[Federal Register Volume 90, Number 151 (Friday, August 8, 2025)]
[Notices]
[Pages 38529-38536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-15076]
[[Page 38529]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103643; File No. SR-ISE-2025-22]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend FLEX,
Position and Exercise Limit Rules for 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 July 31, 2025, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I and II below, which Items have been
prepared by the Exchange. 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 3A, Section 3, FLEX Option
Listings; Options 3A, Section 18, Position Limits; Options 9, Section
13, Position Limits; and Options 9, Section 15, Exercise Limits, with
respect to options on 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/ise/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 3A, Section 3, FLEX Option
Listings; Options 3A, Section 18, Position Limits; Options 9, Section
13, Position Limits; and Options 9, Section 15, Exercise Limits with
respect to options on 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
Recently, NYSE Arca, Inc. (``Arca'') received approval to eliminate
the current 25,000 contract position and exercise limit for options on
BTC and BITB.\3\ 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. Additionally, Arca recently received approval to eliminate
the current 25,000 contract position and exercise limit for options on
GBTC.\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
GBTC.
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\3\ See Securities Exchange Act Release No. 103568 (July 29,
2025) (SR-NYSEArca-2025-10) (not yet noticed).
\4\ 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 ISE Options 9, Section 13 and exercise limit rules at ISE Options 9,
Section 15 to likewise eliminate the current 25,000 contract position
and exercise limit for options on BTC, BITB and GTBC. As a result, BTC,
BITB and GTBC would be subject to the position limits described in ISE
Options 9, Section 13 which provides that the position limits for
equity options are 25,000 or 50,000 or 75,000 or 200,000 or 250,000
option contracts (with adjustments for splits, re-capitalizations,
etc.) on the same side of the market or such other number of option
contracts as may be fixed from time to time by the Exchange. Further,
ISE Options 9, Section 13(d) describes how the Exchange determines
which of the five position limit amounts will apply to an equity option
class (i.e., the position limit applicable to a class is determined
based on the trading volume and outstanding shares of the underlying
security).
BTC and BITB
On October 18, 2024, the Commission approved the listing and
trading of BTC and BITB on Arca.\5\ On November 22, 2024, Arca obtained
rule authority to trade options on BTC and BITB.\6\ The current
position and exercise limits for BTC and BITB options are 25,000
contracts on ISE, the lowest limit available in options.\7\ Arca
proposed to effectively 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.\8\ 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 \9\ 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 \10\ 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
[[Page 38530]]
25, 2024, there were 19,787,762 bitcoins in circulation.\11\ At a price
of $94,830 per bitcoin,\12\ 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% \13\ of BTC shares outstanding; and 31.27% \14\
of BITB shares outstanding. Given the liquidity of BTC and BITB, the
current 25,000 position limit appears extremely conservative.
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\5\ 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'').
\6\ 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'').
\7\ See ISE Options 9, Section 13.
\8\ 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).
\9\ 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.
\10\ 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.
\11\ See https://www.coingecko.com/en/coins/bitcoin.
\12\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\13\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/82,939,964 BTC shares
outstanding).
\14\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/79,950,100 BITB shares
outstanding).
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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.\15\ At a price of $94,830 per bitcoin,\16\ 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 \17\ and 31.27% of BITB shares outstanding.\18\ 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.\19\
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\15\ See https://www.coingecko.com/en/coins/bitcoin.
\16\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\17\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/82,939,964 BTC shares
outstanding).
\18\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/79,950,100 BITB shares
outstanding).
\19\ 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)).
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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 \20\ that has a position limit of 8,000
futures. Arca noted that, on October 22, 2024, CME bitcoin futures
settled at $94,945.\21\ 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).
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\20\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\21\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
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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).\22\ 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.\23\ 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 options on each ETF
would be appropriate.
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\22\ See https://www.cmegroup.com/education/courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm.
\23\ See id.
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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'').\24\ GLD has a
float of 306.1 million shares and a position limit of 250,000
contract.\25\ 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. A position
limit exercise in GLD would represent 8.17% of the float of GLD. In
comparison, 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.\26\
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\24\ Like BTC and BITB, GLD and SLV each hold one asset in
trust.
\25\ See https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld.
\26\ See, e.g., ISE Options 9, Section 13(d) (setting forth
trading volume requirements to qualify for a 250,000 contract
position (and exercise) limit.
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Based on the foregoing, the Exchange believes that BTC and BITB
each have more than sufficient liquidity to garner an increased
position and exercise limit of 250,000 same-side contracts pursuant to
Options 9, Sections 13 and 15. 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 member 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 \27\ would continue to be
exempt from this reporting requirement,
[[Page 38531]]
however, the Exchange may access Market Maker position information.\28\
Moreover, the Exchange's 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 remain at this
level.\29\
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\27\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See ISE Options
1, Section 1(a)(21).
\28\ 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'').
\29\ See ISE Options 9, Section 16.
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GBTC
On October 18, 2024, the Commission approved the listing and
trading of GBTC options on Arca.\30\ On November 22, 2024, Arca rule
authority to trade GBTC options with a 25,000 contract position limit,
the lowest limit available in options.\31\ 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.\32\ 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,\33\ 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.\34\ At a price of
$94,830 per bitcoin,\35\ 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, the exercisable risk would
represent 9.13% \36\ of GBTC shares outstanding. Given GBTC's
liquidity, the current 25,000-contract position (and exercise) limit is
extremely conservative.
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\30\ 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'').
\31\ 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'').
\32\ 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).
\33\ The market capitalization of GBTC was determined by
multiplying a settlement price ($75.42) by the number of shares
outstanding (273,950,100). Data represents figures from FactSet as
of November 25, 2024.
\34\ See https://www.coingecko.com/en/coins/bitcoin.
\35\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\36\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/273,950.100 shares
outstanding).
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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, there were 19,787,762 bitcoins in circulation.\37\ At a price of
$94,830 per bitcoin,\38\ 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, the
exercisable risk would represent 9.13% \39\ of the outstanding shares
outstanding of GBTC. Since GBTC has a 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.\40\ The Exchange notes 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.
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\37\ See https://www.coingecko.com/en/coins/bitcoin.
\38\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\39\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/273,950,100 shares
outstanding).
\40\ 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)).
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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,\41\ which has a position limit of 2,000 futures (for the
initial spot month).\42\ Arca noted that, on October 22, 2024, CME
bitcoin futures settled at $94,945.\43\ 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, 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.
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\41\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\42\ 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.
\43\ 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.
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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).\44\ 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.\45\ 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
[[Page 38532]]
violation. Considering CME's position limits on bitcoin futures, the
Exchange believes a 250,000-contract limit for GBTC options would be
appropriate.
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\44\ See https://www.cmegroup.com/education/courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm.
\45\ See id.
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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.\46\ Arca noted that GLD has a float of 306.1
million shares and a position limit of 250,000 contracts.\47\ 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, Arca nonetheless believes
that subjecting GBTC options to a 250,000 contract position and
exercise limit would be appropriate.\48\
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\46\ GLD, like GBTC, holds one asset in trust.
\47\ See https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld.
\48\ 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).
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Based on the foregoing, the Exchange believes 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 BTC, BITB, and GBTC options will not continue.
Rather, the Exchange expects continued options volume growth in 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 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 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.
FLEX
Arca recently received approval to permit BTC, BITB and GTBC to
trade as ``FLEX Options.'' \49\ Identical to approval received by Arca,
ISE proposes to permit BTC, BITB and GTBC to trade as FLEX Options and
would require the aggregation of any FLEX and non-FLEX positions in the
same underlying ETF for purposes of calculating position and exercise
limits on such ETF. Thus, for example, assuming a 250,000-contract
position limit for options on BTC, the Exchange would restrict a market
participant from holding positions that could result in the receipt of
more than 250,000,000 shares (if that market participant exercised all
its BTC options). The share creation and redemption process available
to each ETF is designed to ensure that an ETF's price closely tracks
the value of its underlying asset. For example, if a market participant
exercised a long call position for 25,000 contracts and purchased
2,500,000 shares of BTC and this purchase resulted in the value of BTC
shares to trade at a premium to the value of the (underlying) bitcoin
held by BTC, the Exchange believes that other market participants would
attempt to arbitrage this price difference by selling short BTC shares
while concurrently purchasing bitcoin. Those market participants
(arbitrageurs) would then deliver cash to BTC and receive shares of
BTC, which would be used to close out any previously established short
position in BTC. Thus, this creation and redemptions process would
significantly reduce the potential risk of price dislocation between
the value of BTC shares and the value of bitcoin holdings.
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\49\ See Securities Exchange Act Release Nos. 103568 (July 29,
2025) (SR-NYSEArca-2025-10) (not yet noticed); and 103567 (July 29,
2025) (SR-NYSEArca-2025-07) (not yet noticed).
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The Exchange understands that FLEX Options on ETFs are currently
traded in the OTC market by a variety of market participants, e.g.,
hedge funds, proprietary trading firms, and pension funds, to name a
few. The Exchange believes there is room for significant growth if a
comparable product were introduced for trading on a regulated market.
The Exchange expects that users of these OTC products would be among
the primary users of FLEX options on BTC, BITB and GTBC. The Exchange
also believes that the trading of FLEX Options would allow these same
market participants to better manage the risk associated with the
volatility of BTC, BITB or GTBC (the underlying ETF) positions given
the enhanced liquidity that an exchange-traded product would bring.
Additionally, the Exchange believes that FLEX Options traded on the
Exchange would have three important advantages over the contracts that
are traded in the OTC market. First, because of greater standardization
of contract terms, exchange-traded contracts should develop more
liquidity. Second, counter-party credit risk would be mitigated by the
fact that the contracts are issued and guaranteed by OCC. Finally, the
price discovery and dissemination provided by the Exchange and its
members would lead to more transparent markets. The Exchange believes
that its ability to offer FLEX Options would aid it in competing with
the OTC market and at the same time expand the universe of products
available to interested market participants. The Exchange believes that
an exchange-traded alternative may provide a useful risk management and
trading vehicle for market participants and their customers.
The Exchange has analyzed its capacity and represents that it and
OPRA have the necessary systems capacity to handle the additional
traffic associated with the listing of FLEX Options. The Exchange
believes any additional traffic that would be generated from the
trading of FLEX Options would be manageable. The Exchange believes OTP
Holders will not have a capacity issue as a result of this proposed
rule change. The Exchange also represents that it does not believe this
proposed rule change will cause fragmentation of liquidity. The
Exchange will monitor the trading
[[Page 38533]]
volume associated with the additional options series listed as a result
of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.
The Exchange represents that the same surveillance procedures
applicable to the Exchange's other options products listed and traded
on the Exchange, including non-FLEX Options, will apply to FLEX
Options, and that it has the necessary systems capacity to support such
options. FLEX Options products (and their respective symbols) are
integrated into the Exchange's existing surveillance system
architecture and are thus subject to the relevant surveillance
processes. The Exchange's market surveillance staff (including staff of
Financial Industry Regulatory Authority, Inc. (``FINRA'') who perform
surveillance and investigative work on behalf of the Exchange pursuant
to a regulatory services agreement) conducts surveillances with respect
to BTC, BITB and GTBC (the underlying ETFs) and, as appropriate, would
review activity in BTC, BITB and GTBC when conducting surveillances for
market abuse or manipulation in the FLEX options on each ETF. The
Exchange does not believe that allowing FLEX Options would render the
marketplace for non-FLEX Options, or equity options in general, more
susceptible to manipulative practices.
The Exchange represents that its existing trading surveillances are
adequate to monitor the trading in BTC, BITB and GTBC as well as any
subsequent trading of FLEX Options on the Exchange. Additionally, the
Exchange is a member of the Intermarket Surveillance Group (``ISG'')
under the ISG Agreement. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. In addition to the surveillance that is
conducted by the Exchange's market surveillance staff, the Exchange
would also be able to obtain information regarding trading in shares of
BTC, BITB and GTBC on other exchanges through ISG. In addition, and as
referenced above, the Exchange has a regulatory services agreement with
FINRA, pursuant to which FINRA conducts certain surveillances on behalf
of the Exchange. Further, pursuant to a multi-party 17d-2 joint plan,
all options exchanges allocate regulatory responsibilities to FINRA to
conduct certain options-related market surveillances.\50\ The Exchange
will implement any additional surveillance procedures it deems
necessary to effectively monitor the trading of BTC, BITB and GTBC
options.
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\50\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
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The proposed rule change is designed to allow investors seeking to
trade options on BTC, BITB and GTBC to utilize FLEX Options. The
Exchange believes that offering innovative products flows to the
benefit of the investing public. A robust and competitive market
requires that exchanges respond to member's evolving needs by
constantly improving their offerings. Such efforts would be stymied if
exchanges were prohibited from offering innovative products such as the
proposed FLEX Options. The Exchange believes that introducing FLEX
Options would further broaden the base of investors that use FLEX
Options (and options on BTC, BITB and GTBC, in general) to manage their
trading and investment risk, including investors that currently trade
in the OTC market for customized options. The proposed rule change is
also designed to encourage Market Makers to shift liquidity from the
OTC market on the Exchange, which, it believes, will enhance the
process of price discovery conducted on the Exchange through increased
order flow.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\51\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\52\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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\51\ 15 U.S.C. 78f(b).
\52\ 15 U.S.C. 78f(b)(5).
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Position Limits
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, 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
[[Page 38534]]
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. 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), 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, 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.
FLEX
The Exchange believes that the proposal to permit FLEX Options and
to require aggregation of any FLEX and non-FLEX positions in the same
underlying ETF for BTC, BITB and GTBC for purposes of calculating
position and exercise limits would remove impediments to and perfect
the mechanism of a free and open market for several reasons. First, the
Exchange believes that offering FLEX Options will benefit investors by
providing them with an additional, relatively lower cost investing tool
to gain exposure to the price of bitcoin and provide a hedging vehicle
to meet their investment needs in connection with a bitcoin-related
product. Moreover, the proposal would broaden the base of investors
that use FLEX Options to manage their trading and investment risk,
including investors that currently trade in the OTC market for
customized options. By trading a product in an exchange-traded
environment (that is currently being used in the OTC market), the
Exchange would be able to compete more effectively with the OTC market.
The Exchange believes the proposed rule change is designed to prevent
fraudulent and manipulative acts and practices in that it would lead to
the migration of options currently trading in the OTC market to trading
to the Exchange. Also, any migration to the Exchange from the OTC
market would result in increased market transparency and enhance the
process of price discovery conducted on the Exchange through increased
order flow. The Exchange also believes that offering FLEX Options may
open up the market for options on BTC, BITB and GTBC to more retail
investors.
Additionally, the Exchange believes the proposed rule change is
designed to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest because FLEX Options are
designed to create greater trading and hedging opportunities and
flexibility. The proposed rule change should also result in enhanced
efficiency in initiating and closing out positions and heightened
contra-party creditworthiness due to the role of OCC as issuer and
guarantor of FLEX Options. Further, the proposed rule change would
result in increased competition by permitting the Exchange to offer
products that are currently used in the OTC market.
The Exchange believes that offering innovative products flows to
the benefit of the investing public. A robust and competitive market
requires that exchanges respond to members' evolving needs by
constantly improving their offerings. Such efforts would be stymied if
exchanges were prohibited from offering innovative products such as the
proposed FLEX Options. The Exchange does not believe that allowing FLEX
Options would render the marketplace for equity options more
susceptible to manipulative practices.
Finally, the Exchange represents that it has an adequate
surveillance program in place to detect manipulative trading in FLEX
Options. Regarding the proposed FLEX Options, the Exchange would use
the same surveillance procedures currently utilized for FLEX Options
listed on the Exchange (as well as for non-FLEX Options). For
surveillance purposes, the Exchange would have access to information
regarding trading activity in BTC, BITB and GTBC the underlying ETFs).
In light of surveillance measures related to both options trading on
BTC, BITB and GTBC and the underlying funds, the Exchange believes that
existing surveillance procedures are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading the proposed FLEX Options.
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.
[[Page 38535]]
Position Limits
The Exchange's proposal does not burden intra-market competition
because all ISE Members would be subject to the position limits in
Options 9, Sections 13(d) and corresponding exercise limits in Options
9, Section 15. The Exchange believes that the proposed rule change will
also provide additional opportunities for market 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.
FLEX
The Exchange believes that the proposal to permit FLEX Options will
not impose any burden on intra-market competition as all market
participants can opt to utilize this product or not. The proposed rule
change is designed to allow investors seeking option exposure to
bitcoin to trade FLEX Options. Moreover, the Exchange believes that the
proposal to permit FLEX Options would broaden the base of investors
that use FLEX Options to manage their trading and investment risk,
including investors that currently trade in the OTC market for
customized options. The Exchange believes that the proposed FLEX
Options will not impose any burden on inter-market competition but will
instead encourage competition by increasing the variety of options
products available for trading on the Exchange, which products will
provide a valuable tool for investors to manage risk. Should this
proposal be approved, competing options exchanges will be free to offer
products like the proposed FLEX Options.
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 \53\ and Rule 19b-4(f)(6) thereunder.\54\
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 \55\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\56\
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\53\ 15 U.S.C. 78s(b)(3)(A)(iii).
\54\ 17 CFR 240.19b-4(f)(6).
\55\ 15 U.S.C. 78s(b)(3)(A)(iii).
\56\ 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) \57\ 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),\58\ 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 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.\59\ The Exchange is proposing similarly
to remove of the 25,000 contract position and exercise limit for 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 ISE
Options 9, Section 13 and exercise limit rules at ISE Options 9,
Section 15. In addition, the Exchange proposes to permit BTC, GTBC, and
BITB to trade as FLEX Options and would require the aggregation of any
FLEX and non-FLEX positions in the same underlying ETF for purposes of
calculating position and exercise limits on such ETF, substantively
identical to approval received by another exchange.\60\ The Exchange
has provided information regarding BTC, GBTC, and BITB, including,
among other things, information regarding trading volume, and the
market capitalization of 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 BTC, GBTC, and BITB with position and
exercise limits that may be higher than 25,000 contracts, as well as
FLEX trading on BTC, GBTC, and BITB. 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.\61\
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\57\ 17 CFR 240.19b-4(f)(6).
\58\ 17 CFR 240.19b-4(f)(6)(iii).
\59\ See supra notes 3 and 4.
\60\ Id.
\61\ 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-ISE-2025-22 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-ISE-2025-22. 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
[[Page 38536]]
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-ISE-2025-22 and should be submitted on or before August 29, 2025.
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\62\ 17 CFR 200.30-3(a)(12), (59).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\62\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-15076 Filed 8-7-25; 8:45 am]
BILLING CODE 8011-01-P