[Federal Register Volume 90, Number 103 (Friday, May 30, 2025)]
[Notices]
[Pages 23089-23091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-09762]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103118; File No. SR-Phlx-2025-08]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove Proposed Rule
Change To List and Trade Nasdaq Bitcoin Index Options
May 23, 2025.
I. Introduction
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ Nasdaq
PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and
Exchange Commission (``Commission'') a proposed rule change to list and
trade options on the Nasdaq Bitcoin Index (``Index''). The proposed
rule change was published for comment in the Federal Register on
February 24, 2025.\3\ On March 12, 2025, pursuant to Section 19(b)(2)
of the Act,\4\ the Commission designated a longer period within which
to approve the proposal, disapprove the proposal, or institute
proceedings to determine whether to disapprove the proposal.\5\ On May
17,
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2025, the Exchange submitted a comment letter regarding the
proposal.\6\ The Commission has received no other comments on the
proposal. This order institutes proceedings pursuant to Section
19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 102440 (Feb. 18,
2025), 90 FR 10545 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 102631 (Mar. 12,
2025), 90 FR 12588 (Mar. 18, 2025). The Commission designated May
25, 2025, as the date by which the Commission shall approve or
disapprove, or institute proceedings to determine whether to approve
or disapprove, the proposed rule change.
\6\ See letter from Angela Dunn, Principal Associate General
Counsel, Phlx, dated March 17, 2025 (``Phlx Letter''), available at
https://www.sec.gov/comments/sr-phlx-2025-08/srphlx202508-581995-1674542.pdf.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal
As described in detail in the Notice,\8\ the Exchange proposes to
amend its rules to provide for the listing and trading of cash-settled,
European-style options on the Index, which reflects the price of spot
bitcoin. At expiration, holders of Index options would receive U.S.
dollars representing the difference between the CME CF Bitcoin
Reference Rate--New York Variant (``BBRNY'') and the strike price of
the option contract, multiplied by $100.\9\ The proposal includes rules
addressing minimum quoting and trading increments, position and
exercise limits, strike price intervals, expiration months, and the
closing settlement value for the proposed Index options.\10\ The
Exchange states that the proposed Index options would provide
investors, speculators, and multinational corporations with an
important risk-shifting mechanism and would be used for a wide range of
activities, including asset valuation, settlement of financial risk,
risk management, and net asset value calculation.\11\ The Exchange
further states that the proposed Index options would allow market
participants to precisely hedge their exposure to bitcoin.\12\ In
addition, the Exchange states that the proposed Index options ``would
provide investors with the means to create highly correlated hedges to
reduce risk and allow market markets [sic] the leverage to offset risk
and provide additional liquidity in options for bitcoin products.''
\13\ The Exchange states that the proposed Index options would allow
market participants that hold spot bitcoin-based exchange traded
products (``ETPs'') to hedge or modify their exposure in a single
regulatory regime.\14\
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\8\ See supra note 3.
\9\ See Notice, 90 FR 10555, and proposed Options 4D, Section
8(a). The Exchange states that BBRNY is a once-a-day benchmark index
price for bitcoin that aggregates trade data from multiple bitcoin-
USD markets operated by major cryptocurrency platforms. See Notice,
90 FR 10549.
\10\ See proposed Options 3, Section 3, Supplementary Material
.06; Options 4D, Section 5(a); Options 4D, Section 6; Options 4D,
Section 7; and Options 4D, Section 8.
\11\ See Phlx Letter at 3 and Notice, 90 FR 10550.
\12\ See Phlx Letter at 2.
\13\ See Phlx Letter at 7.
\14\ See Phlx Letter at 3. The Exchange states that the proposed
Index options would allow investors in spot bitcoin-based ETPs to
carry the proposed Index options in the same account subject to the
same margin regime that applies to the asset through which they take
long exposure to bitcoin. See id. at footnote 13.
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The Exchange states that the Commission's 2006 approval of the
Exchange's proposal to list and trade foreign currency options
``established precedent to list and trade index options overlying an
underlying that is not a security.'' \15\ In addition, the Exchange
states that the proposed Index options are foreign currency options,
which are securities under Section 3(a)(10) of the Act if they are
entered into on a national securities exchange.\16\ The Exchange states
that bitcoin is a foreign currency because bitcoin is legal tender in
El Salvador.\17\ The Exchange further states that its rules define
``foreign currency'' to mean ``the standard unit of the official medium
of exchange of a sovereign government including the United States
Government. . . .'' \18\ The Exchange also states that courts have
determined that bitcoin is ``money'' for purposes of different federal
statutes.\19\
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\15\ See Notice, 90 FR 10549. See also Securities Exchange Act
Release No. 54989 (Dec. 21, 2006), 71 FR 78506 (Dec. 29, 2006) (File
No. SR-Phlx-2006-34) (order approving the listing and trading of
U.S. dollar-settled foreign currency options on the British pound
and the euro).
\16\ 15 U.S.C. 78c(a)(10). See Phlx Letter at 1-2. Section
3(a)(10) of the Exchange Act states, in part, that a ``security''
includes ``any put, call, straddle, option, or privilege entered
into on a national securities exchange relating to foreign currency.
. . .''
\17\ See Phlx Letter at 2. The Exchange states that El Salvador
became the first country to adopt bitcoin as legal tender under a
law that came into effect on September 7, 2021. See id. at footnote
9.
\18\ See Phlx Letter at 2 (citing Options 1, Section 1(b)(23)).
Options 1, Section 1(b)(23) defines foreign currency to mean ``the
standard unit of the official medium of exchange of a sovereign
government including the United States Government (e.g., the British
pound, the Swiss franc, the Canadian dollar, the Australian dollar,
the Japanese yen, the Mexican peso, the Brazilian real, the Chinese
yuan, the Danish krone, the New Zealand dollar, the Norwegian krone,
the Russian ruble, the South African rand, the South Korean won, the
Swedish krona, or the United States dollar) or the Euro.''
\19\ See Phlx Letter at 3.
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III. Proceedings To Determine Whether To Approve or Disapprove File No.
SR-Phlx-2025-08 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \20\ to determine whether the proposal should be
approved or disapproved. Institution of proceedings is appropriate at
this time in view of the legal and policy issues raised by the proposed
rule change, as discussed below. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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\20\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\21\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposal's consistency with Section 6(b)(5) of the
Act,\22\ which requires, among other things, that the rules of a
national securities exchange not be designed to regulate by virtue of
any authority conferred by the Exchange Act matters not related to the
purposes of the Exchange Act or the administration of the exchange.
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\21\ 15 U.S.C. 78s(b)(2)(B).
\22\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the self-
regulatory organization that proposed the rule change.'' \23\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\24\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\25\ The Commission asks that
commenters address the sufficiency of the Exchange's statements in
support of the proposal, in addition to any other comments they may
wish to submit regarding the proposal. In particular, the Commission
seeks comment on whether the proposal includes sufficient analysis to
support a conclusion that the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, including the Exchange's
statements that the proposed Index options are foreign currency
options,
[[Page 23091]]
and that bitcoin is a foreign currency because bitcoin is legal tender
in El Salvador. As noted above, options on foreign currency entered
into on a national securities exchange are included in the definition
of security. If bitcoin is not a foreign currency, the Commission seeks
comment regarding whether the proposed Index options are instead
commodity options and not securities. The Commodity Futures Trading
Commission has exclusive jurisdiction with respect to certain
derivatives, such as commodity options, traded or executed on certain
markets, boards of trade, or exchanges, and certain transactions under
section 2(a)(1) of the Commodity Exchange Act.\26\
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\23\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\24\ See id.
\25\ See id.
\26\ 7 U.S.C. 2(a)(1).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with Section 6(b)(5), or any other provision of the Act,
and the rules and regulations thereunder. Although there do not appear
to be any issues relevant to approval or disapproval which would be
facilitated by an oral presentation of data, views, and arguments, the
Commission will consider, pursuant to Rule 19b-4 under the Act,\27\ any
request for an opportunity to make an oral presentation.\28\
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\27\ 17 CFR 240.19b-4.
\28\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by June 20, 2025. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
July 7, 2025.
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 No. SR-Phlx-2025-08 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-Phlx-2025-08. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-Phlx-2025-08 and should be
submitted by June 20, 2025. Rebuttal comments should be submitted by
July 7, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-09762 Filed 5-29-25; 8:45 am]
BILLING CODE 8011-01-P