[Federal Register Volume 90, Number 89 (Friday, May 9, 2025)]
[Notices]
[Pages 19750-19755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-08113]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102992; File No. SR-ISE-2025-12]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, To Permit FLEX
Trading in Options on the iShares Bitcoin Trust ETF
May 5, 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 May 2, 2025, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. On May 2, 2025, the Exchange filed Amendment
No. 1 to the proposal, which replaced and superseded the original
filing in its entirety. The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, 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 Options 3A, Section 3, FLEX Option
Listings, and Options 3A, Section 18, Position Limits, to permit FLEX
Trading in options on the iShares Bitcoin Trust ETF. This Amendment No.
1 supersedes the original filing in its entirety.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/ise/rulefilings,
at the principal office of the Exchange, and at the Commission's Public
Reference Room.
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.
[[Page 19751]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 3A, Section 3, FLEX Option
Listings, and Options 3A, Section 18, Position Limits, to permit FLEX
trading in options on the iShares Bitcoin Trust ETF. This Amendment No.
1 supersedes the original filing in its entirety.
IBIT is an exchange-traded fund (``ETF'') that holds bitcoin and is
listed on The Nasdaq Stock Market LLC (``Nasdaq'').\3\ On September 20,
2024, Nasdaq ISE, LLC (``ISE'') received approval to list options on
IBIT.\4\ The position and exercise limits for IBIT options are 25,000
contracts as stated in Options 9, Sections 13 and 15, the lowest limit
available in options.\5\ Today, pursuant to Options 3A, Section 3(a),
IBIT options are not approved for FLEX trading.\6\ Today, Options 3A,
Section 18(b)(1)(A) provides that there shall be no position limits for
FLEX Equity Options, other than as set forth in subparagraph (b)(1)(B)
and paragraph (c) to Options 3A, Section 18.\7\ Therefore, the 25,000
contract position limit in Options 9, Section 13 and exercise limit in
Options 9, Section 15 for IBIT options currently applies to non-FLEX
IBIT options and FLEX Equity Options where the underlying security is
an ETF that is settled in cash pursuant to Section 3(c)(5)(A)(ii).
---------------------------------------------------------------------------
\3\ Nasdaq received approval to list and trade Bitcoin-Based
Commodity-Based Trust Shares in IBIT pursuant to Rule 5711(d) of
Nasdaq. See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (SR-NASDAQ-2023-016) (Order
Granting Accelerated Approval of Proposed Rule Changes, as Modified
by Amendments Thereto, To List and Trade Bitcoin-Based Commodity-
Based Trust Shares and Trust Units).
\4\ See Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1,
4, and 5, To Permit the Listing and Trading of Options on the
iShares Bitcoin Trust) (``IBIT Approval Order''). ISE began trading
IBIT options on November 19, 2024.
\5\ Options on the Fidelity Wise Origin Bitcoin Fund, the
ARK21Shares Bitcoin ETF, the Grayscale Bitcoin Trust (BTC), the
Grayscale Bitcoin Mini Trust BTC, the Bitwise Bitcoin ETF, the
iShares Ethereum Trust ETF, the Fidelity Ethereum Fund, the Bitwise
Ethereum ETF, the Grayscale Ethereum Trust, and the Grayscale
Ethereum Mini Trust are also subject to a 25,000 contract position
and exercise limit.
\6\ Options 3A, Section 3(a) also does not permit FLEX trading
on options on the Fidelity Wise Origin Bitcoin Fund, the ARK21Shares
Bitcoin ETF, the Grayscale Bitcoin Trust (BTC), the Grayscale
Bitcoin Mini Trust BTC, the Bitwise Bitcoin ETF, the iShares
Ethereum Trust ETF, the Fidelity Ethereum Fund, the Bitwise Ethereum
ETF, the Grayscale Ethereum Trust, and the Grayscale Ethereum Mini
Trust.
\7\ Subparagraph (b)(1)(B) to Options 3A, Section 18 currently
provides that position limits for FLEX Equity Options where the
underlying security is an ETF that is settled in cash pursuant to
Section 3(c)(5)(A)(ii) above shall be subject to the position limits
set forth in Options 9, Section 13, and subject to the exercise
limits set forth in Options 9, Section 15. Positions in such cash-
settled FLEX Equity Options shall be aggregated with positions in
physically settled options on the same underlying ETF for the
purpose of calculating the position limits set forth in Options 9,
Section 13 and the exercise limits set forth in Options 9, Section
15. Paragraph (c) to Options 3A, Section 18 currently describes the
aggregation of FLEX positions and states that for purposes of the
position limits and reporting requirements set forth in this Section
18, FLEX Option positions shall not be aggregated with positions in
non-FLEX Options other than as provided below and in subparagraph
(b)(1)(B) above, and positions in FLEX Index Options on a given
index shall not be aggregated with options on any stocks included in
the index or with FLEX Index Option positions on another index.
---------------------------------------------------------------------------
At this time, the Exchange proposes to permit IBIT options to
transact as FLEX Equity Options subject to position and exercise limits
of 25,000 contracts which would be aggregated with non-FLEX IBIT
options position and exercise limits in Options 9, Sections 13 and 15.
With this proposal, an ETF that is either physically-delivered pursuant
to Section 3(c)(5)(A)(i) or settled in cash pursuant to Section
3(c)(5)(A)(ii) would be aggregated with non-FLEX IBIT options position
and exercise limits in Options 9, Sections 13 and 15. Specifically, the
Exchange proposes to amend Options 3A, Section 3(a) to remove the
iShares Bitcoin Trust ETF,\8\ the Exchange also proposes to amend
Options 3A, Section 18(b)(1) to add new subparagraph (C) which states,
---------------------------------------------------------------------------
\8\ The Exchange also proposes a technical amendment to change a
semicolon to a comma.
Notwithstanding the foregoing, the position limit for FLEX
equity options on the iShares Bitcoin Trust ETF shall be subject to
the position limits set forth in Options 9, Section 13, and subject
to the exercise limits set forth in Options 9, Section 15 and shall
be aggregated with positions on the same non-FLEX underlying ETF for
the purpose of calculating the position limits set forth in Options
9, Section 13, and the exercise limits set forth in Options 9,
---------------------------------------------------------------------------
Section 15.
The Exchange would also amend Options 3A, Section 18(b)(1)(A) to
provide, ``There shall be no position limits for FLEX Equity Options,
other than as set forth in subparagraphs (B) and (C) and paragraph (c)
below.'' Additionally, the Exchange would amend Options 3A, Section
18(c) to state, ``For purposes of the position limits and reporting
requirements set forth in this Section 18, FLEX Option positions shall
not be aggregated with positions in non-FLEX Options other than as
provided below and in subparagraphs (b)(1)(B) and (C) above, and
positions in FLEX Index Options on a given index shall not be
aggregated with options on any stocks included in the index or with
FLEX Index Option positions on another index.''
Per the Commission, ``rules regarding position and exercise limits
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 positions.'' \9\ For
this reason, the Commission requires that ``position and exercise
limits must be sufficient to prevent investors from disrupting the
market for the underlying security by acquiring and exercising a number
of options contracts disproportionate to the deliverable supply and
average trading volume of the underlying security.'' \10\ Based on its
review of the data and analysis provided by ISE, the Commission
concluded that the 25,000 contract position limit for non-FLEX IBIT
options satisfied these objectives.\11\
---------------------------------------------------------------------------
\9\ See supra note 4, IBIT Approval Order, 89 FR 78946.
\10\ See id.
\11\ See id.
---------------------------------------------------------------------------
As proposed, the Exchange will aggregate position (and exercise)
limits for all IBIT options, thus limiting positions for options on all
IBIT options--FLEX and non-FLEX--to 25,000 contracts. This proposed
aggregated limit effectively restricts a market participant from
holding positions that could result in the receipt of more than
2,500,000 shares, aggregated for FLEX IBIT and non-FLEX IBIT (if that
market participant exercised all its IBIT options). The Exchange
believes that capping the aggregated position limit at 25,000
contracts, the lowest limit available in options, would be sufficient
to address concerns related to manipulation and the protection of
investors. The Exchange notes that this number is conservative for IBIT
and therefore appropriate given its liquidity.
While ISE proposed an aggregated 25,000 contract position limit for
IBIT options in its rule proposal for IBIT options, it nonetheless
believed that evidence existed to support a much higher position limit.
Specifically, the Commission has considered and reviewed ISE's analysis
that the exercisable risk associated with a position limit of 25,000
contracts represented only 0.4% of the outstanding shares of IBIT.\12\
The Commission also has considered and reviewed the ISE's statement
that with
[[Page 19752]]
a position limit of 25,000 contracts on the same side of the market and
611,040,00 shares of IBIT outstanding, 244 market participants would
have to simultaneously exercise their positions to place IBIT under
stress.\13\ Based on the Commission's review of this information and
analysis, the Commission concluded that the proposed position and
exercise limits were designed to prevent investors from disrupting the
market for the underlying security by acquiring and exercising a number
of options contracts disproportionate to the deliverable supply and
average trading volume of the underlying security, and 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.\14\ IBIT currently qualifies for a
250,000 contract position limit pursuant to the criteria in Options 9,
Section 13(d)(5), which requires that, for the most recent six-month
period, trading volume for the underlying security be at least
100,000,000 shares.\15\ As of November 26, 2024, the market
capitalization for IBIT was $46,783,480,800 \16\ with an ADV, for the
preceding three months prior to November 26, 2024, of 39,421,877
shares. At a price of $94,830,\17\ that equates to a market
capitalization of greater than $1.876 trillion US.
---------------------------------------------------------------------------
\12\ See id.
\13\ See id.
\14\ See id.
\15\ Options 9, Section 13(d), Limits shall be determined in the
following manner: . . . To be eligible for the 250,000 contract
limit, either the most recent six (6) month trading volume of the
underlying security must have totaled at least 100 million shares or
the most recent six-month trading volume of the underlying security
must have totaled at least seventy-five (75) million shares and the
underlying security must have at least 300 million shares currently
outstanding.
\16\ The market capitalization was determined by multiplying a
settlement price of ($54.02) by the number of shares outstanding
(866,040,000). This figure was acquired as of November 26, 2024. See
https://www.ishares.com/us/products/333011/ishares-bitcoin-trust-etf.
\17\ This is the approximate price of bitcoin from 4:00pm ET on
November 25, 2024.
---------------------------------------------------------------------------
Despite the addition of FLEX trading in IBIT options, the Exchange
would continue to limit the number of IBIT 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 and
thereby mitigate potential manipulation. The Exchange believes that it
is consistent with the Act to permit FLEX trading in IBIT given FLEX
trading is permitted today in other ETFs overlying a commodity such as
SPDR Gold Shares (``GLD''), iShares Silver Trust (``SLV''), and
ProShares Bitcoin ETF (``BITO'').\18\ Additionally, FLEX trading is
permitted today in Cboe Bitcoin U.S. ETF Index Options (CBTX) and the
Cboe Mini Bitcoin U.S. ETF Index Options (MBTX),\19\ which is comprised
of multiple bitcoin ETFS of which IBIT is the highest weighted ETF in
the index composition at 20%.\20\ CBTX (and MBTX) are permitted to
trade as FLEX Index Options with a 24,000 contract position limit \21\
which limits are aggregated between FLEX and non-FLEX index options in
CBTX and MBTX pursuant to Cboe Rule 8.35(a).\22\
---------------------------------------------------------------------------
\18\ GLD, SLV and BITO each hold one asset in trust similar to
IBIT.
\19\ MBTX is based on 1/10th the value of the Cboe Bitcoin U.S.
ETF Index.
\20\ See https://www.cboe.com/tradable_products/bitcoin-etf-index-options?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch. Cboe's website provides a product comparison chart
indicating that CBTX and MBTX are permitted to trade FLEX as
compared to spot bitcoin ETF options. See https://cdn.cboe.com/resources/membership/Cboe_Bitcoin_US_ETF_Options_Comparative_Overview.pdf?_gl=1*1xmm04c*_up*MQ..*_ga*MTc0MjU1NzU1Ni4xNzM0NTU2NTky*_ga_5Q99WB9X71*MTczNDU1NjU5MC4xLjAuMTczNDU1NjU5MC4wLjAuMA.
\21\ See Cboe Rule 8.32(a). See also Cboe Rule 8.35(a)(7) that
states that for purposes of determining compliance with the position
limits under this Rule 8.35, if a FLEX Index Option has a multiplier
of one, 100 contracts for that class equal one contract for a FLEX
Index Option with a multiplier of 100 with the same underlying
index. The Exchange notes that given the multiplier and notional
value of CBTX, the index has a position and exercise limit that
equates to 1,000,000 contracts of in kind exposure to IBIT, which is
more than 40 times greater than the exposure for options on IBIT at
the current 25,000 contract position and exercise limit.
\22\ Cboe Rule 8.35(a)(3) provides that in no event shall the
position limits for an industry-based FLEX Index Option class exceed
one times the applicable number of Non-FLEX Index Option contracts
(whether long or short) of the put class and the call class on the
same side of the market, as determined on the basis of the position
limits established pursuant to Rule 8.32 provided, however, the
position limits for an industry-based FLEX Index Option class shall
not exceed four times the applicable position limits established
pursuant to Rule 8.32, instead of one times as provided above, for:
(1) the Dow Jones Transportation Average or the DowJones Utility
Average; or (2) an underlying industry-based index that is not a
``narrow-based security index,'' as defined under Section
3(a)(55)(B) of the Exchange Act. See also Cboe Rule 8.35(a)(4) that
provides that in no event shall the position limits for a micro
narrow-based FLEX Index Option class exceed one times the applicable
number of Non-FLEX Index Option contracts (whether long or short) of
the class on the same side of the market, as determined on the basis
of the position limits established pursuant to Rule 8.33.
---------------------------------------------------------------------------
Further, the Exchange believes that the share creation and
redemption process unique to ETFs would mitigate any potential risk of
manipulation in FLEX trading in IBIT options. The creation and
redemption process is designed to ensure that an ETF's price closely
tracks the value of its underlying asset(s). For example, if a market
participant exercised a long call position for 25,000 contracts and
purchased 2,500,000 shares of IBIT and this purchase resulted in the
value of IBIT shares to trade at a premium to the value of the
(underlying) bitcoin held by IBIT, the Exchange believes that other
market participants would attempt to arbitrage this price difference by
selling short IBIT shares while concurrently purchasing bitcoin. Those
market participants (arbitrageurs) would then deliver cash to IBIT and
receive shares of IBIT, which would be used to close out any previously
established short position in IBIT. Thus, this creation and redemptions
process would significantly reduce the potential risk of price
dislocation between the value of IBIT shares and the value of bitcoin
holdings. The Exchange understands that FLEX Options on ETFs are
currently traded in the over-the-counter (``OTC'') market by a variety
of market participants, e.g., hedge funds, proprietary trading firms,
and pension funds. The Exchange believes there is room for significant
growth if a comparable FLEX product were introduced for trading on a
regulated market. The Exchange expects that users of these OTC products
would be among the primary users of FLEX IBIT options. The Exchange
also believes that the trading of FLEX IBIT options would allow these
same market participants to better manage the risk associated with the
volatility of IBIT (the underlying ETF) positions given the enhanced
liquidity that an exchange-traded product would bring.
Additionally, the Exchange believes that FLEX IBIT options traded
on the Exchange would have three important advantages over the
contracts that are traded in the OTC market. First, as a result of
greater fungibility, exchange-traded contracts should develop more
liquidity because each FLEX contract can be closed with a liquidating
transaction as compared to OTC FLEX contracts which must be held until
expiration. Second, counterparty credit risk would be mitigated by the
fact that the exchange-traded contracts are issued and guaranteed by
The Options Clearing Corporation (``OCC''). Finally, the price
discovery and dissemination provided by the Exchange and its Members
would lead to more transparent markets. The Exchange believes that its
ability to offer FLEX IBIT options would aid it in competing with the
OTC market and at the same time expand the universe of products
available to interested market participants. The Exchange believes that
an exchange-traded alternative may provide a useful risk management and
[[Page 19753]]
trading vehicle for market participants and their customers.
Additionally, FLEX options serve two primary client types in the
capital markets: (1) ETF and structured return issuers who seek
European-style \23\ options with bespoke strike and expirations, such
that they can tailor their returns more precisely than they could with
standard American-style options; \24\ and (2) with respect to stock
lending, certain investors (e.g. banks and hedge funds) may seek to
align their contract durations for calls and puts, and thereby prefer
European-style exercise, which can be exercised only on its expiration
date, as compared to American-style, which can be exercised on any
business day prior to its expiration date and on its expiration date.
---------------------------------------------------------------------------
\23\ The term ``European-style option'' means an options
contract that, subject to the provisions of Options 6B, Section 1
(relating to the cutoff time for exercise instructions) and to the
Rules of the Clearing Corporation, can be exercised only on its
expiration date. See Options 1, Section 1(a)(15).
\24\ The term ``American-style option'' means an options
contract that, subject to the provisions of Options 6B, Section 1
(relating to the cutoff time for exercise instructions) and to the
Rules of the Clearing Corporation, can be exercised on any business
day prior to its expiration date and on its expiration date. Today,
non-FLEX equity options settle American-style. See Options 1,
Section 1(a)(3).
---------------------------------------------------------------------------
The Exchange has 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 FLEX IBIT options. The Exchange believes any additional
traffic that would be generated from the trading of FLEX IBIT options
would be manageable. The Exchange believes Members will not have a
capacity issue as a result of this proposed rule change. The Exchange
also represents that it does not believe this proposed rule change will
cause fragmentation of liquidity. The Exchange will monitor the trading
volume associated with the additional options series listed as a result
of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems. The Exchange represents that the same
surveillance procedures applicable to the Exchange's other options
products listed and traded on the Exchange, including non-FLEX IBIT
options, will apply to FLEX IBIT options, and that it has the necessary
systems capacity to support such options. FLEX options products (and
their respective symbols) are integrated into the Exchange's existing
surveillance system architecture and are thus subject to the relevant
surveillance processes. The Exchange's market surveillance staff
(including staff of the Financial Industry Regulatory Authority
(``FINRA'') who perform surveillance and investigative work on behalf
of the Exchange pursuant a regulatory services agreement) conducts
surveillances with respect to IBIT (the underlying ETF) and, as
appropriate, would review activity in IBIT when conducting
surveillances for market abuse or manipulation in IBIT options.\25\ The
Exchange does not believe that allowing FLEX IBIT options would render
the marketplace for non-FLEX IBIT options, or equity options in
general, more susceptible to manipulative practices.
---------------------------------------------------------------------------
\25\ See IBIT Approval Order, 89 FR 78947.
---------------------------------------------------------------------------
The Exchange represents that its existing trading surveillances are
adequate to monitor the trading in IBIT (as well as FLEX IBIT) on the
Exchange. 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. For surveillance purposes, the Exchange would therefore have
access to information regarding trading activity in the pertinent
underlying securities. In addition, and as referenced above, the
Exchange has a regulatory services agreement with FINRA, pursuant to
which FINRA conducts certain surveillances on behalf of the Exchange.
Further, pursuant to a multi-party 17d-2 joint plan, all options
exchanges allocate regulatory responsibilities to FINRA to conduct
certain options-related market surveillances.\26\ The Exchange will
implement any additional surveillance procedures it deems necessary to
effectively monitor the trading of IBIT options.
---------------------------------------------------------------------------
\26\ 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 proposed rule change is designed to allow investors seeking to
trade options on IBIT to utilize FLEX IBIT options. The Exchange
believes that offering innovative products flows to the benefit of the
investing public. A robust and competitive market requires that
exchanges respond to members' evolving needs by constantly improving
their offerings. Such efforts would be stymied if exchanges were
prohibited from offering innovative products such as the proposed FLEX
IBIT options. The Exchange believes that introducing FLEX IBIT options
would further broaden the base of investors that use FLEX Options (and
options on IBIT in general) to manage their trading and investment
risk, including investors that currently trade in the OTC market for
customized options. The proposed rule change is also designed to
encourage market makers to shift liquidity from the OTC market on the
Exchange, which, it believes, will enhance the process of price
discovery conducted on the Exchange through increased order flow.
Finally, as discussed herein, the Exchange does not believe that
this proposed rule change raises any unique regulatory concerns because
the proposal to aggregate FLEX and non-FLEX IBIT options at the (most
conservative) 25,000 contract position limit, which currently applies
solely to non-FLEX IBIT options, should provide an adequate safeguard.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\27\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\28\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Additionally, the Exchange
believes the proposed rule change is consistent with the Section
(6)(b)(5) \29\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. Specifically, the Exchange believes that
introducing FLEX IBIT options will increase order flow to the Exchange,
increase the variety of options products available for trading, and
provide a valuable tool for investors to manage
[[Page 19754]]
risk. The proposed rule change is designed to allow investors seeking
to trade options on IBIT to utilize FLEX IBIT options.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(b).
\28\ 15 U.S.C. 78f(b)(5).
\29\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposal to permit FLEX IBIT options
would remove impediments to and perfect the mechanism of a free and
open market. The Exchange believes that offering FLEX IBIT options will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of bitcoin and
provide a hedging vehicle to meet their investment needs in connection
with a bitcoin-related product. Moreover, the proposal would broaden
the base of investors that use FLEX Options to manage their trading and
investment risk, including investors that currently trade in the OTC
market for customized options. By trading a product in an exchange-
traded environment (that is currently being used in the OTC market),
the Exchange would be able to compete more effectively with the OTC
market. The Exchange believes the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that it would
lead to the migration of options currently trading in the OTC market to
trading to the Exchange. Also, any migration to the Exchange from the
OTC market would result in increased market transparency and enhance
the process of price discovery conducted on the Exchange through
increased order flow. The Exchange also believes that offering FLEX
IBIT options may open up the market for options on IBIT to more retail
investors. Additionally, offering FLEX would serve two primary client
types in the capital markets by permitting ETF and structured return
issuers to more precisely tailor their settlement style and allow other
investors to align their contract durations for calls and puts, as well
as settlement-style.
Additionally, the Exchange believes the proposed rule change is
designed to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest in that it should create
greater trading and hedging opportunities and flexibility. The proposed
rule change should also result in enhanced efficiency in initiating and
closing out positions and heightened contra-party creditworthiness due
to the role of OCC as issuer and guarantor of FLEX IBIT options.
Further, the proposed rule change would result in increased competition
by permitting the Exchange to offer products that are currently used in
the OTC market.
The Exchange does not believe that this proposed rule change raises
any unique regulatory concerns because the proposal to aggregate FLEX
and non-FLEX IBIT options at the (most conservative) 25,000 contract
limit should provide an adequate safeguard. The purpose of position
limits 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. The Exchange believes the
proposal will benefit investors and public interest because the
aggregated position limit for all options on IBIT (FLEX and non-FLEX)
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 IBIT and therefore appropriate given
its liquidity.
The Exchange believes that offering innovative products flows to
the benefit of the investing public. A robust and competitive market
requires that exchanges respond to evolving needs in the market by
constantly improving their offerings. Such efforts would be stymied if
exchanges were prohibited from offering innovative products such as the
proposed FLEX IBIT options. The Exchange does not believe that allowing
FLEX IBIT options would render the marketplace for equity options more
susceptible to manipulative practices.
Finally, the Exchange represents that it has an adequate
surveillance program in place to detect manipulative trading in FLEX
IBIT options. Regarding the proposed FLEX IBIT options, the Exchange
would use the same surveillance procedures currently utilized for FLEX
Options listed on the Exchange (as well as for non-FLEX IBIT options).
For surveillance purposes, the Exchange would have access to
information regarding trading activity in IBIT (the underlying
ETF).\30\ In light of surveillance measures related to both options and
IBIT (the underlying ETF), 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 FLEX IBIT options.
---------------------------------------------------------------------------
\30\ See IBIT Approval Order, 89 FR at 78947.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe that its proposed rule change will
impose any burden on intra-market competition as all market
participants would have the option of utilizing the FLEX IBIT options.
The proposed rule change is designed to allow investors seeking option
exposure to bitcoin to trade FLEX IBIT options. Moreover, the Exchange
believes that the proposal to permit FLEX IBIT options would broaden
the base of investors that use FLEX Options to manage their trading and
investment risk, including investors that currently trade in the OTC
market for customized options.
The Exchange does not believe that its proposed rule change will
impose any burden on intermarket competition as all market participants
would have the option of utilizing the FLEX IBIT options. The Exchange
notes that it operates in a highly competitive market in which market
participants can readily direct order flow to competing venues. The
proposed rule change would support that intermarket competition by
allowing the Exchange to offer additional functionality to Members. The
Exchange believes that the proposed FLEX IBIT options will increase the
variety of options products available for trading in general and
bitcoin-related products in particular and, as such, will provide a
valuable tool for investors to manage risk.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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, as modified by Amendment No. 1, is consistent with the Act.
Comments
[[Page 19755]]
may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-ISE-2025-12 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-ISE-2025-12. This file
number should be included on the subject line if email is used. To help
with the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-ISE-2025-12 and should be
submitted on or before May 30, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------
\31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-08113 Filed 5-8-25; 8:45 am]
BILLING CODE 8011-01-P