[Federal Register Volume 90, Number 106 (Wednesday, June 4, 2025)]
[Notices]
[Pages 23753-23759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-10119]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103144; File No. SR-ISE-2025-16]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Proposed Rule Change To List and Trade Options on the Hashdex Nasdaq
Crypto Index US ETF
May 29, 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 15, 2025, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The 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 Options 4, Section 3, Criteria for
Underlying Securities, to list and trade options on the Hashdex Nasdaq
Crypto Index US ETF.
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 4, Section 3, Criteria for
Underlying Securities, to allow the Exchange to list and trade options
on the Hashdex Nasdaq Crypto Index US ETF (the ``Trust'') \3\ as a Unit
deemed appropriate for options trading on the Exchange. Hashdex Nasdaq
Crypto Index US ETF trades under the symbol ``NCIQ.''
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\3\ The Commission approved a rule change to list and trade
shares of the Trust pursuant to Rule 5711(d) of The Nasdaq Stock
Exchange LLC (``Commodity-Based Trust Shares''). See Securities
Exchange Act Release No. 101998 (December 19, 2024), 89 FR 106707
(December 20, 2024) (SR-NASDAQ-2024-028) (hereinafter ``SR-NASDAQ-
2024-028''). Hashdex Nasdaq Crypto Index US ETF commenced trading on
February 14, 2025. The Exchange represents it would not list options
on the Trust unless it satisfied all applicable criteria in Options
4, Section 3.
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Currently, Options 4, Section 3(h) provides that securities deemed
appropriate for options trading shall include shares or other
securities (``Exchange-Traded Fund Shares'' or ``ETFs'') that are
traded on a national securities exchange and are defined as an ``NMS''
stock under Rule 600 of Regulation NMS, and that meet certain criteria
specified in Options 4, Section 3(h), including that they:
(i) represent interests in registered investment companies (or
series thereof) organized as open-end management investment
companies, unit investment trusts or similar entities that hold
portfolios of securities and/or financial instruments, including,
but not limited to, stock index futures contracts, options on
futures, options on securities and indices, equity caps, collars and
floors, swap agreements, forward contracts, repurchase agreements
and reverse repurchase agreements (the ``Financial Instruments''),
and money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements (the ``Money Market
Instruments'') comprising or otherwise based on or representing
investments in broad-based indexes or portfolios of securities and/
or Financial Instruments and Money Market Instruments (or that hold
securities in one or more other registered investment companies that
themselves hold such portfolios of securities and/or Financial
Instruments and Money Market Instruments) or
(ii) represent interests in a trust or similar entity that holds
a specified non-U.S. currency or currencies deposited with the trust
when aggregated in some specified minimum number may be surrendered
to the trust or similar entity by the beneficial owner to receive
the specified non-U.S. currency or currencies and pays the
beneficial owner interest and other distributions on the deposited
non-U.S. currency or currencies, if any, declared and paid by the
trust (``Currency Trust Shares'') or
(iii) represent commodity pool interests principally engaged,
directly or indirectly, in holding and/or managing portfolios or
baskets of securities, commodity futures contracts, options on
commodity futures contracts, swaps, forward contracts and/or options
on physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs'') or
(iv) represent interests in the iShares Ethereum Trust, the
SPDR[supreg] Gold Trust, the iShares COMEX Gold Trust, the iShares
Silver Trust, the Aberdeen Standard Physical Gold Trust, or the
iShares Bitcoin Trust, or the Fidelity Wise Origin Bitcoin Fund, or
the ARK21Shares Bitcoin ETF, or the Grayscale Bitcoin Trust (BTC),
or the Grayscale Bitcoin Mini Trust BTC, or the Bitwise Bitcoin ETF
or the Fidelity Ethereum Fund, the Bitwise Ethereum ETF, the
Grayscale Ethereum Trust, and Grayscale Ethereum Mini Trust or
(v) represents an interest in a registered investment company
(``Investment Company'') organized as an open-end management company
or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies,
which is issued in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities and/or a cash
amount with a value equal to the next determined net asset value
(``NAV''), and when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to
the next determined NAV (``Managed Fund Share'').
In addition to the aforementioned requirements, Options 4, Section
3(h)(1) and (2) must be met to list options on ETFs.\4\
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\4\ Options 4, Section 3(h)(1) and (2) state that the Exchange-
Traded Fund Shares either (i) meet the criteria and guidelines set
forth in paragraphs (a) and (b) described herein; or (ii) the
Exchange-Traded Fund Shares are available for creation or redemption
each business day from or through the issuing trust, investment
company, commodity pool or other entity in cash or in kind at a
price related to net asset value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in a specified aggregate number
even if some or all of the investment assets and/or cash required to
be deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investment assets
has undertaken to deliver them as soon as possible and such
undertaking is secured by the delivery and maintenance of collateral
consisting of cash or cash equivalents satisfactory to the issuer of
the Exchange-Traded Fund Shares, all as described in the Exchange-
Traded Fund Shares' prospectus. Also, the Exchange-Traded Fund
Shares based on international or global indexes, or portfolios that
include non-U.S. securities, shall meet the criteria in Options 4,
Section 3(h)(2)(A)-(F).
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[[Page 23754]]
Proposal
The Exchange proposes expanding the list of ETFs that are
appropriate for options trading on the Exchange in Options 3, Section
4(h)(iv) to include the Trust.\5\
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\5\ Specifically, the Exchange proposes to amend Options 3,
Section 4(h)(iv) to include the name of the Trust to enable options
to be listed on the Trust on the Exchange.
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Description of the Trust \6\
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\6\ See SR-NASDAQ-2024-028 for a complete description of the
Trust.
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The Shares will be issued by the Trust, a Delaware statutory trust
to be established by the Sponsor. The Trust will operate pursuant to
the rules and guidelines set forth in the Trust agreement (``Trust
Agreement''). The Trust will issue Shares representing fractional
undivided beneficial interests in its net assets. The assets of the
Trust will consist only of bitcoin and ether. Under limited
circumstances, the Trust will hold cash and/or cash equivalents to pay
its expenses. The Trust will not be an investment company registered
under the Investment Company Act of 1940, as amended (the ``1940
Act''), and will not be a commodity pool under the Commodity Exchange
Act.
U.S. Bancorp Fund Services, LLC will be the administrator, and
transfer agent for the Trust (``Administrator'' or ``Transfer Agent'').
U.S. Bank, N.A. will hold the Trust's cash and/or cash equivalents \7\
(``Cash Custodian''). The Sponsor intends to enter into an agreement
with Coinbase Custody Trust Company, LLC and BitGo Trust Company, Inc.
(``Crypto Custodians'', and together with the Cash Custodian, the
``Custodians''). The Crypto Custodians will keep custody of all the
Trust's bitcoin and ether.\8\
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\7\ ``Cash equivalents'' are limited to short-term treasury
bills (90 days or less to maturity), money market funds, and demand
deposit accounts.
\8\ The Trust may engage additional custodians for its bitcoin
and ether, each of whom may be referred to as a Crypto Custodian.
The Trust may also remove or change current Crypto Custodians,
provided that there is at least one Crypto Custodian at all times.
Any such changes to the Trust's Crypto Custodians would require a
rule filing under Rule 19b-4 of the Act.
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The investment objective of the Trust is to have the daily changes
in the net asset value (``NAV'') of the Shares correspond to the daily
changes in the price of the Nasdaq Crypto US Settlement Price Index,\9\
NCIUSS (the ``NCIUSS'' or ``Index''), less expenses and liabilities
from the Trust's operations, by investing in bitcoin and ether.
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\9\ See https://indexes.nasdaqomx.com/docs/Methodology_NCIUS.pdf.
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The Shares are designed to provide a straightforward means of
obtaining investment exposure to bitcoin and ether through the public
securities market, as opposed to direct acquisition, holding, and
trading of spot bitcoin and spot ether on a peer-to-peer or other basis
or via a crypto asset platform. The Shares have been designed to remove
the obstacles represented by the complexities and operational burdens
involved in a direct investment in bitcoin and ether, while at the same
time having an intrinsic value that reflects, at any given time, the
investment exposure to bitcoin and ether owned by the Trust at such
time, less the Trust's expenses and liabilities. The Shares provide
investors with an alternative method of achieving exposure to bitcoin
and ether through the public securities market, which may be more
familiar to them.
The Trust will gain exposure to bitcoin and ether by buying spot
bitcoin and spot ether. The Trust will maintain cash and/or cash
equivalent balances to the extent it is necessary for currently due
Trust-payable expenses.
The Index is designed to measure the performance of a portion of
the overall crypto asset market. The Index does not track the overall
performance of all crypto assets generally, nor the performance of any
specific crypto assets. The Index is owned and administered by Nasdaq,
Inc. (``Index Provider'') and is calculated by CF Benchmarks Limited
(``Calculation Agent''), which is experienced in calculating and
administering crypto assets indices. The Calculation Agent publishes
daily the Index Constituents, the Index Constituents' weightings, the
intraday value of the Index (under the ticker NCIUS), and the daily
settlement value of the Index (under the ticker NCIUSS), which is
effectively the Index's closing value.\10\
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\10\ The closing level of the Index is calculated once a day on
business days at 4:05 p.m. New York Time. See https://indexes.nasdaqomx.com/docs/Methodology_NCIUS.pdf (under ``Index
Calculation and Dissemination'').
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Custody of the Trust's Bitcoin and Ether
An investment in the Shares is backed by assets held by the Trust,
including the bitcoin and ether held by the Crypto Custodians on behalf
of the Trust. The Crypto Custodians must qualify as Core Custodians by
the NCIOC and, thus satisfy at least the requirements set forth by the
NCIOC in the NCIUSS methodology.\11\ The Trust may engage additional
custodians for its bitcoin and ether and may also remove or change
current Crypto Custodians, provided that there is at least one Crypto
Custodian who is also a Core Custodian at all times.\12\
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\11\ See https://indexes.nasdaqomx.com/docs/Methodology_NCIUS.pdf. As noted above, the Core Custodians as of May
27, 2024 are BitGo, Coinbase, Fidelity and Gemini, and the Trust's
Crypto Custodians are on this list.
\12\ If the Trust determines to do so, the Exchange will submit
a rule filing with the Commission under Rule 19b-4 of the Act
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The Trust's Crypto Custodians will hold and be responsible for
maintaining custody of the Trust's bitcoin and ether. The Sponsor will
cause the Trust to maintain ownership and control of the Trust's
bitcoin in a manner consistent with good delivery requirements for spot
commodity transactions.
Proposal
The Exchange believes that offering options on the Trust will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to spot bitcoin and spot
ether as well as a hedging vehicle to meet their investment needs in
connection with bitcoin and ether products and positions. Similar to
other commodity ETFs in which options may be listed on ISE (e.g.
iShares Ethereum Trust, the SPDR[supreg] Gold Trust, the iShares COMEX
Gold Trust, the iShares Silver Trust, the Aberdeen Standard Physical
Gold Trust, or the iShares Bitcoin Trust, or the Fidelity Wise Origin
Bitcoin Fund, or the ARK21Shares Bitcoin ETF, or the Grayscale Bitcoin
Trust (BTC), or the Grayscale Bitcoin Mini Trust BTC, or the Bitwise
Bitcoin ETF or the Fidelity Ethereum Fund, the Bitwise Ethereum ETF,
the Grayscale Ethereum Trust, and Grayscale Ethereum Mini Trust),\13\
the proposed ETF is a trust that essentially offers the same objectives
and benefits to investors.
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\13\ See ISE Options 4, Section 3(h)(iv).
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Options on the Trust will trade in the same manner as options on
other ETFs on the Exchange. Exchange Rules that currently apply to the
listing and trading of all options on ETFs on the Exchange, including,
for example, Rules that govern listing criteria, expirations, exercise
prices, minimum increments, margin requirements, customer accounts and
trading halt procedures, will apply to the listing and trading of
options on the Trust on the Exchange. Today, these rules apply to
options on the various commodities ETFs deemed appropriate for options
trading on the Exchange pursuant to Options 4, Section 3(h)(iv).
[[Page 23755]]
The Exchange's initial listing standards for ETFs on which options
may be listed and traded on the Exchange will apply to the Trust. The
initial listing standard as set forth in Options 4, Section 3(a)
provides that:
Underlying securities with respect to which put or call options
contracts are approved for listing and trading on the Exchange must
meet the following criteria: (1) the security must be registered and
be an ``NMS stock'' as defined in Rule 600 of Regulation NMS under
the Exchange Act; and (2) the security shall be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.
Pursuant to ISE Options 4, Section 3, ETFs on which options may be
listed and traded must satisfy the listing standards set forth in
Options 4, Section 3(h). Specifically, the Trust must meet either:
(1) the criteria and guidelines for underlying securities set
forth in Options 4, Section 3(h), or
(2) it must be available for creation or redemption each
business day from or through the issuing trust, investment company,
commodity pool or other entity in cash or in kind at a price related
to net asset value, and the issuer is obligated to issue Exchange-
Traded Fund Shares in a specified aggregate number even if some or
all of the investment assets and/or cash required to be deposited
have not been received by the issuer, subject to the condition that
the person obligated to deposit the investment assets has undertaken
to deliver them as soon as possible and such undertaking is secured
by the delivery and maintenance of collateral consisting of cash or
cash equivalents satisfactory to the issuer of the Exchange-Traded
Fund Shares, all as described in the Exchange-Traded Fund Shares'
prospectus, or the Exchange-Traded Fund Shares must be based on
international or global indexes, or portfolios that include non-U.S.
securities, and meet other criteria.
Options on the Trust will also be subject to the Exchange's
continued listing standards for options on ETFs set forth in Options 4,
Section 4(g). Specifically, options approved for trading pursuant to
Options 4, Section 3(h) will not be deemed to meet the requirements for
continued approval, and the Exchange shall not open for trading any
additional series of option contracts of the class covering such ETFs
if the ETFs are delisted from trading as provided in subparagraph
(b)(5) of Options 4, Section 4 \14\ or the ETFs are halted or suspended
from trading on their primary market.\15\ In addition, the Exchange
shall consider the suspension of opening transactions in any series of
options of the class covering ETFs in any of the following
circumstances:
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\14\ Options 4, Section 4(b)(5) provides, if an underlying
security is approved for options listing and trading under the
provisions of Options 4, Section 3(c), the trading volume of the
Original Security (as therein defined) prior to but not after the
commencement of trading in the Restructure Security (as therein
defined), including `when-issued' trading, may be taken into account
in determining whether the trading volume requirement of (3) of this
paragraph (b) is satisfied. Options 4, Section 4(b)(3) provides,
``The trading volume (in all markets in which the underlying
security is traded) has been less than 1,800,000 shares in the
preceding twelve (12) months.''
\15\ See Options 4, Section 4(g).
(1) in the case of options covering Exchange-Traded Fund Shares
approved pursuant to Options 4, Section 3(h)(A)(i), in accordance
with the terms of subparagraphs (b)(1), (2), (3) and (4) of Options
4, Section 4; \16\
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\16\ Options 4, Section 4(b)(5)(1) through (4) provides, if: (1)
there are fewer than 6,300,000 shares of the underlying security
held by persons other than those who are required to report their
security holdings under Section 16(a) of the Act, (2) there are
fewer than 1,600 holders of the underlying security, (3) the trading
volume (in all markets in which the underlying security is traded)
has been less than 1,800,000 shares in the preceding twelve (12)
months, or (4) the underlying security ceases to be an `NMS stock'
as defined in Rule 600 of Regulation NMS under the Exchange Act.
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(2) in the case of options covering Fund Shares approved
pursuant to Options 4, Section 3(h)(A)(ii),\17\ following the
initial twelve-month period beginning upon the commencement of
trading in the Exchange-Traded Fund Shares on a national securities
exchange and are defined as an ``NMS stock'' under Rule 600 of
Regulation NMS, there were fewer than 50 record and/or beneficial
holders of such Exchange-Traded Fund Shares for 30 or more
consecutive trading days;
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\17\ Options 4, Section 3(h)(ii) refers to Currency Trust
Shares.
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(3) the value of the index or portfolio of securities or non-
U.S. currency, portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts, options on physical commodities and/or Financial
Instruments and Money Market Instruments, on which the Exchange-
Traded Fund Shares are based is no longer calculated or available;
or
(4) such other event occurs or condition exists that in the
opinion of the Exchange makes further dealing in such options on the
Exchange inadvisable.
Options on the Trust would be physically settled contracts with
American-style exercise.\18\ Consistent with current Options 4, Section
5, which governs the opening of options series on a specific underlying
security (including ETFs), the Exchange will open at least one
expiration month \19\ for options on the Trust and may also list series
of options on the Trust for trading on a weekly \20\ or quarterly \21\
basis. The Exchange may also list long-term equity option series
(``LEAPS'') \22\ that expire from twelve to thirty-nine from the time
they are listed.
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\18\ See Options 4, Section 2, Rights and Obligations of Holders
and Writers, which provides that the rights and obligations of
holders and writers shall be as set forth in the Rules of the
Clearing Corporation. See also OCC Rules, Chapter VIII, which
governs exercise and assignment, and Chapter IX, which governs the
discharge of delivery and payment obligations arising out of the
exercise of physically settled stock option contracts. OCC Rules can
be located at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occ_rules.pdf.
\19\ See Options 4, Section 5(b).
\20\ See Supplementary .03 to Options 4, Section 5.
\21\ See Supplementary .04 to Options 4, Section 5.
\22\ See Options 4, Section 8.
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Pursuant to Options 4, Section 5(d), which governs strike prices of
series of options on ETFs, the interval between strike prices of series
of options on ETFs approved for options trading pursuant to Section
3(h) of Options 4 will be $1 or greater where the strike price is $200
or less and $5.00 or greater where the strike price is greater than
$200.\23\ With respect to the Short Term Options Series or Weekly
Program, during the month prior to expiration of an option class that
is selected for the Short Term Option Series Program, the strike price
intervals for the related non-Short Term Option (``Related non-Short
Term Option'') shall be the same as the strike price intervals for the
Short Term Option.\24\ Specifically, the Exchange may open for trading
Short Term Option Series at strike price intervals of (i) $0.50 or
greater where the strike price is less than $100, and $1 or greater
where the strike price is between $100 and $150 for all option classes
that participate in the Short Term Options Series Program; (ii) $0.50
for option classes that trade in one dollar increments and are in the
Short Term Option Series Program; or (iii) $2.50 or greater where the
strike price is above $150.\25\ Additionally, the Exchange may list
series of options pursuant to the $1
[[Page 23756]]
Strike Price Interval Program,\26\ the $0.50 Strike Program,\27\ the
$2.50 Strike Price Program,\28\ and the $5 Strike Program.\29\ Options
3, Section 3 governs the minimum increment for bids and offers for both
equity and index options. Pursuant to Options 3, Section 3, where the
price of a series of options for the Trust is less than $3.00 the
minimum increment will be $0.05, and where the price is $3.00 or
higher, the minimum increment will be $0.10 \30\ consistent with the
minimum increments for options on other ETFs listed on the Exchange.
Any and all new series of Trust options that the Exchange lists will be
consistent and comply with the expirations, strike prices, and minimum
increments set forth in Options 4, Section 5 and Options 3, Section 3,
as applicable.
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\23\ See Options 5, Section 5(d). The interval between strike
prices of series of options on Exchange-Traded Fund Shares approved
for options trading pursuant to Section 3(h) of this Options 4 may
also be fixed at a price per share which is reasonably close to the
price per share at which the underlying security is traded in the
primary market at or about the same time such series of options is
first open for trading on the Exchange, or at such intervals as may
have been established on another options exchange prior to the
initiation of trading on the Exchange. See also Options 4, Section
5(h). The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Quarterly Options Series
Program, and the Monthly Options Series Program, Supplementary
Material .03, .04 and .08 to Options 4, Section 5 specifically sets
forth intervals between strike prices on Short Term Option Series,
Quarterly Options Series, and Monthly Options Series, respectively.
\24\ See Supplementary Material .03(e) to Options 4, Section 5.
\25\ Id.
\26\ See Supplementary Material .01 to Options 4, Section 5.
\27\ See Supplementary Material .05 to Options 4, Section 5.
\28\ See Supplementary Material .02 to Options 4, Section 5.
\29\ See Supplementary Material .06 to Options 4, Section 5.
\30\ Options that are eligible to participate in the Penny
Interval Program have a minimum increment of $0.01 below $3.00 and
$0.50 above $3.00. See Supplementary Material .01 to Options 3,
Section 3.
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Position and exercise limits for options on ETFs, including options
on the Trust, are determined pursuant to Options 9, Sections 13 and 15,
respectively. Position and exercise limits for ETFs options vary
according to the number of outstanding shares and the trading volumes
of the underlying ETF over the past six months, where the largest in
capitalization and the most frequently traded ETFs have an option
position and exercise limit of 250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market; and
smaller capitalization ETFs have position and exercise limits of
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market.
Further, Options 6C, Section 3, which governs margin requirements
applicable to the trading of all options on the Exchange including
options on ETFs, will also apply to the trading of the Trust options.
Notwithstanding the position limits in Options 9, Section 13(d) and
exercise limits in Options 9, Section 15(c), ISE proposes the position
and exercise limits for the options on the Trust to be 25,000 contracts
on the same side pursuant to proposed Supplementary Material .01 to
Options 9, Section 13 and proposed Supplementary Material .01 to
Options 9, Section 15. Position and exercise 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. These limits, which are
described in ISE Options 9, Sections 13 and 15, are intended 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. Position and exercise limits must balance
concerns regarding mitigating potential manipulation and the cost of
inhibiting potential hedging activity that could be used for legitimate
economic purposes. To achieve this balance, ISE proposes setting the
Trust's position and exercise limits at 25,000 contracts. Capping the
Trust's position and exercise 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. In considering the appropriate position limit for the
Trust, ISE measured the Trust's market capitalization and Average Daily
Volume (``ADV'') against other industry data as explained further below
and determined that 25,000 contracts is the appropriate position (and
exercise) limit.
In considering position limits for Hashdex Nasdaq Crypto Index US
ETF or ``NCIQ'' the Exchange aggregated Assets Under Management
(``AUM'') and Average Daily Volume (``ADV'') data for ETFs that have
defined position limits on The Options Clearing Corporations (``OCC'')
website on May 2, 2025.\31\ The Exchange obtained values for 1,358 ETFs
that comprised the 25,000, 50,000, and 75,000 position limit buckets
(further date review of ETFs with higher position limits was
unnecessary since the ADV of NCIQ was so low as to exclude the
possibility of the security achieving a position limit of greater than
75,000).\32\ Next, the data was aggregated based on market
capitalization and ADV and grouped by options symbol by position limit
utilizing statistical thresholds for ADV and market capitalization for
each position limit category (i.e. 25,000, 50,000 and 75,000). ISE
Options 9, Section 13(d) sets out position limits for various
contracts. For example, a 25,000 contract limit applies to those
options having an underlying security that does not meet the
requirements for a higher options contract limit. This exercise was
performed to demonstrate the Trust's position limit relative to other
options symbols in terms of market capitalization and ADV. NCIQ had an
AUM on May 2, 2025 of $103,716,000 \33\ and an April ADV of 15,358
shares.\34\ An examination of the median AUMs for each bucket of
position limit contracts indicates that a position limit of 25,000
contracts is appropriate for NCIQ. The median AUM in the 25,000
contracts position limit bucket for an ETF is 100,096,000. If NCIQ were
placed in the 25,000 contract position limit bucket, it would rank in
the 50th percentile of AUM. The statistics indicate that NCIQ has an
April ADV greater than the 34th percentile of the 25,000 contract
position limit bucket. Consequently, NCIQ passes muster with respect to
position limit bucketing in comparison to its peers in the market.\35\
The data points are summarized in the chart below:
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\31\ Data with a zero value in AUM and volume were removed from
the sample set.
\32\ Single stocks were excluded since NCIQ holds two
cryptocurrencies, bitcoin, and ether.
\33\ See https://hashdex-etfs.com/NCIQ.
\34\ The source of this number is securities information
processor data and Yahoo Finance.
\35\ Of note, NCIQ has less than 100 shareholders.
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Position limit bucket 25,000 50,000 75,000
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AUM data
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average mkt cap in bucket.............................. 429,719,975 2,250,652,578 5,098,488,634
median mkt cap in bucket............................... 100,096,008 1,106,881,955 2,597,821,743
NQIC AUM on 05/01/25................................... 103,716,000 103,716,000 103,716,000
rank in bucket......................................... 499 173 140
number of ETFs in bucket............................... 1,012 196 150
percentile rank in bucket (100% = #1).................. 50.7% 11.7% 6.7%
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[[Page 23757]]
April ADV data
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average April ADV in bucket............................ 127,982 356,675 702,589
median April ADV in bucket............................. 32,412 335,919 677,025
NQIC April ADV......................................... 15,358 15,358 15,358
rank in bucket......................................... 669 195 150
number of ETFs in bucket............................... 1,012 196 150
percentile rank in bucket (100% = #1).................. 34.0% 0.5% 0.0%
----------------------------------------------------------------------------------------------------------------
Another reference point in determining position limits is not only
the AUM of NCIQ, but of the entire cryptocurrency universe that
comprises the constituents of NCIQ. Since the creation of NCIQ is
possible, the Exchange looked at the percentage of available
constituents to create a position limit exercise. Since a 25,000
contract position limit would only require $60,300,000 of
cryptocurrencies, using the closing price of $24.12 on May 2, 2025, the
percentage of cryptocurrency necessary for a position limit creation
varies between .00269% and .00285% (see chart below) of the available
constituent cryptocurrencies.
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Percentage of
Actual, not Value of available
targeted, Market constituent constituent
Cryptocurrency Symbol weight (as capitalization on 05/ required to required for a
reported on 05/ 03 create a position position limit
02) (%) limit creation
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Bitcoin........................................................... BTC 90.16 1,909,708,673,172 54,366,480 0.00285
Ethereum.......................................................... ETH 9.85 220,466,191,469 5,939,550 0.00269
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consequently, a 25,000 contract position limit for NCIQ induces no
stress on the market. The proposed exercise limit would also be 25,000
contracts.
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NCIQ price 24.12
------------------------------------------------------------------------
25,000 contract position limit share equivalent............ 2,500,000
total crypto value needed for position limit............... 60,300,000
------------------------------------------------------------------------
Today, the Exchange has an adequate surveillance program in place
for options. ISE intends to apply those same program procedures to
options on the Trust that it applies to the Exchange's other options
products.\36\ ISE's market surveillance staff would have access to the
surveillances conducted by Nasdaq \37\ with respect to the Trust and
would review activity in the underlying Trust when conducting
surveillances for market abuse or manipulation in the options on the
Trust. Additionally, ISE is a member of the Intermarket Surveillance
Group (``ISG'') under the Intermarket Surveillance Group Agreement. ISG
members work together to coordinate surveillance and investigative
information sharing in the stock, options, and futures markets. In
addition to obtaining information from Nasdaq, the Exchange would be
able to obtain information regarding trading in shares of the Trust on
other exchanges through ISG. In addition, ISE has a Regulatory Services
Agreement with the Financial Industry Regulatory Authority (``FINRA'').
Pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate regulatory responsibilities to FINRA to conduct certain
options-related market surveillance that are common to rules of all
options exchanges.\38\
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\36\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\37\ The Nasdaq Stock Market LLC is an affiliated market of ISE.
\38\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
The underlying shares of spot ethereum ETPs and spot bitcoin ETPs,
including the Trust, are also subject to safeguards related to
addressing market abuse and manipulation. As the Commission stated in
its order approving the Hashdex Nasdaq Crypto Index US ETF (``Hashdex
Approval Order''): \39\
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\39\ See Securities Exchange Act Release No. 101998 (December
19, 2024), 89 FR 106707 (December 20, 2024) (SR-NASDAQ-2024-028)
(hereinafter ``SR-NASDAQ-2024-028'').
Specifically, given the consistently high correlation between
the bitcoin futures market of the Chicago Mercantile Exchange
(``CME'') and a sample of spot bitcoin markets--confirmed by the
Commission through robust correlation analysis using data at hourly,
five-minute, and one-minute intervals--the Commission was able to
conclude that fraud or manipulation that impacts prices in spot
bitcoin markets would likely similarly impact CME bitcoin futures
prices. And because the CME's surveillance can assist in detecting
those impacts on CME bitcoin futures prices, the Commission was able
to conclude that the comprehensive surveillance-sharing agreement
among the listing exchanges and the CME can be reasonably expected
to assist in surveilling for fraudulent and manipulative acts and
practices in the specific context of the spot bitcoin ETPs
considered in the Spot Bitcoin ETP Approval Order.
The Commission reached similar conclusions in the Spot Ether ETP
Approval Order with respect to the spot ether ETPs considered in
that order, having confirmed the consistently high correlation
between the CME ether futures market and a sample of spot ether
markets \40\
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\40\ Id. at 46941.
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The Trusts in the present Proposals will hold both spot bitcoin
and spot ether, and the proportion of bitcoin and ether to be held
by each Trust will be based on free-float market capitalizations, as
described by the Exchanges in their respective amended filings.
Other than that the Trusts will hold both spot bitcoin and spot
ether, the structure of the Trusts, the terms of their operation and
the trading of their shares, and the representations in their
respective amended filings are substantially similar to those of the
[[Page 23758]]
spot bitcoin ETP and spot ether ETP proposals approved in prior
Commission orders. In addition, the Commission finds that the spot
bitcoin market continues to be consistently highly correlated with
the CME bitcoin futures market, and that the spot ether market
continues to be consistently highly correlated with the CME ether
futures market. As such, based on the record before the Commission,
including the Commission's correlation analyses, the Commission is
able to conclude that the Exchanges' comprehensive surveillance-
sharing agreements with the CME can be reasonably expected to assist
in surveilling for fraudulent and manipulative acts and practices in
the specific context of the Proposals.\41\
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\41\ Id. at 106708 and 106709.
In light of surveillance measures related to both options and
futures as well as the underlying Trust, the Exchange believes that
existing surveillance procedures are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading the proposed options on the Trust.
The Exchange has also analyzed its capacity and represents that it
believes the Exchange and the Options Price Reporting Authority or
``OPRA'' have the necessary systems capacity to handle the additional
traffic associated with the listing of new series that may result from
the introduction of options on the Trust up to the number of
expirations currently permissible under the Exchange Rules. Because the
proposal is limited to one class, the Exchange believes any additional
traffic that may be generated from the introduction of the Trust
options will be manageable.
FLEX Trading
Further, Options 3A, Section 3(a) permits the Exchange to authorize
trading a FLEX option class on any equity security if it may authorize
for trading a non-FLEX option class on that equity security pursuant to
Options 4, Section 3. At this time, the Exchange is not proposing to
permit the Trust to trade as a FLEX Option. The Exchange therefore
proposes to modify Options 3A, Section 3(a) to specify this exception,
which will add clarity and transparency to the Exchange Rules.\42\
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\42\ The Exchange will continue ongoing discussions with the
Commission regarding appropriate position limits for the Trust and
plans to submit a separate rule filing that would permit the
Exchange to authorize for trading FLEX options on the Trust (which
filing may propose changes to existing FLEX option position limits
for such options if appropriate).
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Technical Amendment
Finally, the Exchange proposes a technical amendment to Options 4,
Section 3(h)(iv) to remove certain extraneous rule text.\43\
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\43\ Specifically, the Exchange proposes to remove several
``or'' terms in Options 4, Section 3(h)(iv).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\44\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\45\ 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) \46\ requirement that the rules of an exchange not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\44\ 15 U.S.C. 78f(b).
\45\ 15 U.S.C. 78f(b)(5).
\46\ 15 U.S.C. 78(f)(b)(5).
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In particular, the Exchange believes that the proposal to list and
trade options on the Trust will remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, protect investors because offering options on the Trust
will provide investors with a greater opportunity to realize the
benefits of utilizing options on an ETF based on spot bitcoin and spot
ether, including cost efficiencies and increased hedging strategies.
The Exchange believes that offering options on a competitively priced
ETF based on spot bitcoin and spot ether will benefit investors by
providing them with an additional, relatively lower cost risk
management tool allowing them to manage, more easily, their positions,
and associated risks, in their portfolios in connection with exposure
to spot bitcoin and spot ether. Today, the Exchange lists options on
other commodity ETFs structured as a trust, which essentially offer the
same objectives and benefits to investors, and for which the Exchange
has not identified any issues with the continued listing and trading of
options on those ETFs.
The Exchange also believes the proposal to permit options on the
Trust will remove impediments to and perfect the mechanism of a free
and open market and a national market system, because options on the
Trust will comply with current Exchange Rules. Options on the Trust
must satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules, applicable to options on all
ETFs, including options on other commodity ETFs already deemed
appropriate for options trading on the Exchange pursuant to Options 4,
Section 3(h)(iv). Further, Exchange Rules that currently govern the
listing and trading of options on ETFs, including permissible
expirations, strike prices, minimum increments, and margin
requirements, will govern the listing and trading of options on the
Trust. The proposed position and exercise limits for options on the
Trust are 25,000 contracts. The proposed position and exercise limits
are consistent with the Act as they address concerns related to
manipulation and protection of investors, are the lowest position and
exercise limits available in the options industry, and are conservative
and appropriate given the Trust's market capitalization, average daily
volume, and number of outstanding shares. The Exchange represents that
it has the necessary systems capacity to support options on the Trust.
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 on ETFs,
including the Trust options.
Finally, the Commission has previously approved the listing and
trading of options on other commodity ETFs structured as a trust, such
as iShares Ethereum Trust, the SPDR[supreg] Gold Trust, the iShares
COMEX Gold Trust, the iShares Silver Trust, the Aberdeen Standard
Physical Gold Trust, or the iShares Bitcoin Trust, or the Fidelity Wise
Origin Bitcoin Fund, or the ARK21Shares Bitcoin ETF, or the Grayscale
Bitcoin Trust (BTC), or the Grayscale Bitcoin Mini Trust BTC, or the
Bitwise Bitcoin ETF or the Fidelity Ethereum Fund, the Bitwise Ethereum
ETF, the Grayscale Ethereum Trust, and Grayscale Ethereum Mini Trust.
The Exchange also believes the proposed rule change to exclude the
Trust from being eligible for trading as a FLEX Option is consistent
with the Act, because it will permit the Exchange to continue to
participate in ongoing discussions with the Commission regarding
appropriate position and exercise limits for options on the Trust. The
Exchange also believes the proposed rule change to Options 3A, Section
3(a), to make clear that options on the Trust are not eligible for FLEX
[[Page 23759]]
Trading, will remove impediments to and perfect the mechanism of a free
and open market and a national market system because it adds clarity
and transparency to Exchange Rules making them easier to navigate and
understand to the benefit of investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act as options on the
Trust will be subject to initial listing standards and continued
listing standards the same as other options on ETFs listed on the
Exchange. Further, options on the Trust will be subject to Exchange
Rules that currently govern the listing and trading of options on ETFs,
including permissible expirations, strike prices, minimum increments,
and margin requirements, will govern the listing and trading of options
on the Trust. Options on the Trust will be equally available to all
market participants who wish to trade such options. Also, and as stated
above, the Exchange already lists options on other commodity ETFs
structured as a trust.
The Exchange does not believe that the proposal to list and trade
options on the Trust will impose any burden on intermarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. To the extent that permitting options on the Trust to trade on
the Exchange may make the Exchange a more attractive marketplace to
market participants, 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 Trust. The Exchange
believes that the proposed rule change may relieve any burden on, or
otherwise promote, competition as it is designed to increase
competition for order flow on the Exchange in a manner that is
beneficial to investors by providing them with a lower-cost option to
hedge their investment portfolios. The Exchange notes that it operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues that offer similar products.
Ultimately, the Exchange believes that offering options on the Trust
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 spot
bitcoin and spot ether prices and bitcoin and ether related products
and positions.
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 the 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 is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-ISE-2025-16 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-2025-16. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-ISE-2025-16 and should be
submitted on or before June 25, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
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\47\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2025-10119 Filed 6-3-25; 8:45 am]
BILLING CODE 8011-01-P