[Federal Register Volume 90, Number 151 (Friday, August 8, 2025)]
[Notices]
[Pages 38545-38555]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-15072]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103638; File No. SR-BX-2025-014]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Position
and Exercise Limits for Options on the iShares Bitcoin Trust ETF, the
Grayscale Bitcoin Mini Trust ETF, the Bitwise Bitcoin ETF, and the
Grayscale Bitcoin Trust ETF
August 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 August 1, 2025, Nasdaq BX, Inc. (``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. 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 9, Section 13, Position
Limits, and Options 9, Section 15, Exercise Limits, with respect to
options on the iShares Bitcoin Trust ETF (``IBIT''), the Grayscale
Bitcoin Mini Trust ETF (``BTC''), the Bitwise Bitcoin ETF (``BITB'')
and the Grayscale Bitcoin Trust ETF (``GBTC'').
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/bx/rulefilings and
at the principal office of the Exchange.
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 9, Section 13, Position
Limits, and Options 9, Section 15, Exercise Limits, with respect to
options on the iShares Bitcoin Trust ETF (``IBIT''), the Grayscale
Bitcoin Mini Trust ETF (``BTC''), the Bitwise Bitcoin ETF (``BITB'')
and the Grayscale Bitcoin Trust ETF (``GBTC''). Each change will be
described below.
Position Limits
The Exchange proposes to amend its rules relating to position
limits at Options 9, Section 13, and exercise limits at Options 9,
Section 15. Recently, Nasdaq ISE, LLC (``ISE'') received approval to
eliminate the current 25,000 contract position and exercise limit for
options on IBIT.\3\ As a result, ISE would apply the position limits as
determined by ISE Options 9, Section 13(d) to options on IBIT and
exercise limits as determined by ISE Options 9, Section 15.
Additionally, recently, NYSE Arca, Inc. (``Arca'') received approval to
eliminate the current 25,000 contract position and exercise limit for
options on BTC and BITB.\4\ As a result, Arca would apply the position
limits as determined by Arca Rule 6.8-O, Commentary .06(a)-(e) to
options on BTC and BITB. Finally, Arca recently received approval to
eliminate the current 25,000 contract position and exercise limit for
options on GBTC.\5\ As a result, Arca would apply the position limits
as determined by Arca Rule 6.8-O, Commentary .06(a)-(e) to options on
GBTC.
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\3\ See Securities Exchange Act Release No. 103564 (July 29,
2025), (SR-ISE-2024-62) (not yet published).
\4\ See Securities Exchange Act Release No. 103568 (July 29,
2025) (SR-NYSEArca-2025-10) (not yet noticed).
\5\ See Securities Exchange Act Release No. 103567 (July 29,
2025) (SR-NYSEArca-2025-07) (not yet noticed).
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The Exchange proposes to similarly amend its position limit rules
at BX Options 9, Section 13 and exercise limits at Options 9, Section
15 to likewise eliminate the current 25,000 contract position and
exercise limit for options on IBIT, BTC, BITB and GTBC. As a result,
IBIT, BTC, BITB and GTBC would be subject to the position limits
described in BX Options 9, Section 13 and the corresponding exercise
limits in BX Options 9, Section 15.
[[Page 38546]]
IBIT
IBIT is an Exchange-Traded Fund (``ETF'') that holds bitcoin and is
listed on The Nasdaq Stock Market LLC.\6\ On September 20, 2024, ISE
received approval to list options on IBIT.\7\ The current 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.\8\
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\6\ 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). IBIT started trading on January
11, 2024.
\7\ 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.
\8\ Options on Fidelity Wise Origin Bitcoin Fund, ARK 21Shares
Bitcoin ETF, Grayscale Bitcoin Trust (BTC), Grayscale Bitcoin Mini
Trust BTC, and Bitwise Bitcoin ETF are also subject to a 25,000
contract position and exercise limit.
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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\
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\9\ See Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 at 78946 (September 26, 2025) (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).
\10\ See id.
\11\ See id.
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While ISE proposed an aggregated 25,000 contract position limit for
IBIT options in its IBIT Approval Order, it nonetheless believed that
evidence existed to support a much higher position limit. Specifically,
the Commission has considered and reviewed the ISE's analysis in its
IBIT Approval Order 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 its IBIT Approval Order that with 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 of 25,000 contracts 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\
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\12\ See id. Data represents figures from August 12, 2024.
\13\ See id. Data represents figures from August 12, 2024.
\14\ See id.
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IBIT currently qualifies for a 250,000 contract position limit
pursuant to the criteria in Options 9, Section 13, which requires that,
for the most recent six-month period, trading volume for the underlying
security be at least 100 million shares.\15\ As of November 25, 2024,
the market capitalization for IBIT was $46,783,480,800 \16\ with an
average daily volume (``ADV''), for the preceding three months prior to
November 25, 2024, of 39,421,877 shares. IBIT is well above the
requisite minimum of 100 million shares necessary to qualify for the
250,000 contract position limit. Also, as of November 25, 2024, there
are 19,787,762 bitcoins in circulation.\17\ At a price of $94,830,\18\
that equates to a market capitalization of greater than $1.876 trillion
US. If a position limit of 250,000 contracts were considered, the
exercisable risk would represent 2.89%\19\ of the outstanding shares
outstanding of IBIT. Given IBIT's liquidity, the current 25,000
position limit is extremely conservative.
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\15\ BX Options 9, Section 13(a)(3) provides that no Options
Participant shall make, for any account in which it has an interest
or for the account of any customer, an opening transaction on any
exchange if the Options Participant has reason to believe that as a
result of such transaction the Options Participant or its customer
would, acting alone or in concert with others, directly or
indirectly: . . . . (3) exceed the applicable position limit fixed
from time to time by another exchange for an options contract not
traded on BX Options, when the Options Participant is not a member
of the other exchange on which the transaction was effected. In this
case, ISE Options 9, Section 13(d).
\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 25, 2024. See
https://www.ishares.com/us/products/333011/ishares-bitcoin-trust-etf.
\17\ See https://www.coingecko.com/en/coins/bitcoin.
\18\ This is the approximate price of bitcoin from 4:00pm ET on
November 25, 2024.
\19\ This percentage was arrived at with this equation: (250,000
contract limit * 100 shares per option/866,040,000 shares
outstanding).
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Position limits, 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 BX 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, BX proposes to remove IBIT from Options 9,
Section 13(a)(1), regarding position limits, and Options 9, Section
15(a)(1), regarding exercise limits, so that options on IBIT may trade
similar to all other options for which the Exchange has not filed to
otherwise increase the position limits. As a result of removing the
limitations for options in IBIT from Options 9, Sections 13(a)(1) and
15(a)(1), it would increase the position and exercise limits for
options on IBIT from 25,000 to 250,000 contracts based on the current
limits set by other exchanges, such as ISE. Like other options, IBIT
would be subject to subsequent six (6) month reviews to determine
future position and exercise limits similar to all other options as
noted in other exchange rules such as ISE Options 9, Section 13(d).
In addition to IBIT's eligibility for 250,000 contracts, ISE
performed additional analysis with respect to IBIT. First, ISE
considered IBIT's market capitalization and Average Daily Volume
(``ADV''), and prospective position limit in relation to other
securities. In measuring IBIT against other securities, ISE aggregated
market capitalization and volume data for securities that have defined
position limits utilizing data from The Options
[[Page 38547]]
Clearing Corporations (``OCC'').\20\ This pool of data took into
consideration 3,897 options on single stock securities, excluding broad
based ETFs.\21\ Next, the data was aggregated by ISE based on market
capitalization and ADV and grouped by option symbol and position limit
utilizing statistical thresholds for ADV, based on ninety days, and
market capitalization that were one standard deviation above the mean
for each position limit category (i.e., 25,000, 50,000 to 65,000,
75,000, 100,000 to less than 250,000, and 250,000).\22\ This exercise
was performed to demonstrate IBIT's position limit relative to other
options symbols in terms of market capitalization and ADV. For
reference, the market capitalization for IBIT was $46,783,480,800 \23\
with an ADV, for the preceding three months prior to November 25, 2024,
of 39,421,877 shares.
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\20\ ISE noted that the computations are based on OCC data from
November 25, 2024. Data displaying zero values in market
capitalization or ADV were removed.
\21\ ISE noted that IBIT has one asset and therefore is not
comparable to a broad based ETF where there are typically multiple
components.
\22\ ISE noted that its 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. ISE noted that position limits may also be higher
due to corporate actions in the underlying equities, such as a stock
split. See https://www.theocc.com/market-data/market-data-reports/series-and-trading-data/position-limits. As a result, ISE's pool of
data considered higher position limits than 250,000 contracts, where
applicable.
\23\ ISE noted that 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
25, 2024. See https://www.ishares.com/us/products/333011/ishares-bitcoin-trust-etf.
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Market cap statistics 25k 50k 75k 100k-<250k 250k-<500k 500k-1mm >1mm
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# of observations........................................ 562 473 651 240 1934 27 10
average.................................................. 1,038,795,162 2,957,127,045 4,466,049,699 5,390,836,360 26,286,624,063 67,390,777,100 717,540,906,097
median................................................... 360,130,143 889,627,570 1,445,831,231 1,643,123,279 3,535,963,213 27,063,940,966 90,047,209,478
min...................................................... 2,204,436 4,211,156 3,830,532 5,090,230 1,616,094 2,762,394,749 11,786,645,969
max...................................................... 36,120,249,097 70,846,805,916 174,820,296,591 106,971,594,180 3,573,884,443,220 733,972,714,698 3,358,647,600,000
IBIT % rank.............................................. 100.00% 98.94% 98.77% 98.33% 88.57% 59.26% 20.00%
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90-Day ADV statistics 25k 50k 75k 100k-<250k 250k-<500k 500k-1mm >1mm
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# of observations........................................ 562 473 651 240 1934 27 10
average.................................................. 76,586 213,419 425,542 623,888 3,510,784 5,930,607 44,610,385
median................................................... 67,231 206,402 409,177 625,882 1,620,931 4,724,248 18,017,607
min...................................................... 4,791 10,084 18,191 105,713 16,276 1,207,242 1,771,544
max...................................................... 244,499 564,451 989,341 1,339,553 88,351,060 22,397,311 271,230,790
IBIT % rank.............................................. 100.00% 100.00% 100.00% 100.00% 99.43% 100.00% 80.00%
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Based on the above table, ISE noted that if IBIT were compared to
the 1,934 stocks that have position limits of 250,000 contracts to less
than 500,000 contracts it would rank in the 88th percentile for market
capitalization and the 99th percentile for ADV.
ISE also analyzed the position limits for IBIT by regressing the
market capitalization figures and 90-day ADV of all non-ETF equities,
against their respective position limit figures. From this regression,
ISE was able to determine the implied coefficients to create a
formulaic method for determining an appropriate position limit.\24\ In
this case, the modeled position limit is 565,796 contracts.\25\ The
results of the study are below.
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\24\ ISE utilized Excel's Data Analysis Package to model the
position limit.
\25\ ISE utilized this formula to arrive at the number of
contracts: ((46,783,380,800 mkt cap * 0.0000002630 market cap
coefficient) + (39,421,877 ADV * 0.0140402219 ADV coefficient)).
Regression Statistics
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Multiple R................................................ 0.496800597
R Square.................................................. 0.246810833
Adjusted R Square......................................... 0.246361643
Standard Error............................................ 202227.4271
Observations.............................................. 3,905
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ANOVA
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df SS MS F
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Regression.............................. 2 5.2304E+13 2.6152E+13 639.482566
Residual................................ 3903 1.5962E+14 4.0896E+10 ................
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Total............................... 3905 2.1192E+14 ................ ................
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Coefficients Standard error t Stat P-value
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Intercept............................... 0 #N/A #N/A #N/A
Market Cap.............................. 0.0000002630 3.3371E-08 7.88130564 4.1699E-15
90-day ADV.............................. 0.0140402219 0.00055818 25.1533643 1.613E-129
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Based on the aforementioned analysis, the Exchange believes that
the proposed 250,000 contracts for position and exercise limits is
appropriate.
Second, ISE reviewed IBIT's data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables. ISE noted that, as of November 25,
2024, there are 19,787,762 bitcoins in circulation.\26\ At
[[Page 38548]]
a price of $94,830,\27\ that equates to a market capitalization of
greater than $1.876 trillion US. ISE stated that if a position limit of
250,000 contracts were considered, the exercisable risk would represent
2.89% \28\ of the outstanding shares outstanding of IBIT. Since IBIT
has a creation and redemption process managed through the issuer, ISE
noted that the position limit can be compared to the total market
capitalization of the entire bitcoin market and in that case, the
exercisable risk for options on IBIT would represent less than .072% of
all bitcoin outstanding.\29\ ISE concluded that assuming a scenario
where all options on IBIT shares were exercised given the proposed
250,000 contract position limit (and exercise limit), this would have a
virtually unnoticed impact on the entire bitcoin market. This analysis
demonstrates that the proposed effective 250,000 per same side position
and exercise limit is appropriate for options on IBIT given its
liquidity.
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\26\ See https://www.coingecko.com/en/coins/bitcoin.
\27\ ISE noted that this was the approximate price of bitcoin
from 4:00pm ET on November 25, 2024.
\28\ ISE noted that this percentage was arrived at with this
equation: (250,000 contract limit * 100 shares per option/
866,040,000 shares outstanding).
\29\ ISE noted that this number was arrived at with this
calculation: ((250,000 limit * 100 shares per option * $54.02
settle)/(19,787,762 BTC outstanding * $94,830 BTC price)).
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Third, ISE reviewed the proposed position limit by comparing it to
position limits for derivative products regulated by the Commodity
Futures Trading Commission (``CFTC''). While the CFTC, through the
relevant Designated Contract Markets, only regulates options positions
based upon delta equivalents (creating a less stringent standard), ISE
examined equivalent bitcoin futures position limits. In particular, ISE
looked to the CME bitcoin futures contract \30\ that has a position
limit of 2,000 futures.\31\ On October 22, 2024, CME bitcoin futures
settled at $94,945.\32\ ISE noted that, on October 22, 2024, IBIT
settled at $54.02, which would equate to greater than 17,557,898 shares
of IBIT if the CME notional position limit was utilized. Since
substantial portions of any distributed options portfolio is likely to
be out of the money on expiration, ISE noted that an options position
limit equivalent to the CME position limit for bitcoin futures
(considering that all options deltas are <=1.00) should be a bit higher
than the CME implied 175,578 limit. Of note, unlike options contracts,
CME position limits are calculated on a net futures-equivalent basis by
contract and include contracts that aggregate into one or more base
contracts according to an aggregation ratio(s).\33\ Therefore, if a
portfolio includes positions in options on futures, CME would aggregate
those positions into the underlying futures contracts in accordance
with a table published by CME on a delta equivalent value for the
relevant spot month, subsequent spot month, single month and all month
position limits.\34\ If a position exceeds position limits because of
an option assignment, CME permits market participants to liquidate the
excess position within one business day without being considered in
violation of its rules. Additionally, if at the close of trading, a
position that includes options exceeds position limits for futures
contracts, when evaluated using the delta factors as of that day's
close of trading, but does not exceed the limits when evaluated using
the previous day's delta factors, then the position shall not
constitute a position limit violation. Based on the aforementioned
analysis, the Exchange believes that the proposed 250,000 contracts for
position and exercise limits is appropriate.
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\30\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\31\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
\32\ 2,000 futures at a 5 bitcoin multiplier (per the contract
specifications) equates to $949,450,000 (2000 contracts * 5 BTC per
contract * $94,945 price of November BTC future) of notional value.
\33\ See https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm.
\34\ See id.
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Fourth, ISE analyzed a position and exercise limit of 250,000 for
IBIT options against other options on ETFs with an underling commodity,
namely SPDR Gold Shares (``GLD''), iShares Silver Trust (``SLV''), and
ProShares Bitcoin ETF (``BITO'').\35\ ISE noted that GLD has a float of
306.1 million shares \36\ and a position limit of 250,000 contract. ISE
noted that SLV has a float of 520.7 million shares,\37\ and a position
limit of 250,000 contracts. Finally, ISE noted that BITO has 107.65
million shares outstanding \38\ and a position limit of 250,000
contracts. As previously noted, 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. ISE noted that
a position limit exercise in GLD would represent 8.17% of the float of
GLD; a position limit exercise in SLV would represent 4.8% of the float
of SLV, and a position limit exercise of BITO would represent 23.22% of
the float of BITO. In comparison, ISE noted that a 250,000 contract
position limit in IBIT would represent 2.89% of the float of IBIT.
Consequently, ISE noted that the 250,000 proposed IBIT options position
and exercise limit is more conservative than the standard applied to
GLD, SLV and BITO, and appropriate. Additionally, the ISE noted that
the Cboe Bitcoin U.S. ETF Index Options (CBTX) and the Cboe Mini
Bitcoin U.S. ETF Index Options (MBTX),\39\ which trade exclusively on
Cboe, are comprised of multiple bitcoin ETFs of which IBIT is the
highest weighted (at 20%) in the index composition.\40\ ISE noted that
these indices currently trade pursuant to a 24,000 contract position
and exercise limit.\41\
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\35\ GLD, SLV and BITO each hold one asset in trust similar to
IBIT.
\36\ See https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld.
\37\ See https://www.ishares.com/us/products/239855/ishares-silver-trust-fund.
\38\ See https://www.marketwatch.com/investing/fund/bito.
\39\ MBTX is based on 1/10th the value of the Cboe Bitcoin U.S.
ETF Index.
\40\ 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.
\41\ See Cboe Rule 8.32(a). ISE noted 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.
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[[Page 38549]]
Fifth, ISE noted that IBIT began trading in penny increments as of
January 2, 2025pursuant to the Penny Interval Program.\42\ The
Commission noted that evidence contained in both ISE's Report and the
Cornerstone analysis demonstrates that the Penny Pilot has benefitted
investors and other market participants in the form of narrower
spreads.\43\ The most actively traded options classes are included in
the Penny Program based on certain objective criteria (trading volume
thresholds and initial price tests). As noted in the Penny Approval
Order, the Penny Program reflects a certain level of trading interest
(either because the class is newly listed or a class that experience a
significant growth in investor interest) to quote in finer trading
increments, which in turn should benefit market participants by
reducing the cost of trading such options.\44\ IBIT options is among a
select group of products that have achieved a certain level of
liquidity that have garnered it the ability to trade in finer
increments. Failing to increase position and exercise limits for IBIT
options, now that it is trading in finer increments, may artificially
inhibit liquidity and create price inefficiency.
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\42\ ISE noted that it may add to the Penny Program a newly
listed option class provided that (i) it is among the 300 most
actively traded multiply listed option classes, as ranked by
National Cleared Volume at OCC, in its first full calendar month of
trading and (ii) the underlying security is priced below $200 or the
underlying index is at an index level below $200. Any option class
added under this provision will be added on the first trading day of
the month after it qualifies and will remain in the Penny Program
for one full calendar year, after which it will be subject to the
Annual Review described in Supplementary Material .01(b) to Options
3, Section 3. The Exchange may add any option class to the Penny
Program, provided that (i) it is among the 75 most actively traded
multiply listed option classes, as ranked by National Cleared Volume
at OCC, in the past six full calendar months of trading and (ii) the
underlying security is priced below $200 or the underlying index is
at an index level below $200. Any option class added under this
provision will be added on the first trading day of the second full
month after it qualifies and will remain in the Penny Program for
the rest of the calendar year, after which it will be subject to the
Annual Review as described in ISE Supplementary Material .01(b) to
Options 3, Section 3. BX has the same rule at Supplementary Material
.01 to Options 3, Section 3.
\43\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 67 FR 19545, 19548 (April 7, 2020) (File No. 4-443) (Joint
Industry Plan; Order Approving Amendment No. 5 to the Plan for the
Purpose of Developing and Implementing Procedures Designed To
Facilitate the Listing and Trading of Standardized Options To Adopt
a Penny Interval Program) (``Penny Approval Order'').
\44\ See id. at 19548.
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The Exchange believes that IBIT options has demonstrated that it
has more than sufficient liquidity to garner an increased position and
exercise limit of 250,000 contracts. The Exchange believes that any
concerns related to manipulation and protection of investors are
mollified by the significant liquidity provision in IBIT. The Exchange
states that, as a general principle, increases in active trading volume
and deep liquidity of the underlying securities do not lead to
manipulation and/or disruption.
The Exchange believes that increasing the position (and exercise)
limits for IBIT options would lead to a more liquid and competitive
market environment for IBIT options, which will benefit customers that
trade these options. Further, the reporting requirement for such
options would remain unchanged. Thus, the Exchange will still require
that each Participant that maintains positions in impacted options on
the same side of the market, for its own account or for the account of
a customer, report certain information to the Exchange. This
information includes, but would not be limited to, the options'
positions, whether such positions are hedged and, if so, a description
of the hedge(s). Market Makers would continue to be exempt from this
reporting requirement, however, the Exchange may access Market Maker
position information.\45\ Moreover, the Exchange's requirement that
Participants 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 remain at this level and will continue to serve as an
important part of the Exchange's surveillance efforts.\46\
---------------------------------------------------------------------------
\45\ OCC through the Large Option Position Reporting (``LOPR'')
system acts as a centralized service provider for member compliance
with position reporting requirements by collecting data from each
member, consolidating the information, and ultimately providing
detailed listings of each member's report to the Exchange, as well
as FINRA, acting as its agent pursuant to a regulatory services
agreement (``RSA'').
\46\ See BX Options 9, Section 16.
---------------------------------------------------------------------------
The Exchange also has no reason to believe that the growth in
trading volume in IBIT will not continue. Rather, the Exchange expects
continued options volume growth in IBIT as opportunities for investors
to participate in the options markets increase and evolve. The Exchange
believes that the current position and exercise limits in IBIT options
are restrictive and will hamper the listed options markets from being
able to compete fairly and effectively with the over-the-counter
(``OTC'') markets. OTC transactions occur through bilateral agreements,
the terms of which are not publicly disclosed to the marketplace. As
such, OTC transactions do not contribute to the price discovery process
on a public exchange or other lit markets. The Exchange believes that
without the proposed changes to position and exercise limits for IBIT
options, market participants will find the 25,000 contract position
limit an impediment to their business and investment objectives as well
as an impediment to efficient pricing. As such, market participants may
find the less transparent OTC markets a more attractive alternative to
achieve their investment and hedging objectives, leading to a retreat
from the listed options markets, where trades are subject to reporting
requirements and daily surveillance. However, the Exchange notes that
IBIT's position limits would be reviewed on a six month basis, pursuant
the rules of other options exchange such as ISE Options 9, Section
13(d), similar to other options.
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are capable of properly
identifying disruptive and/or manipulative trading activity. The
Exchange also represents that it has adequate surveillances in place to
detect potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. These
procedures monitor market activity via automated surveillance
techniques to identify unusual activity in both options and the
underlyings, as applicable. The Exchange also notes that large stock
holdings must be disclosed to the Commission by way of Schedules 13D or
13G,\47\ which are used to report ownership of stock which exceeds 5%
of a company's total stock issue and may assist in providing
information in monitoring for any potential manipulative schemes.
Further, the Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns regarding potentially large, unhedged positions in
[[Page 38550]]
equity options. Current margin and risk-based haircut methodologies
serve to limit the size of positions maintained by any one account by
increasing the margin and/or capital that a member organization must
maintain for a large position held by itself or by its customer.\48\ In
addition, Rule 15c3-1 \49\ imposes a capital charge on member
organizations to the extent of any margin deficiency resulting from the
higher margin requirement.
---------------------------------------------------------------------------
\47\ 17 CFR 240.13d-1.
\48\ See BX Options 6C, Section 3 regarding margin requirements.
\49\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------
BTC and BITB
On October 18, 2024, the Commission approved the listing and
trading of BTC and BITB on Arca.\50\ On November 22, 2024, Arca
obtained rule authority to trade options on BTC and BITB.\51\ The
current position and exercise limits for BTC and BITB options are
25,000 contracts, the lowest limit available in options.\52\ Arca
proposed to increase the aggregated position and exercise limits for
each ETF to 250,000 contracts. Arca noted that BTC and BITB currently
qualify for this increased limit pursuant to Arca Rule 6.8-O Commentary
.06(e), which requires that, for the most recent six-month period,
trading volume for the underlying security is at least 100,000,000
shares.\53\ Arca noted that, as of November 25, 2024, during the most
recent six-month period, trading volume for BTC was 163,712,700 shares.
Arca noted that during the same period, trading volume for BITB was
288,800,860 shares. In addition, Arca noted that, as of November 25,
2024, the market capitalization for BTC was $3,496,748,882 \54\ with an
average daily volume (``ADV'') for the preceding three months of
2,036,369 shares, and the market capitalization of BITB was
4,095,157,000 \55\ with an ADV for the three prior months of 2,480.478.
BTC and BITB are well above the requisite minimum of 100,000,000 shares
necessary to qualify for the 250,000 contract position and exercise
limit. Also, Arca noted that, as of November 25, 2024, there were
19,787,762 bitcoins in circulation.\56\ At a price of $94,830 per
bitcoin,\57\ that equates to a market capitalization of greater than
$1.876 trillion. Arca noted that if a position limit of 250,000
contracts were considered for each ETF, the exercisable risk would
represent 30.14% \58\ of BTC shares outstanding; and 31.27% \59\ of
BITB shares outstanding. Given the liquidity of BTC and BITB, the
current 25,000 position limit appears extremely conservative.
---------------------------------------------------------------------------
\50\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (order
approving rules to permit the listing and trading of options on BTC
and BITB, among others) (the ``ETF Options Approval Order'').
\51\ See Securities Exchange Act Release No. 101713 (November
22, 2024), 89 FR 94839 (November 29, 2024) (SR-NYSEARCA-2024-101)
(notice of immediately effective rule change to permit BTC and BITB
options trading, based on the already-approved NYSE American rules)
(the ``Arca ETF Options Notice'').
\52\ See Arca Rule 6.8-O Commentary .06(e).
\53\ See Arca Rule 6.8-O Commentary .06(e) (providing at
subparagraph (e) that the position limit shall be 250,000 contracts
for options: (i) on underlying stock or Exchange-Traded Fund Share
that had trading volume of at least 100,000,000 shares during the
most recent six-month trading period; or (ii) on an underlying stock
or Exchange-Traded Fund Share 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).
\54\ Arca noted that the market capitalization of BTC was
determined by multiplying a settlement price ($42.16) by the number
of shares outstanding (82,939,964). Data represents figures from
FactSet as of November 25, 2024.
\55\ Arca noted that the market capitalization of BITB was
determined by multiplying a settlement price ($51.70) by the number
of shares outstanding (79,950,100). Data represents figures from
FactSet as of November 25, 2024.
\56\ See https://www.coingecko.com/en/coins/bitcoin.
\57\ Arca noted that this is the approximate price of bitcoin
from 4:00 p.m. ET on November 25, 2024.
\58\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/82,939,964
BTC shares outstanding).
\59\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/79,950,100
BITB shares outstanding).
---------------------------------------------------------------------------
First, Arca reviewed the ETFs' data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables. Arca noted that, as noted above, as
of November 25, 2024, there were 19,787,762 bitcoins in
circulation.\60\ Arca noted that at a price of $94,830 per bitcoin,\61\
that equates to a market capitalization of greater than $1.876
trillion. Arca noted that if the proposed aggregated position limit of
250,000 contracts were considered, the exercisable risk would represent
30.14% of BTC shares outstanding \62\ and 31.27% of BITB shares
outstanding.\63\ Arca noted that since each ETF has a creation and
redemption process managed through the issuer (whereby bitcoin is used
to create BTC or BITB shares, as applicable), the position limit can be
compared to the total market capitalization of the entire bitcoin
market, and in that case, the exercisable risk for options on each ETF
would represent less than 0.06% (BTC) or 0.07% (BITB) of all bitcoin
outstanding.\64\
---------------------------------------------------------------------------
\60\ See https://www.coingecko.com/en/coins/bitcoin.
\61\ Arca noted that is the approximate price of bitcoin from
4:00p.m. ET on November 25, 2024.
\62\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/82,939,964
BTC shares outstanding).
\63\ Arca noted that his percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/79,950,100
BITB shares outstanding).
\64\ Arca noted that for BTC, this number was arrived at with
this calculation: ((250,000 limit * 100 shares per option * $42.16
settle)/(19,787,762 bitcoin outstanding * $94,830 bitcoin price));
and for BITB, this number was arrived at with this calculation:
((250,000 limit * 100 shares per option * $51.70 settle)/(19,787,762
bitcoin outstanding * $94,830 bitcoin price)).
---------------------------------------------------------------------------
Next, Arca reviewed the proposed position limit by comparing it to
position limits for derivative products regulated by the CFTC. While
the CFTC, through the relevant Designated Contract Markets, only
regulates options positions based upon delta equivalents (creating a
less stringent standard), the Exchange examined equivalent bitcoin
futures position limits. In particular, the Exchange looked to the CME
bitcoin futures contract \65\ that has a position limit of 8,000
futures. Arca noted that, on October 22, 2024, CME bitcoin futures
settled at $94,945.\66\ Arca noted that, on October 22, 2024, BTC
settled at $29.90, and BITB settled at $36.74, which would equate to
approximately 31,754,181 and 25,842,406 shares of BTC and BITB,
respectively, if the CME notional position limit was utilized. Since
substantial portions of any distributed options portfolio are likely to
be out of the money on expiration, an options position limit equivalent
to the CME position limit for bitcoin futures (considering that all
options deltas are <=1.00) should be a bit higher than the CME implied
limit of 317,541 (BTC) and 258,424 (BITB).
---------------------------------------------------------------------------
\65\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\66\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
---------------------------------------------------------------------------
Of note, unlike options contracts, CME position limits are
calculated on a net futures-equivalent basis by contract and include
contracts that aggregate into one or more base contracts according to
an aggregation ratio(s).\67\ Therefore, if a portfolio includes
positions in options on futures, CME would aggregate those positions
into the underlying futures contracts in accordance with a table
published by CME on a delta equivalent value for the relevant spot
month, subsequent spot month, single month and all month position
limits.\68\ If a position exceeds position limits because
[[Page 38551]]
of an option assignment, CME permits market participants to liquidate
the excess position within one business day without being considered in
violation of its rules. Additionally, if at the close of trading, a
position that includes options exceeds position limits for futures
contracts, when evaluated using the delta factors as of that day's
close of trading but does not exceed the limits when evaluated using
the previous day's delta factors, then the position shall not
constitute a position limit violation. Considering CME's position
limits on bitcoin futures, the Exchange believes a 250,000-contract
limit for options on each ETF would be appropriate.
---------------------------------------------------------------------------
\67\ See https://www.cmegroup.com/education/courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm.
\68\ See id.
---------------------------------------------------------------------------
Finally, Arca analyzed a position and exercise limit of 250,000 for
BTC and BITB against other options on commodity ETFs, namely SPDR Gold
Shares (``GLD'') and iShares Silver Trust (``SLV'').\69\ Arca noted
that GLD has a float of 306.1 million shares and a position limit of
250,000 contract.\70\ As previously noted, 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. Arca noted
that a position limit exercise in GLD would represent 8.17% of the
float of GLD. In comparison, Arca noted that a 250,000-contract
position limit in each of BTC and BITB, would represent 30.14% of the
BTC float and 31.27% of the BITB float. While less conservative than
the standard applied to options on GLD, the Exchange nonetheless
believes that subjecting options on BTC and BITB to a 250,000-contract
position and exercise limit would be appropriate.\71\
---------------------------------------------------------------------------
\69\ Like BTC and BITB, GLD and SLV each hold one asset in
trust.
\70\ See https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld.
\71\ See, e.g., Arca Rule 6.8-O, Commentary .06(e) (setting
forth trading volume requirements to qualify for a 250,000-contract
position (and exercise) limit. BX Options 9, Section 13 looks to
other exchange rules.
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes that it has
demonstrated that BTC and BITB each have more than sufficient liquidity
to garner an increased position and exercise limit of 250,000 same-side
contracts. The Exchange believes that the significant liquidity present
in each ETF mitigates against the potential for manipulation.
The Exchange believes that allowing options on each ETF to have
increased aggregated position and exercise limits would lead to a more
liquid and competitive market environment for such options, which will
benefit customers that trade these options. Further, the reporting
requirement for such options would remain unchanged. Thus, the Exchange
will still require that each Participant that maintains positions in
options on BTC or BITB, on the same side of the market, for its own
account or for the account of a customer, report certain information to
the Exchange. This information includes, but would not be limited to,
the options positions, whether such positions are hedged and, if so, a
description of the hedge(s). Market Makers \72\ would continue to be
exempt from this reporting requirement, however, the Exchange may
access Market Maker position information.\73\ Moreover, the Exchange's
requirement that Participants 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 remain at this level.\74\
---------------------------------------------------------------------------
\72\ The term ``BX Options Market Maker'' or ``Options Market
Make'''' means an Options Participant registered with the Exchange
for the purpose of making markets in options contracts traded on the
Exchange and that is vested with the rights and responsibilities
specified in Options 2. See BX Options 1, Section 1(a)(10).
\73\ OCC through the Large Option Position Reporting (``LOPR'')
system acts as a centralized service provider for member compliance
with position reporting requirements by collecting data from each
member, consolidating the information, and ultimately providing
detailed listings of each member's report to the Exchange, as well
as FINRA, acting as its agent pursuant to a regulatory services
agreement (``RSA'').
\74\ See BX Options 9, Section 16.
---------------------------------------------------------------------------
GBTC
On October 18, 2024, the Commission approved the listing and
trading of GBTC options on Arca.\75\ On November 22, 2024, Arca
obtained rule authority to trade GBTC options with a 25,000 contract
position limit, the lowest limit available in options.\76\ Arca noted
that GBTC currently qualifies for a 250,000-limit on same-side
contracts pursuant to Arca Rule 6.8-O Commentary .06(e)(i), which
requires that trading volume for the underlying security in the most
recent six months be at least 100,000,000 shares.\77\ Arca noted that,
as of November 25, 2024, during the most recent six-month period,
trading volume for GBTC was 550,687,400 shares. In addition, Arca noted
that, as of November 25, 2024, the market capitalization for GBTC was
$20,661,316,542,\78\ with an average daily volume (``ADV'') for the
preceding three months of 3,829,597 shares. GBTC is well above the
requisite minimum of 100,000,000 shares necessary to qualify for the
250,000-contract position and exercise limit. Also, Arca noted that, as
of November 25, 2024, there were 19,787,762 bitcoins in
circulation.\79\ At a price of $94,830 per bitcoin,\80\ that equates to
a market capitalization of greater than $1.876 trillion. If an
aggregated position and exercise limit of 250,000 contracts were
considered, Arca noted that the exercisable risk would represent
9.13%\81\ of GBTC shares outstanding. Given GBTC's liquidity, the
current 25,000-contract position (and exercise) limit is extremely
conservative.
---------------------------------------------------------------------------
\75\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (order
approving rules to permit the listing and trading of GBTC options,
among others) (the ``GBTC Options Approval Order'').
\76\ See Securities Exchange Act Release No. 101713 (November
22, 2024), 89 FR 94839 (November 29, 2024) (SR-NYSEARCA-2024-101)
(notice of immediately effective rule change to permit GBTC options
trading, based on the already-approved NYSE American rules) (the
``Arca GBTC Options Notice'').
\77\ See Arca Rule 6.8-OCommentary .06(e) (providing at
subparagraph (e) that the position limit shall be 250,000 contracts
for options: (i) on underlying stock or Exchange-Traded Fund Share
that had trading volume of at least 100,000,000 shares during the
most recent six-month trading period; or (ii) on an underlying stock
or Exchange-Traded Fund Share 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). BX
Options 9, Section 13 looks to the rules of other options exchanges.
\78\ Arca noted that the market capitalization of GBTC was
determined by multiplying a settlement price ($75.42) by the number
of shares outstanding (273,950,100) and that the data represents
figures from FactSet as of November 25, 2024.
\79\ See https://www.coingecko.com/en/coins/bitcoin.
\80\ Arca noted that this is the approximate price of bitcoin
from 4:00 p.m. ET on November 25, 2024.
\81\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/
273,950.100 shares outstanding).
---------------------------------------------------------------------------
First, Arca reviewed GBTC's data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables. As noted above, as of November 25,
2024, Arca noted that there were 19,787,762 bitcoins in
circulation.\82\ At a price of $94,830 per bitcoin,\83\ Arca noted that
equates to a market capitalization of greater than $1.876 trillion. If
an aggregated position (and exercise) limit of 250,000 contracts were
considered, Arca noted that the exercisable risk would represent 9.13%
\84\ of the outstanding shares outstanding of GBTC. Since GBTC has a
[[Page 38552]]
creation and redemption process managed through the issuer (whereby
bitcoin is used to create GBTC shares), the position limit can be
compared to the total market capitalization of the entire bitcoin
market, and in that case, the exercisable risk for options on GBTC
would represent less than 0.10% of all bitcoin outstanding.\85\ Arca
noted that if GBTC options were subject to a 250,000-contract position
and exercise limit (based on GBTC trading volume) and if all options on
GBTC shares were exercised at once, this occurrence would have a
virtually unnoticed impact on the entire bitcoin market. This analysis
demonstrates that a 250,000-contract position (and exercise) limit for
GBTC options would be appropriate given GBTC's liquidity.
---------------------------------------------------------------------------
\82\ See https://www.coingecko.com/en/coins/bitcoin.
\83\ Arca noted that this is the approximate price of bitcoin
from 4:00pm ET on November 25, 2024.
\84\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/
273,950,100 shares outstanding).
\85\ Arca noted that this number was arrived at with this
calculation: ((250,000 limit * 100 shares per option * $75.42
settle)/(19,787,762 BTC outstanding * $94,830 BTC price)).
---------------------------------------------------------------------------
Next, Arca reviewed the proposed position limit by comparing it to
position limits for derivative products regulated by the CFTC. While
the CFTC, through the relevant Designated Contract Markets, only
regulates options positions based upon delta equivalents (creating a
less stringent standard), Arca examined equivalent bitcoin futures
position limits. In particular, Arca looked to the CME bitcoin futures
contract,\86\ which has a position limit of 2,000 futures (for the
initial spot month).\87\ Arca noted that, on October 22, 2024, CME
bitcoin futures settled at $94,945.\88\ Arca noted that on October 22,
2024, GBTC settled at $53.64, which would equate to greater than
17,700,410 shares of GBTC if the CME notional position limit was
utilized. Since substantial portions of any distributed options
portfolio are likely to be out of the money on expiration, Arca noted
that an options position limit equivalent to the CME position limit for
bitcoin futures (considering that all options deltas are <=1.00) should
be a bit higher than the CME implied limit of 177,004.
---------------------------------------------------------------------------
\86\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\87\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook. Each CME bitcoin futures contract is valued at five
bitcoins as defined by the CME CF Bitcoin Reference Rate (``BRR'').
See CME Rule 35001.
\88\ Arca noted that 2,000 futures at a 5-bitcoin multiplier
(per the contract specifications) equates to $949,450,000 (2000
contracts * 5 BTC per contract * $94,945 price of November BTC
future) of notional value.
---------------------------------------------------------------------------
Of note, unlike options contracts, CME position limits are
calculated on a net futures-equivalent basis by contract and include
contracts that aggregate into one or more base contracts according to
an aggregation ratio(s).\89\ Therefore, if a portfolio includes
positions in options on futures, CME would aggregate those positions
into the underlying futures contracts in accordance with a table
published by CME on a delta equivalent value for the relevant spot
month, subsequent spot month, single month and all month position
limits.\90\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position shall not constitute a position limit
violation. Considering CME's position limits on bitcoin futures, the
Exchange believes a 250,000-contract limit for GBTC options would be
appropriate.
---------------------------------------------------------------------------
\89\ See https://www.cmegroup.com/education/courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm.
\90\ See id.
---------------------------------------------------------------------------
Finally, Arca analyzed a position and exercise limit of 250,000 for
GBTC against options on SPDR Gold Shares (``GLD''), which (like GBTC),
is a commodity-backed ETF.\91\ Arca noted that GLD has a float of 306.1
million shares and a position limit of 250,000 contracts.\92\ As
previously noted, 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. Arca noted that a position limit
exercise in GLD would represent 8.17% of the float of GLD. In
comparison, Arca noted that a 250,000 contract position limit in GBTC
would represent 9.13% of the float of GBTC. While less conservative
than the standard applied to options on GLD, the Exchange nonetheless
believes that subjecting GBTC options to a 250,000 contract position
and exercise limit would be appropriate.\93\
---------------------------------------------------------------------------
\91\ GLD, like GBTC, holds one asset in trust.
\92\ See https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld.
\93\ See, e.g., Arca Rule 6.8-O, Commentary .06(e) (setting
forth trading volume requirements to qualify for a 250,000-contract
position (and exercise) limit). BX Options 9, Section 13 looks to
other exchange trading requirements.
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes that it has
demonstrated that GBTC has more than sufficient liquidity to garner an
increased position and exercise limit of 250,000 same-side contracts.
The Exchange believes that the significant liquidity present in GBTC
mitigates against the potential for manipulation.
The Exchange also has no reason to believe that the growth in
trading volume in IBIT, BTC, BITB, and GBTC options will not continue.
Rather, the Exchange expects continued options volume growth in IBIT,
BTC, BITB, and GBTC as opportunities for investors to participate in
the options markets increase and evolve. The Exchange believes that the
current position and exercise limits in IBIT, BTC, BITB, and GBTC
options are restrictive and will hamper the listed options markets from
being able to compete fairly and effectively with the over-the-counter
(``OTC'') markets. OTC transactions occur through bilateral agreements,
the terms of which are not publicly disclosed to the marketplace. As
such, OTC transactions do not contribute to the price discovery process
on a public exchange or other lit markets. The Exchange believes that
without the proposed changes to position and exercise limits for IBIT,
BTC, BITB, and GBTC options, market participants will find the 25,000-
contract position limit an impediment to their business and investment
objectives as well as an impediment to efficient pricing. As a result,
market participants may find the less transparent OTC markets a more
attractive alternative to achieve their investment and hedging
objectives, leading to a retreat from the listed options markets, where
trades are subject to reporting requirements and daily surveillance.
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are capable of properly
identifying disruptive and/or manipulative trading activity. The
Exchange also represents that it has adequate surveillances in place to
detect potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. These
procedures monitor market activity to identify unusual activity in both
options and the underlying equities.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\94\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\95\ in particular, in that it is designed to
[[Page 38553]]
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.
---------------------------------------------------------------------------
\94\ 15 U.S.C. 78f(b).
\95\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Position Limits
IBIT
The Exchange believes that removing the limitation of 25,000
contracts for options on IBIT in Options 9, Sections 13(a)(1) and
15(a)(1) would increase the position and exercise limits for options on
IBIT from 25,000 to 250,000 contracts based on the current limits set
by other exchanges, such as ISE, so its position limit would be
reviewed similar to all other options is consistent with the Act. This
proposal will remove impediments to and perfect the mechanism of a free
and open market and a national market system, and, in general, protect
investors and the public interest, because it will provide market
participants with the ability to more effectively execute their trading
and hedging activities. Also, based on current trading volume, the
resulting increase in the position (and exercise) limits for IBIT
options may allow Market Makers to maintain their liquidity in these
options in amounts commensurate with the continued high consumer demand
in IBIT options. Subjecting options on IBIT to the position limits in
Options 9, Sections 13 and corresponding exercise limits in Options 9,
Section 15 may also encourage other liquidity providers to continue to
trade on the Exchange rather than shift their volume to OTC markets,
which will enhance the process of price discovery conducted on the
Exchange through increased order flow. Further, this amendment would
allow institutional investors to utilize IBIT options for prudent risk
management purposes. The Exchange notes that IBIT's position limits
would be reviewed on a six month basis, based on the rules of other
options markets such as ISE Options 9, Section 13(d), similar to other
options.
In addition, the Exchange believes that the current liquidity in
IBIT will mitigate concerns regarding potential manipulation of IBIT
options and/or disruption of IBIT upon amending Options 9, Sections 13
and 15 to remove the 25,000 position and exercise limit for options on
IBIT.
Additionally, the regression model performed by ISE demonstrates
that the proposed position limit is half of the modeled limit given the
liquidity of IBIT. Comparing IBIT's data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables, ISE was able to conclude that if a
position limit of 250,000 contracts were considered, the exercisable
risk would represent 2.89% \96\ of the shares outstanding of IBIT. ISE
noted that since IBIT has a creation and redemption process managed
through the issuer (whereby Bitcoin is used to create IBIT shares), the
position limit can be compared to the total market capitalization of
the entire bitcoin market and in that case, the exercisable risk for
options on IBIT would represent less than .072% of all bitcoin
outstanding.\97\ ISE also noted that comparing the proposed position
limit to position limits for equivalent bitcoin futures position
limits, the analysis demonstrated that a 250,000 contracts position and
exercise limits would be appropriate.
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\96\ ISE noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/
866,040,000 shares outstanding).
\97\ ISE noted that this number was arrived at with this
calculation: ((250,000 limit * 100 shares per option * $54.02
settle)/(19,787,762 BTC outstanding * $94,830 BTC price)).
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Comparing a position limit of 250,000 for IBIT options against
other options on ETFs with an underling commodity, namely GLD, SLV and
BITO, ISE noted that a position limit exercise in GLD represents 8.17%
of the float of GLD, a position limit exercise in SLV represents 4.8%
of the float of SLV, and a position limit exercise of BITO represents
23.22% of the float of BITO. In comparison, ISE noted that a 250,000
contract position limit in IBIT options would represent 2.89% of the
float of IBIT. Consequently, a 250,000 IBIT options position limit is
more conservative than the standard applied to GLD, SLV and BITO, and
appropriate. Also, ISE noted that Cboe's proprietary CBTX and MBTX
indices weight IBIT the highest (at 20%) in its index composition among
the other ETFs that comprise the index.\98\ The Exchange notes that
today, these indexes have a position of 24,000 contracts which is much
higher than the current position limits for IBIT options when
considering the notional value of the indices.\99\ These indexes are
already trading with position and exercise limits that are higher than
the lowest position limit for an industry index option.\100\
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\98\ See https://www.cboe.com/tradable_products/bitcoin-etf-index-options?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch.
\99\ See Cboe Rule 8.32(a). ISE noted 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.
\100\ ISE noted that 18,000 contracts is the lowest position
limit for industry index options. Further, Cboe Rule 8.32(a)(3)
permits a limit of 31,500 contracts if the Exchange determines that
the conditions specified in Rule 8.32(a)(1) and (2), which would
require the establishment of a lower limit, have not occurred.
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ISE noted that IBIT began trading in penny increments on January 2,
2025 pursuant to the Penny Interval Program.\101\ The Commission noted
that evidence contained in both ISE's Report and the Cornerstone
analysis demonstrated that the Penny Pilot has benefitted investors and
other market participants in the form of narrower spreads.\102\ The
most actively traded options classes are included in the Penny Program
based on certain objective criteria (trading volume thresholds and
initial price tests). As noted in the Penny Approval Order, the Penny
Program reflects a certain level of trading interest (either because
the class is newly listed or a class that experience a significant
growth in investor interest) to quote in finer trading increments,
which in turn should benefit market participants by reducing the cost
of trading such options.\103\ IBIT options are among a select group of
products that
[[Page 38554]]
have achieved a certain level of liquidity that have garnered it the
ability to trade in finer increments pursuant to the Penny Interval
Program. Failing to permit IBIT options to potentially increase
position and exercise limits given the trading in finer increments, may
artificially inhibit liquidity and create price inefficiency for IBIT
options.
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\101\ The Exchange may add to the Penny Program a newly listed
option class provided that (i) it is among the 300 most actively
traded multiply listed option classes, as ranked by National Cleared
Volume at OCC, in its first full calendar month of trading and (ii)
the underlying security is priced below $200 or the underlying index
is at an index level below $200. Any option class added under this
provision will be added on the first trading day of the month after
it qualifies and will remain in the Penny Program for one full
calendar year, after which it will be subject to the Annual Review
described in Supplementary Material .01(b) to Options 3, Section 3.
The Exchange may add any option class to the Penny Program, provided
that (i) it is among the 75 most actively traded multiply listed
option classes, as ranked by National Cleared Volume at OCC, in the
past six full calendar months of trading and (ii) the underlying
security is priced below $200 or the underlying index is at an index
level below $200. Any option class added under this provision will
be added on the first trading day of the second full month after it
qualifies and will remain in the Penny Program for the rest of the
calendar year, after which it will be subject to the Annual Review
as described in Supplementary Material .01(b) to BX Options 3,
Section 3. See Supplementary Material .01 to BX Options 3, Section
3.
\102\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545, 19548 (April 7, 2020) (File No. 4-443) (Joint
Industry Plan; Order Approving Amendment No. 5 to the Plan for the
Purpose of Developing and Implementing Procedures Designed To
Facilitate the Listing and Trading of Standardized Options To Adopt
a Penny Interval Program) (``Penny Approval Order'').
\103\ See id. at 19548.
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Finally, as discussed above, the Exchange's surveillance and
reporting safeguards continue to be designed to deter and detect
possible manipulative behavior that might arise from increasing or
eliminating position and exercise limits in certain classes. The
Exchange believes that the current financial requirements imposed by
the Exchange and by the Commission adequately address concerns
regarding potentially large, unhedged positions in the options on the
underlying securities, further promoting just and equitable principles
of trading, the maintenance of a fair and orderly market, and the
protection of investors.
BTC and BITB
The Exchange believes the proposed rule change to remove the
25,000-contract position (and exercise) limit on BTC and BITB options
thus allowing such options to qualify for higher aggregated limits will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest as it will provide market participants with the
ability to more effectively execute their trading and hedging
activities. In addition, this proposed change may allow Market Makers
to maintain their liquidity in these options in amounts commensurate
with the continued demand for BTC and BITB options. Further, an
increased aggregated position (and exercise) limit on BTC and BITB
options may encourage other liquidity providers to continue to trade on
the Exchange rather than shift their volume to OTC markets, which will
enhance the process of price discovery conducted on the Exchange
through increased order flow. The Exchange notes that permitting a
higher aggregated position (and exercise) limit on BTC and BITB options
would further allow institutional investors to utilize such options for
prudent risk management purposes.
As noted herein, Arca analyzed several data points that support the
appropriateness of an aggregated position (and exercise) limit of
250,000 contracts for BTC and BITB options based on recent trading
volume in each ETF. Specifically, Arca noted that a comparison of each
ETF's market capitalization to the bitcoin market in terms of exercise
risk and availability of deliverables revealed that the exercisable
risk of an aggregated limit of 250,000 contracts represented 30.14% and
31.27% of BTC and BITB shares outstanding. Further, Arca noted that
since each ETF has a creation and redemption process managed through
the issuer (whereby bitcoin is used to create BTC or BITB shares, as
applicable), a 250,000-contract position (and exercise) limit as
compared to the market capitalization of the bitcoin market indicated
that the exercisable risk for options on each ETF represented less than
0.06% (BTC) or 0.07% (BITB) of all bitcoin outstanding as noted by
Arca. Moreover, a comparison of a 250,000-contract position limit for
options on each ETF to the (actual) position limits for equivalent
bitcoin futures revealed that a 250,000-contract limit for each ETF
would be appropriate. Finally, Arca compared an aggregated position
limit of 250,000 contracts for each ETF against GLD, another commodity-
backed ETF. Arca noted that a position limit exercise in GLD represents
8.17% of the float of GLD. By comparison, Arca noted that a position
limit exercise in each ETF (assuming a 250,000-contract limit would
represent 30.14% (BTC) and 31.27% (BITB) of that ETF's float. Although
a 250,000-contract position (and exercise) limit on BTC and BITB
options would not be as conservative as the standard applied to GLD, it
is comparable and therefore appropriate.
GBTC
The Exchange believes the proposed rule change to remove the
25,000-contract position (and exercise) limit on GBTC options thus
allowing such options to qualify for higher aggregated limits will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest as it will provide market participants with the
ability to more effectively execute their trading and hedging
activities. In addition, this proposed change may allow Market Makers
to maintain their liquidity in these options in amounts commensurate
with the continued demand for GBTC options. Further, an increased
aggregated position (and exercise) limit on GBTC options may encourage
other liquidity providers to continue to trade on the Exchange rather
than shift their volume to OTC markets, which will enhance the process
of price discovery conducted on the Exchange through increased order
flow. The Exchange notes that permitting a higher aggregated position
(and exercise) limit on GBTC options would further allow institutional
investors to utilize such options for prudent risk management purposes.
As noted herein, Arca analyzed several data points that support the
appropriateness of an aggregated position (and exercise) limit of
250,000 contracts for GBTC options based on recent trading volume in
GBTC. Specifically, Arca noted that a comparison of GBTC's market
capitalization to the bitcoin market in terms of exercise risk and
availability of deliverables revealed that the exercisable risk of an
aggregated limit of 250,000 contracts represented 9.13% of GBTC shares
outstanding. Further, since GBTC has a creation and redemption process
managed through the issuer (whereby bitcoin is used to create GBTC
shares), Arca noted that a 250,000-contract position (and exercise)
limit as compared to the market capitalization of the bitcoin market
indicated that the exercisable risk for GBTC options represented less
than 0.10% of all bitcoin outstanding as noted by Arca. Moreover, a
comparison of a 250,000-contract position limit for GBTC options to the
(actual) position limits for equivalent bitcoin futures revealed that a
250,000-contract limit would be appropriate. Finally, Arca compared an
aggregated position limit of 250,000 contracts for GBTC options against
GLD, another commodity backed ETF. Arca noted that a position limit
exercise in GLD represents 8.17% of the float of GLD. By comparison,
Arca noted that a position limit exercise in GBTC options (assuming a
250,000-contract limit) would represent 9.13% of the GBTC float.
Although a 250,000-contract position (and exercise) limit on GBTC
options would not be as conservative as the standard applied to GLD, it
is comparable and therefore appropriate.
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.
Position Limits
The Exchange's proposal does not burden intra-market competition
because all Participants would be subject to the position limits in
Options 9, Sections 13 and corresponding exercise limits in Options 9,
Section 15. The Exchange believes that the proposed rule change will
also provide additional opportunities for market
[[Page 38555]]
participants to continue to efficiently achieve their investment and
trading objectives for equity options on the Exchange.
The Exchange does not believe that the proposed rule change will
impose any burden on inter-market competition. The Exchange expects
that all option exchanges will adopt substantively similar proposals,
such that the Exchange's proposal would benefit competition. For these
reasons, the Exchange does not believe that the proposed rule change
will impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \104\ and Rule 19b-4(f)(6) thereunder.\105\
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \106\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\107\
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\104\ 15 U.S.C. 78s(b)(3)(A)(iii).
\105\ 17 CFR 240.19b-4(f)(6).
\106\ 15 U.S.C. 78s(b)(3)(A)(iii).
\107\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied the pre-filing requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \108\ under the
Act does not normally become operative prior to 30 days after the date
of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\109\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative immediately upon filing. The
Commission previously approved the removal of the 25,000 contract
position and exercise limit for IBIT, BTC, GBTC, and BITB, such that
those funds will be subject to the position and exercise limits as
determined for equity options for which no set limit has been otherwise
established on that exchange.\110\ The Exchange is proposing similarly
to remove of the 25,000 contract position and exercise limit for IBIT,
BTC, GBTC, and BITB, such that those funds will be subject to the
position and exercise limits as determined by the position limit rules
at BX Options 9, Section 13 and exercise limit rules at BX Options 9,
Section 15. The Exchange has provided information regarding IBIT, BTC,
GBTC, and BITB, including, among other things, information regarding
trading volume, and the market capitalization of IBIT, BTC, GBTC, and
BITB and surveillance procedures that will apply. The Commission notes
that the proposal raises no new or novel legal issues and would simply
provide an additional venue for trading IBIT, BTC, GBTC, and BITB with
position and exercise limits that may be higher than 25,000 contracts.
Therefore, the Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change as operative
upon filing.\111\
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\108\ 17 CFR 240.19b-4(f)(6).
\109\ 17 CFR 240.19b-4(f)(6)(iii).
\110\ See supra notes 3, 4, and 5.
\111\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-BX-2025-014 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-BX-2025-014. 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 filing 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-BX-2025-014 and should be submitted on
or before August 29, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\112\
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\112\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-15072 Filed 8-7-25; 8:45 am]
BILLING CODE 8011-01-P