Federal Register, Volume 90 Issue 146 (Friday, August 1, 2025)

[Federal Register Volume 90, Number 146 (Friday, August 1, 2025)]
[Notices]
[Pages 36229-36231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-14541]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-103564; File No. SR-ISE-2024-62]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Approving a
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, Regarding
Position and Exercise Limits for Options on the iShares Bitcoin Trust
ETF

July 29, 2025.

I. Introduction

On December 20, 2024, Nasdaq ISE, LLC (``ISE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend the position and exercise limits for options on the iShares
Bitcoin Trust ETF (``IBIT'') and to provide for the trading of flexible
exchange (``FLEX'') options on IBIT.\3\ The proposed rule change was
published for comment in the Federal Register on January 6, 2025.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange's rules use the term ``exchange-traded fund''
to refer to several types of investment products, including IBIT.
See ISE Options 4, Section 3(h). In its proposal to list and trade
shares of IBIT, The Nasdaq Stock Market LLC states that IBIT is not
an investment company registered under the Investment Company Act of
1940, and that shares of IBIT will be registered with the Commission
on Form S-1. See Securities Exchange Act Release No. 99295 (Jan. 8,
2024), 89 FR 2321, 2322 (Jan. 12, 2024) (File No. SR-Nasdaq-2023-
016) (notice of Filing of Amendment No. 1 to a Proposed Rule Change
to List and Trade Shares of the iShares Bitcoin Trust Under Nasdaq
Rule 5711(d)).
\4\ See Securities Exchange Act Release No. 102065 (Dec. 31,
2024), 90 FR 704 (Jan. 6, 2025).
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On February 20, 2025, pursuant to Section 19(b)(2) of the Act,\5\
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.\6\ The Commission
received comments on the proposal.\7\ On March 6, 2025, the Exchange
filed Amendment No. 1 to the proposal, which supersedes the original
filing in its entirety.\8\ On March 14, 2025, the Commission published
notice of Amendment No. 1 and instituted proceedings under Section
19(b)(2)(B) of the Act \9\ to determine whether to approve or
disapprove the proposal, as modified by Amendment No. 1.\10\ On March
26, 2025, the Exchange withdrew Amendment No. 1 and filed Amendment No.
2, which supersedes Amendment No. 1 in its entirety.\11\ On May 27,
2025, the Exchange filed Amendment No. 3 to the proposal.\12\ This
order approves the proposal, as modified by Amendment Nos. 2 and 3.
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\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 102463, 90 FR 10736
(Feb. 26, 2025).
\7\ Comments on the proposal are available at: https://www.sec.gov/comments/sr-ise-2024-62/srise202462.htm.
\8\ Amendment No. 1 revised the proposal to apply the position
limits in ISE Options 9, Sections 13(d) and the corresponding
exercise limits in ISE Options 9, Section 15 to IBIT options and to
remove the proposed changes to permit the trading of IBIT FLEX
options. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-ise-2024-62/srise202462-578436-1659562.pdf.
\9\ 15 U.S.C. 78s(b)(2)(B).
\10\ See Securities Exchange Act Release No. 102682, 90 FR 13233
(Mar. 20, 2025) (``Notice and Order Instituting Proceedings'').
\11\ Amendment No. 2 revises the proposal to correct
inconsistencies in the description of the proposal. Because
Amendment No. 2 does not materially alter the substance of the
proposal, Amendment No. 2 is not subject to notice and comment.
Amendment No. 2 is available at: https://www.sec.gov/comments/sr-ise-2024-62/srise202462-593575-1721782.pdf.
\12\ Amendment No. 3 corrects a numerical error in the proposal.
Because Amendment No. 3 does not materially alter the substance of
the proposal, Amendment No. 3 is not subject to notice and comment.
Amendment No. 3 is available at: https://www.sec.gov/comments/sr-ise-2024-62/srise202462-606647-1771694.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment
Nos. 2 and 3

As described more fully in Amendment Nos. 2 and 3, the Exchange
proposes to amend its rules to eliminate the 25,000-contract position
and exercise limits and apply the position and exercise limits in ISE
Options 9, Sections 13 and 15 to IBIT options.\13\

[[Page 36230]]

ISE Options 9, Section 15(c) provides that the exercise limits for
options on an underlying security are the same as the position limits
for options on that security. The Exchange states that IBIT options
qualify for the 250,000-contract limit in ISE Options 9, Section 13(d),
which requires that trading volume for the underlying security be at
least 100,000,000 shares in the most recent six months.\14\ The
Exchange states that under ISE Options 9, Section 13(e), position
limits for options on IBIT would be subject to subsequent six-month
reviews to determine future position and exercise limits.\15\
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\13\ ISE Options 9, Section 13(d) establishes a position limit
of 250,000 contracts on the same side of the market for options on
an underlying security that had trading volume of at least
100,000,000 shares during the most recent six-month trading period
or that had trading volume of at least 75,000,000 shares during the
most recent six-month trading period and has at least 300,000,000
shares currently outstanding; 200,000 contracts on the same side of
the market for options on an underlying security that had trading
volume of at least 80,000,000 shares during the most recent six-
month trading period or that had trading volume of at least
60,000,000 shares during the most recent six-month trading period
and has at least 240,000,000 shares currently outstanding; 75,000
contracts on the same side of the market for options on an
underlying security that had trading volume of at least 40,000,000
shares during the most recent six-month trading period or that had
trading volume of at least 30,000,000 shares during the most recent
six-month trading period and has at least 120,000,000 shares
currently outstanding; 50,000 contracts on the same side of the
market for options on an underlying security that had trading volume
of at least 20,000,000 shares during the most recent six-month
trading period or trading volume of at least 15,000,000 shares
during the most recent six-month trading period and at least
40,000,000 shares currently outstanding; and 25,000 contracts on the
same side of the market for options on an underlying security that
does not satisfy the criteria for a higher limit.
\14\ See Amendment No. 2 at 6 and supra footnote 13.
\15\ See Amendment No. 2 at 7. ISE Options 9, Section 13(e)
states that every six months, the Exchange will review the status of
underlying securities to determine which limit should apply.
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The Exchange states that the reporting requirement for IBIT options
will remain unchanged and that the Exchange will continue to require
each member organization that maintains positions in IBIT options, on
the same side of the market, for its own account or for the account of
a customer, to report certain information to the Exchange, including
the options positions, whether such positions are hedged and, if so, a
description of the hedge(s).\16\ In addition, the Exchange states that
its requirement that members file reports with the Exchange for any
customer who held aggregate large long or short positions on the same
side of the market of 200 or more option contracts of any single class
for the previous day will continue to serve as an important part of the
Exchange's surveillance efforts.\17\
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\16\ See Amendment No. 2 at 15 and 38-39.
\17\ See Amendment No. 2 at 15. See also ISE Options 9, Section
16.
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III. Summary of Comments Received

The Commission received comments regarding the proposed rule
change, which express support for the proposal.\18\ One commenter
states that higher position and exercise limits for IBIT options would
``allow market participants to more effectively hedge their positions,
improve market depth, and facilitate tighter bid-ask spreads, all of
which are critical to a well-functioning market.'' \19\ The commenter
further states that the high level of trading activity in IBIT options
demonstrates significant demand from both retail and institutional
participants, and that the proposed increase to the position and
exercise limits for IBIT options ``reflects the evolving dynamics of
the crypto options market and ensures that regulatory frameworks are
aligned with market realities.'' \20\ Another commenter expresses
agreement with the Exchange's statements that that increasing the
position and exercise limits for IBIT options would lead to a more
liquid and competitive market environment for IBIT options, and that
increased position and exercise limits could allow market makers to
maintain liquidity commensurate with the continued high consumer demand
for IBIT options.\21\ Another commenter states that the 25,000-contract
position and exercise limits constrain the commenter's ability to
provide investors with exchange-traded funds (``ETFs'') that provide
hedged exposure to IBIT, and that increased position and exercise
limits would permit the creation of a larger fund that more closely
aligns with the demand for hedged exposure to IBIT.\22\
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\18\ See letter from Joanna Mallers, Secretary, FIA Principal
Traders Group (``FIA PTG''), dated Jan. 27, 2025 (``FIA PTG
Letter''); Matt McFarland, Senior Vice President, Capital Markets,
Vest Financial, dated Jan. 27, 2025 (``Vest Letter''); and Steve
Crutchfield, Head of Business Development, Chicago Trading Company
(``CTC''), dated Jan. 9, 2025 (``CTC Letter'').
\19\ CTC Letter at 2.
\20\ CTC Letter at 1.
\21\ See FIA PTG Letter at 1-2.
\22\ See Vest Letter at 1, 3.
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IV. Discussion and Commission Findings

After careful consideration, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 2 and 3, is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange,\23\ and, in particular,
the requirements of Section 6 of the Act.\24\ Specifically, the
Commission finds that the proposed rule change, as modified by
Amendment Nos. 2 and 3, is consistent with Section 6(b)(5) of the
Act,\25\ which requires, among other things, that an exchange have
rules designed to prevent fraudulent and manipulative acts and
practices and to protect investors and the public interest.
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\23\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(5).
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Position and exercise limits serve as a regulatory tool designed to
deter manipulative schemes and adverse market impact surrounding the
use of options. Since the inception of standardized options trading,
the options exchanges have had rules limiting the aggregate number of
options contracts that a member or customer may hold or exercise.
Options 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 to benefit
the options position.\26\ In addition, such limits serve to reduce the
possibility of disruption in the options market itself, especially in
illiquid classes.\27\ As the Commission has previously recognized,
markets with active and deep trading interest, as well as with broad
public ownership, are more difficult to manipulate or disrupt than less
active and deep markets with smaller public floats.\28\ The Commission
also has recognized 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.\29\ At the same time, the
Commission has recognized that limits must not be established at levels
that are so low as to discourage participation in the options market by
institutions and other investors with substantial hedging needs or to
prevent specialists and market-makers from adequately meeting their
obligations to maintain a fair and orderly market.\30\
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\26\ See Securities Exchange Act Release No. 39489 (Dec. 24,
1997), 63 FR 276, 279 (Jan. 5, 1998) (order approving File No. SR-
Cboe-97-11) (``Position Limit Order'').
\27\ Id.
\28\ Id.
\29\ See, e.g., Securities Exchange Act Release Nos. 21907 (Mar.
29, 1985), 50 FR 13440, 13441 (Apr. 4, 1985) (order approving File
Nos. SR-CBOE-84-21, SR-Amex-84-30, SR-Phlx-84-25, and SR-PSE-85-1);
and 40875 (Dec. 31, 1998), 64 FR 1842, 1843 (Jan. 12, 1999) (order
approving File Nos. SR-CBOE-98-25; Amex-98-22; PCX-98-33; and Phlx-
98-36).
\30\ See id.
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The Exchange proposes to eliminate the current 25,000-contract
position and exercise limit for IBIT options and to apply the position
limits as determined by ISE Options 9, Section 13(d) to options on
IBIT.\31\ Pursuant to ISE Options 9, Section 13(d), position limits are
based on the trading volume of the underlying security over the
previous six months, or on the trading volume of the underlying
security over the previous six months and the outstanding shares of the
underlying

[[Page 36231]]

security.\32\ Position limits for options on IBIT would be subject to
subsequent six-month reviews to determine future position and exercise
limits.\33\ The Exchange states that options on IBIT qualify for the
250,000-contract limit in ISE Options 9, Section 13(d), which requires
that the most recent six-month trading volume for the underlying
security be at least 100,000,000 shares.\34\ The Exchange states that,
as of November 25, 2024, average daily volume (``ADV'') for IBIT for
the preceding three months prior to November 25, 2024, was 39,421,877
shares.\35\
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\31\ As noted above, exercise limits for options on an
underlying security are the same as the position limits for options
on that underlying security. See ISE Options 9, Section 15(c).
\32\ See supra footnote 12.
\33\ See Amendment No. 2 at 7 and ISE Options 9, Section 13(e)
(providing that, every six months, the Exchange will review the
status of underlying securities to determine which limit should
apply). See also ISE Options 9, Section 15(c) (providing that
exercise limits for options on an underlying will be determined in
the same manner as position limits for such underlying).
\34\ See Amendment No. 2 at 6.
\35\ See id.
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The Exchange provided data and analysis supporting the proposed
position and exercise limits. The Exchange states that, as of November
25, 2024, IBIT had 866,040,000 shares outstanding and market
capitalization of $46,783,480,800.\36\ The Exchange states that a
position limit of 250,000 contracts would represent 2.89% of the
outstanding shares of IBIT.\37\ The Exchange further states that any
concerns that the proposed limits might raise with respect to market
manipulation and investor protection ``are mollified by the significant
liquidity provision in IBIT.'' \38\
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\36\ See Amendment No. 2 at 6 and footnote 13.
\37\ See Amendment No. 2 at 6-7.
\38\ Amendment No. 2 at 14.
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The Exchange also compared the size of the position and exercise
limits to the market capitalization of the bitcoin market, which,
according to the Exchange, was greater than $1.876 trillion as of
November 25, 2024.\39\ The Exchange calculates that with a position
limit of 250,000 contracts (which represents 25,000,000 shares of
IBIT), the exercisable risk for options on IBIT would represent less
than .072% of all bitcoin outstanding.\40\ The Exchange states that,
assuming a scenario where all options on IBIT shares were exercised
given a 250,000-contract position and exercise limit, it ``would have a
virtually unnoticed impact on the entire bitcoin market,'' and,
further, that the Exchange's analysis ``demonstrates that the proposed
250,000 per same side position and exercise limit is appropriate for
options on IBIT given its liquidity.'' \41\
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\39\ See Amendment No. 2 at 6.
\40\ See Amendment No. 2 at 10 and footnote 26.
\41\ Amendment No. 2 at 10-11.
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The Commission finds that the proposed position and exercise limits
are consistent with the Act, and in particular, with the requirements
in Section 6(b)(5) that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest. As discussed above, the
Commission has recognized 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 option
contracts disproportionate to the deliverable supply and average
trading volume of the underlying security.\42\ In addition, the
Commission has stated previously that 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
position.\43\ Based on its review of the data and analysis provided by
the Exchange, the Commission concludes that the proposed position and
exercise limits satisfy these objectives. Specifically, the Commission
has considered and reviewed the Exchange's analysis that, based on data
from November 25, 2024, a position limit of 250,000 contracts would
represent 2.89% of the outstanding shares of IBIT.\44\ The Commission
also has considered and reviewed the Exchange's statements that, as of
November 25, 2024, IBIT had 866,040,000 shares outstanding, market
capitalization of $46,783,480,800, and ADV for the preceding three
months of 39,421,877 shares.\45\
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\42\ See supra note 28 and accompanying text.
\43\ See Securities Exchange Act Release No. 57352 (Feb.19,
2008), 73 FR 10076, 10080 (Feb. 25, 2008) (order approving File No.
SR-Cboe-2008-07).
\44\ See Amendment No. 2 at 6-7.
\45\ See Amendment No. 2 at 6 and footnote 13.
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Based on the Commission's review of this information and analysis,
the Commission concludes that the proposed position and exercise limits
are designed to prevent market participants from disrupting the market
for the underlying securities 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.

V. Conclusion

For the reasons set forth above, the Commission finds that the
proposed rule change, as modified by Amendments Nos. 2 and 3, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
and, in particular, the requirements of Section 6(b)(5) of the Act.\46\
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\46\ 15 U.S.C. 78f(b)(5).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\47\ that the proposed rule change (SR-ISE-2024-62), as modified by
Amendment Nos. 2 and 3, is approved.
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\47\ 15 U.S.C. 78s(b)(2).

By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-14541 Filed 7-31-25; 8:45 am]
BILLING CODE 8011-01-P