible for the 250,000-contract limit, the security underlying the
option must have most recent six-month trading volume of at least
100,000,000 shares, or most recent six-month trading volume of at
least 75,000,000 shares and at least 300,000,000 shares currently
outstanding. The 25,000-contract limit applies to options on
underlying securities that do not qualify for a higher contract
limit. See Exchange Rule 307. In addition, Interpretation and Policy
.01 to Exchange Rule 307 establishes higher position limits for
options on certain ETFs.
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Position limits are designed to limit the number of options
contracts traded on the Exchange in an underlying security that an
investor, acting alone or in concert with others directly or
indirectly, may control. The purpose of position limits, which are set
forth in Exchange Rule 307, is to address potential manipulative
schemes and adverse market impacts surrounding the use of options, such
as disrupting the market in the security underlying the options. As
such, position limits must balance concerns regarding mitigating
potential manipulation and the cost of inhibiting potential hedging
activity that investors may use for legitimate economic purposes. To
achieve this balance, the Exchange proposes to set the position and
exercise limits for the
[[Page 16276]]
options on the Ether Funds at 25,000 contracts, a limit which has
already been approved for options on ETPs that holds [sic] bitcoin.\33\
Capping the position limit at 25,000 contracts, the lowest limit
available in options, would address concerns related to manipulation
and protection of investors as this number is conservative for the
Ether Funds and therefore appropriate given their liquidity. While the
Exchange believes that the proposed 25,000-contract position limit is
conservative for options on the Ether Funds, it nonetheless believes
that, for the reasons set forth below, evidence exists to support a
much higher position limit.\34\
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\33\ See BTC Approval Order. See also Exchange Rule 307,
Interpretation and Policy .01.
\34\ The Exchange may file a subsequent rule change to amend the
position and exercise limit for options on any or all the Ether
Funds based on additional data regarding trading activity, to
continue to balance any concerns regarding manipulation. A higher
position limit would allow institutional investors to utilize
options on the Ether Funds for prudent risk management purposes.
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As noted above, 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.\35\ The Exchange believe that the trading
volume in each Fund is sufficient to qualify each Fund for position
limits in excess of the proposed 25,000-contract limit,\36\ as shown in
the table below, provided in the NYSE American Ether Approval
Order.\37\
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\35\ See Exchange Rule 307.
\36\ 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
Exchange Rule 307(d)(5). See BTC Approval Order.
\37\ See supra note 5.
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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 trading volume referenced in the table above 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.\38\ By comparison, other options symbols with less trading
volume for six months than ETHE and ETH are eligible for position and
exercise limits of at least 250,000.\39\ Further, the most-recent [sic]
trading volume referenced in the table above 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.\40\ Finally, the proposed 25,000-
contract position limit is the default for options that do not
otherwise qualify for a higher limit and is therefore an adequate limit
for each Ether Fund.\41\ With respect to the outstanding shares of each
Ether Fund, 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
according to the data presented in the NYSE American Ether Approval
Order: \42\
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\38\ Exchange Rule 307(d)(5) states that to be eligible for the
250,000 option contract limit, either the most recent six-month
trading volume of the underlying security must have totaled at least
100,000,000 shares; or the most recent six-month trading volume of
the underlying security must have totaled at least 75,000,000 shares
and the underlying security must have at least 300,000,000 currently
outstanding.
\39\ 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).
\40\ Exchange Rule 307(d)(3) states that to be eligible for the
75,000 contract limit, either the most recent six (6) month trading
volume of the underlying security must have totaled at least forty
(40) million shares or the most recent six (6) month trading volume
of the underlying security must have totaled at least thirty (30)
million shares and the underlying security must have at least 120
million shares currently outstanding.
\41\ Exchange Rule 307(d)(1) states that a 25,000 contract limit
applies to those options having an underlying security that does not
meet the requirements for a higher option contract limit.
\42\ See supra note 5.
----------------------------------------------------------------------------------------------------------------
Proposed
position/
exercise Outstanding Percentage of
Ether Fund limits in shares (11/29/ outstanding
equivalent 24) shares (%)
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
----------------------------------------------------------------------------------------------------------------
As this table demonstrates, if a market participant held the
maximum permissible options positions in one of the 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 Ether Fund. For example, 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 Ether Fund (if that market
participant exercised all its options). Based on the number of shares
outstanding for each Ether Fund as of November 29, 2024, as presented
in the NYSE American Ether Approval Order,\43\ the table below sets
forth the approximate number of market participants that could hold the
maximum of 25,000 same side positions in each Ether Fund that would
equate to the number of shares outstanding of that Ether Fund:
---------------------------------------------------------------------------
\43\ See supra note 5.
[[Page 16277]]
------------------------------------------------------------------------
Number of
market
Outstanding participants
Ether Fund shares with 25,000
same side
positions
------------------------------------------------------------------------
ETHE.................................... 177,838,500 71
ETH..................................... 45,220,787 18
ETHW.................................... 16,600,000 7
------------------------------------------------------------------------
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 of those options to create a scenario that may put the underlying
security under stress. Similarly, this means if 18 market participants
had 25,000 same side positions in options on the ETH, each of them
would have to simultaneously exercise all of those options to create a
scenario that may put the underlying security under stress. Finally,
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
of those options to create a scenario that may put the underlying
security under stress. The Exchange believes it is highly unlikely for
this to occur for any of these scenarios; 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 Ether Fund may create and
redeem shares that represent an interest in ether, the Exchange
believes it is relevant to compare the size of a position limit to the
market capitalization of the ether market. As of November 29, 2024,
based on date [sic] presented in the NYSE American Ether Approval
Order,\44\ the global supply of ether was approximately 120.44 million,
and the price of one ether was approximately $3,593.49,\45\ which
equates to a market capitalization of approximately $439.78 billion.
Consider the proposed position and exercise limit of 25,000 option
contracts for each Ether Fund option. A position and exercise limit of
25,000 same side contracts effectively restricts a market participant
from holding positions that could result in the receipt of no more than
2,500,000 shares of the ETHE, ETH, and ETHW, as applicable (if that
market participant exercised all its options). The following table from
the NYSE American Ether Approval Order \46\ shows the share price of
each shows the share price of each Ether Fund on November 29, 2024, the
value of 2,500,000 shares of the Ether Fund at that price, and the
approximate percentage of that value of the size of the ether market:
---------------------------------------------------------------------------
\44\ See supra note 5.
\45\ See https://finance.yahoo.com/quote/ETH-USD/history.
\46\ See supra note 5.
----------------------------------------------------------------------------------------------------------------
Nov. 29th Value of Percentage of
Ether Fund share price 2,500,000 ether market
($) shares (%)
----------------------------------------------------------------------------------------------------------------
ETHE............................................................ $30.15 $75,250,000 0.017
ETH............................................................. 33.84 84,600,000 0.020
ETHW............................................................ 25.80 64,500,000 0.015
----------------------------------------------------------------------------------------------------------------
Therefore, if a market participant with the maximum 25,000 same
side contracts in options on any of ETHE, ETH, ETHW exercised all
positions at one time, such an event would have no practical impact on
the ether market.
The Exchange also reviewed data presented in the NYSE American
Ether Approval Order \47\ regarding the market capitalization of each
of the Ether Funds relative to the market capitalization of the entire
ether market, as of November 29, 2024:
---------------------------------------------------------------------------
\47\ See supra note 5.
----------------------------------------------------------------------------------------------------------------
Percent of
Ether/shares Market capitalization total ether
outstanding ($) (11/29/2024) market
----------------------------------------------------------------------------------------------------------------
Total Ethereum Market.................................. 120,440,000 $432,799,935,600 100
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 this data gathered by NYSE American demonstrates, the Ether
Funds collectively represent approximately 1.71% of the global supply
of Ether (120,440,000).\48\ Based on the $30.15 price of an 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, 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
[[Page 16278]]
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, based on the $25.80 price of
an 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 Ether Funds, the number of shares that corporations may
issue is limited. However, like corporations, which authorize
additional shares, repurchase shares, or split their shares, the Ether
Funds may create, redeem, or split shares in response to demand. The
supply of ether is larger than the available supply of most
securities.\49\ Given the significant unlikelihood of any of these
events ever occurring, the Exchange 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.
---------------------------------------------------------------------------
\48\ See https://finance.yahoo.com/quote/ETH-USD/history.
\49\ 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 Exchange also believes the proposed limits are appropriate
given position limits for ether futures. The NYSE American Ether
Approval Order presented data \50\ that compared the proposed position
limits to the position limit of Chicago Mercantile Exchange (``CME'')
Ethereum futures. CME imposes a position limit of 8,000 futures (for
the initial spot month) on its ether futures contract.\51\ On November
29, 2024, CME Jan 25 ether futures settled at $3,629.69. A position of
8,000 CME Ethereum futures, therefore, would have a notional value of
$1,451,876,000. The following table, as presented in the NYSE American
Ether Approval Order \52\ shows the share price of each Ether Fund on
November 29, 2024, and the approximate number of option contracts that
equates to that notional value:
---------------------------------------------------------------------------
\50\ See supra note 5.
\51\ See CME Rulebook Chapter 349 (description of CME ether
futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME ether futures contract is valued at fifty ethers as defined
by the CME CF Ether Reference Rate (``ERR''). See CME Rulebook
Chapter 349.
\52\ See supra note 5.
------------------------------------------------------------------------
Nov. 29th Number of
Ether Fund share price option
($) contracts
------------------------------------------------------------------------
ETHE.................................... $30.15 481,551
ETH..................................... 33.84 429,041
ETHW.................................... 25.80 562,743
------------------------------------------------------------------------
The approximate number of option contracts for each Ether Fund that
would equate to the notional value of CME ether futures is
significantly higher than the proposed limit of 25,000 options contract
for each 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, further
demonstrates how conservative the proposed limits of 25,000 options
contracts are for the Ether Fund options.
The Exchange notes, 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).\53\ Therefore, if a portfolio
includes positions in options on futures, CME would aggregate those
positions into the underlying futures contracts in accordance with a
table published by CME on a delta equivalent value for the relevant
spot month, subsequent spot month, single month and all month position
limits.\54\ 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. Considering CME's position limits on futures for ether, the
Exchange believes that that the proposed same side position limits are
more than appropriate for the Ether Fund options.
---------------------------------------------------------------------------
\53\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\54\ Id.
---------------------------------------------------------------------------
Consistent with its position regarding the irrelevance of bitcoin
supply to position limits for options on bitcoin ETPs, the Exchange
likewise believes the available supply of ether is not relevant to the
determination of position and exercise limits for Ether Fund
options.\55\ Position and exercise limits are not a tool that should be
used to address an 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.\56\ ``Since 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.'' \57\ Position and exercise limit
[[Page 16279]]
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, 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.'' \58\
---------------------------------------------------------------------------
\55\ See BTC Approval Order, 89 FR at 94862, n. 50 (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 the
position limits in Exchange Rule 307 are the same as when the
Commission approved this filing. 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.
\56\ 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.
\57\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\58\ Id.
---------------------------------------------------------------------------
The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each Ether Fund, each of which described
the supply of ether as being unlimited.\59\ Each Registration Statement
permits an unlimited number of shares of the applicable Ether Fund to
be created. Further, the Commission approved proposed rule changes that
permitted the listing and trading of shares of each 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 an Ether Fund would impact the supply of ether.\60\ Therefore, the
Exchange believes the Commission had ample time and opportunity to
consider whether the supply of ether was sufficient to permit the
creation of unlimited 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.
---------------------------------------------------------------------------
\59\ 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.'').
\60\ See BTC Approval Order.
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes the proposal to list
options on the Ether Funds with positions and exercise limits of 25,000
on the same side, the lowest position limit available in the options
industry, is conservative and appropriate given the market
capitalization, average daily volume, and high number of outstanding
shares for each of the Ether Funds. The proposed position and exercise
limits reasonably and appropriately balance the liquidity provisioning
in the market against the prevention of manipulation. The Exchange
believes these proposed limits are effectively designed to prevent an
individual customer or entity from establishing options positions that
could be used to manipulate the market of the underlying Ether Funds as
well as the ether market.\61\
---------------------------------------------------------------------------
\61\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------
As described herein, options on the Ether Funds will trade in the
same manner as any other ETF or ETP options on the Exchange. The
Exchange Rules that currently apply to the listing and trading of
options on the Exchange, including, for example, Rules that govern
listing criteria, expiration and exercise prices, minimum increments,
margin requirements, customer accounts and trading halt procedures will
apply to the listing and trading of Ether Funds on the Exchange in the
same manner as they apply to all other ETFs and ETPs that are listed
and traded on the Exchange, including the precious metal-backed
commodity ETPs already deemed appropriate for options trading on the
Exchange pursuant to Exchange Rule 402. Further, as described above,
Exchange Rules regarding position and exercise limits will likewise
apply to options on the Ether Funds except that, as proposed, the
position and exercise limits will be set at 25,000 on the same side.
* * * * *
The Exchange notes that options on Ether Funds would not be
available for trading until The Options Clearing Corporation (``OCC'')
represents to the Exchange that it is fully able to clear and settle
such options. The Exchange has also analyzed its capacity and
represents that it and The Options Price Reporting Authority (``OPRA'')
have the necessary systems capacity to handle the additional traffic
associated with the listing of options on Ether Funds. The Exchange
believes any additional traffic that would be generated from the
trading of options on Ether Funds would be manageable. The Exchange
represents that Exchange members will not have a capacity issue as a
result of this proposed rule change.
The Exchange represents that the same surveillance procedures
applicable to all other options currently listed and traded on the
Exchange will apply to options on Ether Funds, and that it has the
necessary systems capacity to support the new option series. The
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal-commodity backed ETP options as well as the proposed
options on Ether Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Ether Funds in all trading sessions and to deter and detect violations
of Exchange rules. Specifically, the Exchange's market surveillance
staff will have access to surveillances that it conducts, and that
FINRA conducts on its behalf, with respect to the Ether Funds and, as
appropriate, would review activity in the underlying Funds when
conducting surveillances for market abuse or manipulation in the
options on the Ether Funds. Additionally, the Exchange is a member of
the Intermarket Surveillance Group (``ISG'') under the 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 Funds on other exchanges though ISG. Further, 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 surveillances.\62\ The
Exchange notes that it will implement any new surveillance procedures
it deems necessary to effectively monitor the trading of options on the
Ether Funds.
---------------------------------------------------------------------------
\62\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot ether ETP, are also subject to
safeguards related to addressing market abuse and manipulation. As the
Commission stated in its order approving proposals
[[Page 16280]]
---------------------------------------------------------------------------
of several exchanges to list and trade shares of spot ether-based ETPs,
[e]ach Exchange has a comprehensive surveillance sharing agreement
with the [CME] via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that
is available to the CME through its surveillance of its markets,
including its surveillance of the CME ethereum futures market.\63\
---------------------------------------------------------------------------
\63\ See Ether ETP Approval Order, 89 FR at 46938.
The Exchange states that, given the consistently high correlation
between the CME ether futures market and the spot ether market, as
confirmed by the Commission through robust correlation analysis, the
Commission was able to conclude that such surveillance sharing
agreements could reasonably be ``expected to assist in surveilling for
fraudulent and manipulative acts and practices in the specific context
of the [Ether ETPs].'' \64\
---------------------------------------------------------------------------
\64\ See Ether ETP Approval Order, 89 FR at 46939.
---------------------------------------------------------------------------
In light of surveillance measures related to both options and
futures as well as the Ether Funds,\65\ the Exchange believes that
existing surveillance procedures are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading the proposed options on the Ether Funds. Further,
the Exchange represents that it will implement any new surveillance
procedures it deems necessary to effectively monitor the trading of
options on Ether Funds.
---------------------------------------------------------------------------
\65\ See Amendment No. 2 to Proposed Rule Change to List and
Trade Shares of the Grayscale Ethereum ETF under NYSE Arca Rule
8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2023-70), filed
May 21, 2024, available at https://www.sec.gov/comments/sr-nysearca-2023-70/srnysearca202370-475871-1363474.pdf; Amendment No. 1 to
Proposed Rule Change to List and Trade Shares of the Bitwise
Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) (SR-NYSEARCA-2024-31), filed May 21, 2024, available at
https://www.sec.gov/comments/sr-nysearca-2024-31/srnysearca202431-475891-1363514.pdf; and Amendment No.2 to Proposed Rule Change to
List and Trade Shares of the Grayscale Ethereum Mini ETF under NYSE
Arca Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2024-
44), filed May 22, 2024, available at https://www.sec.gov/comments/sr-nysearca-2024-44/srnysearca202444-476231-1364174.pdf.
---------------------------------------------------------------------------
Finally, quotation and last sale information for ETFs is available
via the Consolidated Tape Association (``CTA'') high speed line.
Quotation and last sale information for such securities is also
available from the exchange on which such securities are listed.
Quotation and last sale information for options on the Ether Funds will
be available via Options Price Reporting Authority (``OPRA'') and major
market data vendors. The Exchange believes that offering options on
Ether Funds will benefit investors by providing them with an
additional, relatively lower cost investing tool to gain exposure to
the price of ether and hedging vehicle to meet their investment needs
in connection with Ether-related products and positions. The Exchange
expects investors will transact in options on Ether Funds in the
unregulated over-the-counter (``OTC'') options market,\66\ but may
prefer to trade such options in a listed environment to receive the
benefits of trading listed options, including (1) enhanced efficiency
in initiating and closing out position; (2) increased market
transparency; and (3) heightened contra-party creditworthiness due to
the role of OCC as issuer and guarantor of all listed options. The
Exchange believes that listing Ether Funds options may cause investors
to bring this liquidity to the Exchange, would increase market
transparency and enhance the process of price discovery conducted on
the Exchange through increased order flow. The Exchange notes that the
ETPs that hold precious metal commodities on which the Exchange may
already list and trade options are trusts structured in substantially
the same manner as Ether Funds and essentially offer the same
objectives and benefits to investors, just with respect to different
assets. The Exchange notes that it has not identified any issues with
the continued listing and trading of options on any ETFs or ETPs that
hold commodities (i.e., precious metals) that it currently lists and
trades on the Exchange.
---------------------------------------------------------------------------
\66\ The Exchange understands from customers that investors have
historically transacted in options on ETFs in the OTC options market
if such options were not available for trading in a listed
environment.
---------------------------------------------------------------------------
Finally, the Exchange notes that applicable Exchange rules will
require that customers receive appropriate disclosure before trading
options in Ether Funds.\67\ Further, brokers opening accounts and
recommending options transactions must comply with relevant customer
suitability standards.\68\
---------------------------------------------------------------------------
\67\ See Exchange Rules 1307(b) and (e).
\68\ See Exchange Rule 1309.
---------------------------------------------------------------------------
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.\69\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \70\ 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) \71\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\69\ 15 U.S.C. 78f(b).
\70\ 15 U.S.C. 78f(b)(5).
\71\ Id.
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on the Ether Funds will remove impediments to and perfect
the mechanism of a free and open market and a national market system
and, in general, protect investors because offering options on Ether
Funds will provide investors with a greater opportunity to realize the
benefits of utilizing options on Ether Funds, including cost
efficiencies and increased hedging strategies.
The Exchange believes that offering Ether Fund options will benefit
investors by providing them with a relatively lower-cost risk
management tool, which will allow them to manage their positions and
associated risk in their portfolios more easily in connection with
exposure to the price of ether and with ether-related products and
positions. Additionally, the Exchange's offering of Ether Fund options
will provide investors with the ability to transact in such options in
a listed market environment as opposed to in the unregulated OTC
options market, which would increase market transparency and enhance
the process of price discovery conducted on the Exchange through
increased order flow to the benefit of all investors. The Exchange also
notes that it already lists options on other commodity-based ETPs,\72\
which, as described above, are trusts structured in substantially the
same manner as Ether Funds and essentially offer the same objectives
and benefits to investors, just with respect to a different commodity
(i.e., Ether rather than precious metals) and for which the Exchange
has not identified any issues with the continued listing and trading of
commodity-backed ETP options it currently lists for trading.
---------------------------------------------------------------------------
\72\ See Exchange Rule 402(i)(4).
---------------------------------------------------------------------------
[[Page 16281]]
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
Funds satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules applicable to options on all
ETFs, including ETFs that hold other commodities already deemed
appropriate for options trading on the Exchange. Additionally, as
demonstrated above, each Ether Fund is characterized by a substantial
number of shares that are widely held and actively traded. Ether Fund
options will trade in the same manner as any other ETF options--the
same Exchange Rules that currently govern the listing and trading of
all options on ETFs, including permissible expirations, strike prices
and minimum increments, and applicable position and exercise limits (as
proposed herein), and margin requirements, will govern the listing and
trading of options on Ether Funds in the same manner.
The proposed position and exercise limits for options on each of
the Ether Funds is 25,000 contracts, which proposed limits were
recently approved for certain ETPs that hold bitcoin.\73\ 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 each Ether Fund's market
capitalization, ADV, number of beneficial holders, and high number of
outstanding shares.\74\ The proposed position limit, and exercise
limit, is consistent with the Act as it addresses concerns related to
manipulation and protection of investors because, as demonstrated
above, the position limit (and exercise limit) is extremely
conservative and more than appropriate given the Ether Funds are
actively traded.
---------------------------------------------------------------------------
\73\ See BTC Approval Order. See also Exchange Rule 307,
Interpretation and Policy .01.
\74\ As noted herein, the Ether Funds collectively represent
approximately 1.71% of the ether market.
---------------------------------------------------------------------------
The Exchange represents that it has the necessary systems capacity
to support the new Ether Fund options. The Exchange believes that its
existing surveillance and reporting safeguards are designed to deter
and detect possible manipulative behavior which might arise from
listing and trading options, including Ether Fund options. The
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal-commodity backed ETP options as well as the proposed
options on Ether Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Ether Funds in all trading sessions and to deter and detect violations
of Exchange rules. Specifically, the Exchange's market surveillance
staff will have access to surveillances that it conducts, and that
FINRA conducts on its behalf, with respect to the Ether Funds and, as
appropriate, would review activity in the underlying Funds when
conducting surveillances for market abuse or manipulation in the
options on the Ether Funds. Additionally, the Exchange is a member of
the ISG under the 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 Funds on other exchanges though ISG.
Further, the Exchange 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. Further, the
Exchange will implement any new surveillance procedures it deems
necessary to effectively monitor the trading of options on the Ether
Funds. The underlying shares of spot ether ETPs, including the Ether
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in its order approving
proposals of several exchanges to list and trade shares of spot ether-
based ETPs, ``[e]ach Exchange has a comprehensive surveillance-sharing
agreement with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that is
available to the CME through its surveillance of its markets, including
its surveillance of the CME ether futures market.'' \75\ The Exchange
states that, given the consistently high correlation between the CME
ethereum futures market and the spot ethereum market, as confirmed by
the Commission through robust correlation analysis, the Commission was
able to conclude that such surveillance sharing agreements could
reasonably be ``expected to assist in surveilling for fraudulent and
manipulative acts and practices in the specific context of the [Ether
ETPs].'' \76\
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\75\ See Ether ETP Approval Order, 89 FR, at 46938.
\76\ See Ether ETP Approval Order, 89 FR, at 46941.
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In light of surveillance measures related to both options and
futures as well as the underlying Ether Funds,\77\ the Exchange
believes that existing surveillance procedures are designed to deter
and detect possible manipulative behavior which might potentially arise
from listing and trading the proposed options on the Ether Funds.
Further, the Exchange will implement any new surveillance procedures it
deems necessary to effectively monitor the trading of options on ether
ETPs.
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\77\ See Amendment No. 2 to Proposed Rule Change to List and
Trade Shares of the Grayscale Ethereum ETF under NYSE Arca Rule
8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2023-70), filed
May 21, 2024, available at https://www.sec.gov/comments/sr-nysearca-2023-70/srnysearca202370-475871-1363474.pdf; Amendment No. 1 to
Proposed Rule Change to List and Trade Shares of the Bitwise
Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) (SR-NYSEARCA-2024-31), filed May 21, 2024, available at
https://www.sec.gov/comments/sr-nysearca-2024-31/srnysearca202431-475891-1363514.pdf; and Amendment No.2 to Proposed Rule Change to
List and Trade Shares of the Grayscale Ethereum Mini ETF under NYSE
Arca Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2024-
44), filed May 22, 2024, available at https://www.sec.gov/comments/sr-nysearca-2024-44/srnysearca202444-476231-1364174.pdf.
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Finally, the Exchange notes that this proposal 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
applicable Exchange rules will require that customers receive
appropriate disclosure before trading options in Ether Funds \78\ and
will require that brokers opening accounts and recommending options
transactions must comply with relevant customer suitability
standards.\79\
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\78\ See Exchange Rules 1307(b) and (e).
\79\ See Exchange Rule 1309.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. In this regard and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to the filing submitted by NYSE
American.\80\
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\80\ See supra note 5.
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Intramarket Competition: The Exchange does not believe that the
[[Page 16282]]
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 Ether Funds would need to satisfy the initial
listing standards set forth in the Exchange Rules in the same manner as
any other ETF before the Exchange could list options on them.
Additionally, Ether Fund options will be equally available to all
market participants who wish to trade such options. Exchange Rules
currently applicable to the listing and trading of options on ETFs on
the Exchange will apply in the same manner to the listing and trading
of all options on Ether Funds. Also, and as stated above, the Exchange
already lists options on other commodity-based ETPs.\81\
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\81\ See Exchange Rule 402(i).
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Intermarket Competition: The Exchange does not believe that the
proposal to list and trade options on Ether Funds will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the extent that the
advent of the Ether Funds options trading on the Exchange may make the
Exchange a more attractive marketplace to market participants at other
exchanges, such market participants are free to elect to become market
participants on the Exchange. Additionally, other options exchanges are
free to amend their listing rules, as applicable, to permit them to
list and trade options on the Ether Funds. The Exchange notes that
listing and trading Ether Funds 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 Ether Funds options
for trading on the Exchange will promote competition by providing
investors with an additional, relatively low-cost means to hedge their
portfolios and meet their investment needs in connection with ether
prices and ether-related products and positions on a listed options
exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
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 \82\ and Rule 19b-4(f)(6) thereunder.\83\
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 \84\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\85\
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\82\ 15 U.S.C. 78s(b)(3)(A)(iii).
\83\ 17 CFR 240.19b-4(f)(6).
\84\ 15 U.S.C. 78s(b)(3)(A)(iii).
\85\ 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 Exchange has satisfied the pre-filing requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \86\ 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),\87\ 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 Ethereum Funds.\88\ The Exchange has provided information regarding
the underlying Ethereum Funds, including, among other things,
information regarding trading volume, the number of beneficial holders,
and the market capitalization of the Ethereum Funds. The proposal also
establishes position and exercise limits for options on the Ethereum
Funds and provides information regarding the surveillance procedures
that will apply to Ethereum Fund options. The Commission believes that
waiver of the operative delay could benefit investors by providing an
additional venue for trading Ethereum Fund options. Therefore, the
Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\89\
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\86\ 17 CFR 240.19b-4(f)(6).
\87\ 17 CFR 240.19b-4(f)(6)(iii).
\88\ See Securities Exchange Act Release No. 102799 (April 9,
2025) (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) (SR-NYSEAMER-
2025-45).
\89\ 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-MIAX-2025-21 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-MIAX-2025-21. 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/
[[Page 16283]]
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-MIAX-2025-21 and should
be submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\90\
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\90\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06555 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P