[Federal Register Volume 90, Number 159 (Wednesday, August 20, 2025)]
[Notices]
[Pages 40669-40674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-15834]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103720; File No. SR-CBOE-2025-058]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rules 4.20 and 8.35 To Permit Flexible Exchange Options on iShares
Bitcoin Trust, Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini
Trust, and the Bitwise Bitcoin ETF
August 15, 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 7, 2025, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') 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 Rules 4.20 and 8.35 to permit
options on the iShares Bitcoin Trust (``IBIT''), Grayscale Bitcoin
Trust (``GBTC''), the Grayscale Bitcoin Mini Trust (``BTC''), and the
Bitwise Bitcoin ETF (``BITB'') (each a ``Fund'' and, collectively, the
``Funds'') to be eligible to trade as Flexible Exchange (``FLEX'')
Equity Options. The text of the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx) and at the Exchange's Office of the
Secretary.
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 Rule 4.20 (FLEX Option Classes) to
permit options on the Funds to be eligible to trade as FLEX Equity
Options.\3\ The Exchange notes that this proposal is competitive given
that Nasdaq Phlx, LLC (``Phlx'') \4\ recently submitted a proposal to
permit FLEX trading on options on IBIT and NYSE American, LLC (``NYSE
American'') \5\ recently submitted a proposal to permit FLEX trading on
options on GBTC, BTC, and BITB, both of which were recently approved by
the Securities and Exchange Commission (the ``Commission'').
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\3\ FLEX Options are customized equity or index contracts that
allow investors to tailor contract terms for exchange-listed equity
and index options. See Rule 1.1 and generally Section C (FLEX
Options). A FLEX Option on an equity security may be referred to as
a ``FLEX Equity Option.'' See Rule 1.1.
\4\ See Securities Exchange Act Release No. 103565 (July 29,
2025), 90 FR 36233 (August 1, 2025) (SR-PHLX-2024-72) (Order
Approving a Proposed Rule Change to Permit the Trading of FLEX
Options on Shares of the iShares Bitcoin Trust ETF) (``Phlx FLEX
Approval Order'').
\5\ See Securities Exchange Act Release No. 103566 (July 29,
2025), 90 FR 36250 (August 1, 2025) (SR-NYSEAMER-2024-78) (Order
Approving a Proposed Rule Change, as Modified by Amendment No. 1, to
Permit the Trading of FLEX Options on Shares of the Grayscale
Bitcoin Trust, the Grayscale Bitcoin Mini Trust ETF, and the Bitwise
Bitcoin ETF) (``NYSE FLEX Approval Order'').
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Each Fund is an ETF that holds bitcoin. GBTC, BTC and BITB are
listed on NYSE Arca, Inc. (``NYSE Arca'').\6\ On
[[Page 40670]]
October 18, 2024, NYSE American received approval to list options on
GBTC, BTC, and BITB.\7\ On April 11, 2025, the Exchange's proposal to
list options on GBTC, BTC, and BITB became operative.\8\ IBIT is listed
on The Nasdaq Stock Market LLC (``Nasdaq'').\9\ On September 20, 2024,
Nasdaq ISE, LLC (``ISE'') received approval to list options on
IBIT.\10\ On April 11, 2025, the Exchange's proposal to list options on
IBIT became operative.\11\
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\6\ NYSE Arca received approval to list and trade Bitcoin-Based
Commodity-Based Trust Shares in GBTC, BTC, and BITB pursuant to NYSE
Arca Rule 8.201-E(c)(1). See Securities Exchange Act Release Nos.
99306 (January 10, 2024) (Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, to list
and trade options in GBTC and BITB), 89 FR 3008 (January 17, 2024)
(SR-NYSEARCA-2021-90); 100610 (July 26, 2024) (Order Granting
Approval of Proposed Rule Changes, as Modified by Amendment No. 1,
to permit the listing and trading of options on BTC), 89 FR 62821
(August 1, 2024) (SR-NYSEARCA-2023-45).
\7\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (Order
approving the listing and trading of options on GBTC, BTC, and BITB,
pursuant to Rule 915, Commentary .10(a) (the ``Fund Options Approval
Order'').
\8\ See Securities Exchange Act Release No. 102838 (April 11,
2025) (Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change to Amend Exchange Rules to List and Trade Options on the
Grayscale Ethereum Trust ETF, the Grayscale Ethereum Mini Trust ETF,
and the Bitwise Ethereum ET), 90 FR 16236 (April 17, 2025) (SR-CBOE-
2025-026).
\9\ 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).
\10\ 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'').
\11\ See Securities Exchange Act Release No. 102831 (April 11,
2025) (Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change To Amend Its Rules To Allow the Exchange To List Options
on the iShares Ethereum Trust), 90 FR 16290 (April 17, 2025) (SR-
CBOE-2025-025) [sic].
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For options on each Fund, the position and exercise limits are
25,000 contracts, as set forth in Rule 8.30, Interpretation and Policy
.10 and pursuant to Rule 8.42, Interpretation and Policy .02,
respectively, the lowest available limit.\12\
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\12\ The exercise limits for options on each Fund are the same
as the position limits for each Fund as determined by Rule 8.30.10.
See Rule 8.42, Interpretation and Policy .02. The Exchange is
contemporaneously submitting a rule filing that would eliminate this
25,000 contract position and exercise limit for the Fund options. If
that filing becomes operative, the position and exercise limits for
the Fund options would be determined in accordance with Rule
8.30.02.
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FLEX Equity Options are not generally subject to position or
exercise limits.\13\ Today, pursuant to Rule 4.20, Fund options are not
approved for FLEX trading.\14\ Therefore, the 25,000-contract limit
applicable to options on each Fund currently applies solely to non-FLEX
Fund options.
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\13\ See Rule 8.35(c)(1) (subject to the exceptions enumerated
in the rule ``there shall be no position limits for FLEX Equity
options.'').
\14\ Rule 4.20 also does not permit FLEX trading on options on
except the Fidelity Wise Origin Bitcoin Fund, the Fidelity Ethereum
Fund, the ARK 21Shares Bitcoin ETF, the Bitwise Ethereum ETF, the
Grayscale Ethereum Trust, the Grayscale Ethereum Mini Trust, or the
iShares Ethereum Trust [sic].
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The Exchange proposes to permit options on each Fund to trade as
FLEX Equity Options and would require the aggregation of any FLEX and
non-FLEX positions in the same underlying Fund for purposes of
calculating the position and exercise limits applicable to each
Fund.\15\
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\15\ See proposed Rules 4.20 (excluding IBIT, GBTC, BTC, and
BITB options from the prohibition against FLEX trading); and
8.35(c)(1)(C) (adopting the requirement that, for options on each
Fund, the Exchange will aggregate any FLEX and non-FLEX positions in
the same underlying ETF for purposes of calculating the position and
exercise limits for that Fund, as set forth in Rule 8.30,
Interpretation and Policy .10 (and pursuant to Rule 8.42,
Interpretation and Policy .02).
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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.'' \16\ 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.'' \17\ Based on its
review of the data and analysis provided by the Exchange, the
Commission concluded that the current 25,000-contract position (and
exercise) limit for non-FLEX options on each Fund satisfied these
objectives.\18\
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\16\ See Fund Options Approval Order, 89 FR, at 84971; and IBIT
Approval Order, 89 FR, at 78946.
\17\ See id.
\18\ See id.
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As proposed, for options on each Fund, the Exchange will aggregate
any FLEX and non-FLEX positions in the same underlying Fund for
purposes of calculating the 25,000-contract position and exercise
limits. For each Fund, this proposed aggregated limit effectively
restricts a market participant from holding positions that could result
in the receipt of more than 2,500,000 shares, aggregated for FLEX and
non-FLEX in the same underlying Fund (if that market participant
exercised all its options). The Exchange believes that capping the
aggregated position and exercise limits at 25,000 contracts, the lowest
available limit, would be sufficient to address concerns related to
manipulation and the protection of investors. The Exchange believes
this number is conservative given the liquidity of each Fund.\19\
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\19\ See id.
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While the Exchange proposes an aggregated 25,000-contract position
and exercise limit for options on each Fund, it nonetheless believes
that, for the reasons set forth below, evidence exists to support a
much higher position limit.\20\
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\20\ As noted above, the Exchange is contemporaneously
submitting a proposed rule change to eliminate the 25,000 contract
position and exercise limit for options on the funds, which would
result in the position and exercise limits for the options on the
funds being determined pursuant to Rule 8.30.02. This would
ultimately result in an increase in the position and exercise limit
for options on the Funds based on additional data regarding trading
activity, to continue to balance any concerns regarding
manipulation. A higher position and exercise limit would allow
institutional investors to utilize Fund options for prudent risk
management purposes. In this regard, the Exchange would address the
impact of higher position (and exercise) limits on the proposed FLEX
Fund options.
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In approving the options on GBTC, BTC, and BITB, the Commission
considered and reviewed an analysis that the exercisable risk
associated with a position limit of 25,000 contracts represented only
0.9%, 0.7%, and 3.6% of the outstanding shares of GBTC, BTC and BITB,
respectively.\21\ The Commission also considered and reviewed the
Exchange's arguments that with a 25,000-contract limit for each Fund:
(i) the 284,570,100 GBTC shares outstanding, 114 market participants
would have to simultaneously exercise their positions to place GBTC
under stress; (ii) the 366,950,100 BTC shares outstanding, meant that
147 market participants would have to simultaneously exercise their
same-side positions to place BTC under stress; and (iii) the 68,690,000
BITB shares outstanding, meant that 27 market participants would have
to simultaneously exercise their same-side positions to place BITB
under stress.\22\ Based on the Commission's review of this information
and analysis, the Commission concluded that the 25,000-contract
position and exercise limit for options on each Fund would address
concerns related to manipulation and investor protection and deemed
this
[[Page 40671]]
limit conservative and therefore appropriate given the liquidity of
each Fund.\23\
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\21\ See Fund Options Approval Order, 89 FR, at 84971. Data
represents figures from FactSet as of August 30, 2024.
\22\ See Fund Options Approval Order, 89 FR, at 84971.
\23\ See id.
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Similarly, in approving the options on IBIT, the Commission
considered and reviewed ISE's analysis that the exercisable risk
associated with a position limit of 25,000 contracts represented only
0.4% of the outstanding shares of IBIT.\24\ The Commission also has
considered and reviewed the ISE's statement 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.\25\
Based on the Commission's review of this information and analysis, the
Commission concluded that the proposed position and exercise limits
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.\26\ Each Fund would otherwise qualify for
a 250,000-contract limit, pursuant to Rule 8.30, Interpretation and
Policy .02(e), which requires that, for the most recent six-month
period, trading volume for the underlying security is at least
100,000,000 shares.\27\
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\24\ See IBIT Approval Order, 89 FR, at 78946.
\25\ See id.
\26\ See id.
\27\ See Rule 8.30, Interpretation and Policy .02 (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.
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With respect to the GBTC, BTC, and BITB, the Exchange reviewed the
data presented by NYSE American in its filing with respect to shares
outstanding (and corresponding market capitalization), number of
beneficial holders, and trading volume. As of November 25, 2024, the
below Funds had the following number of shares outstanding (and
corresponding market capitalization) for the preceding six months and
the average daily volume (``ADV'') for the preceding three months.\28\
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\28\ The market capitalization of GBTC was determined by
multiplying a settlement price ($75.42) by the number of shares
outstanding (273,950,100); the market capitalization of BTC was
determined by multiplying a settlement price ($42.16) by the number
of shares outstanding (82,939,964); 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.
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Trading volume Market
Fund (shares) capitalization ADV (shares)
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GBTC................................................... 550,687,400 $20,661,316,542 3,829,597
BTC.................................................... 163,712,700 3,496,748,882 2,036,369
BITB................................................... 288,800,860 4,095,157,000 2,480,478
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Also, as of November 25, 2024, there were 19,787,762 bitcoins in
circulation.\29\ At a price of $94,830 per bitcoin,\30\ that equates to
a market capitalization of greater than $1.876 trillion. If a position
and exercise limit of 250,000 contracts were considered for each Fund,
the exercisable risk would represent 9.13% \31\ of the GBTC shares
outstanding; 30.14% \32\ of BTC shares outstanding; and 31.27% \33\ of
BITB shares outstanding. Given the liquidity of BTC and BITB, the
current 25,000 position and exercise limit appears extremely
conservative.
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\29\ See https://www.coingecko.com/en/coins/bitcoin.
\30\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\31\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/273,950.100 GBTC shares
outstanding).
\32\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/82,939,964 BTC shares
outstanding).
\33\ 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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Similarly, with respect to IBIT, the Exchange reviewed the data
presented by Phlx in its filing with respect to shares outstanding (and
corresponding market capitalization), number of beneficial holders, and
trading volume. As of November 26, 2024, the market capitalization for
IBIT was $46,783,480,800 \34\ with an ADV, for the preceding three
months prior to November 26, 2024, of 39,421,877 shares. At a price of
$94,830,\35\ that equates to a market capitalization of greater than
$1.876 trillion US.
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\34\ 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 26, 2024. See
https://www.ishares.com/us/products/333011/ishares-bitcoin-trust-etf.
\35\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
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Despite the proposed addition of FLEX trading in options on IBIT,
GBTC, BTC, and BITB (collectively, ``FLEX Fund Options''), the Exchange
would continue to limit to 25,000 the number of options on each Fund
traded on the Exchange that an investor, acting alone or in concert
with others directly or indirectly, may control and thereby mitigate
potential manipulation. The Exchange believes that allowing FLEX Fund
Options is consistent with the Act given FLEX trading is permitted
today in other ETFs that hold a commodity, such as SPDR Gold Shares
(``GLD'') and iShares Silver Trust (``SLV'').\36\
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\36\ GLD and SLV, like the each of the Funds, holds one asset in
trust.
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Further, the Exchange believes that the share creation and
redemption process unique to ETFs would mitigate any potential risk of
manipulation in FLEX Fund Options. The creation and redemption process
is designed to ensure that an ETF's price closely tracks the value of
its underlying asset(s). For example, if a market participant exercised
a long call position for 25,000 contracts and purchased 2,500,000
shares of GBTC and this purchase resulted in the value of GBTC shares
to trade at a premium to the value of the (underlying) bitcoin held by
GBTC, the Exchange believes that other market participants would
attempt to arbitrage this price difference by selling short GBTC shares
while concurrently purchasing bitcoin. Those market participants
(arbitrageurs) would then deliver cash to GBTC and receive shares of
GBTC, which would be used to close out any previously established short
position in GBTC. Thus, this creation and redemption process would
significantly reduce the potential risk of price dislocation between
the value of shares in each Fund and the value of bitcoin holdings.
The Exchange understands that FLEX Equity Options on ETFs are
currently traded in the over-the-counter (``OTC'')
[[Page 40672]]
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 Fund Options. The Exchange also believes that the trading
of FLEX Fund Options would allow these same market participants to
better manage the risk associated with the volatility of positions in
the underlying ETF (i.e., IBIT, GBTC, BTC, or BITB) given the enhanced
liquidity that an exchange-traded product would bring.
Additionally, the Exchange believes that FLEX Fund Options traded
on the Exchange would have three important advantages over the
contracts that are traded in the OTC market. First, as a result of
greater standardization of contract terms, exchange-traded contracts
should develop more liquidity. Second, counterparty credit risk would
be mitigated by the fact that the contracts are issued and guaranteed
by The Options Clearing Corporation (``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 Fund 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
The Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle the additional traffic associated with the
listing of FLEX Fund Options. The Exchange believes any additional
traffic that would be generated from the trading of FLEX Fund Options
would be manageable. The Exchange believes Trading Permit Holders
(``TPHs'') 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 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.
Today, the Exchange has an adequate surveillance program in place
for options. Cboe intends to apply those same program procedures to
options on the FLEX Fund Options that it applies to the Exchange's
other options products.\37\ Cboe's market surveillance staff would have
access to the surveillances it conducts, as well as that the Financial
Industry Regulatory Authority (``FINRA'') conducts on its behalf with
respect to the FLEX Fund Options and would review activity in the
underlying Funds when conducting surveillances for market abuse or
manipulation in the FLEX Fund Options. Additionally, the Exchange is a
member of the Intermarket Surveillance Group (``ISG'') under the
Intermarket Surveillance Group Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition to obtaining
information from its affiliated markets, the Exchange would be able to
obtain information regarding trading in shares of the Funds from their
primary listing markets and from other markets that trade shares of the
Funds through ISG. In addition, Cboe has a Regulatory Services
Agreement with the Financial Industry Regulatory Authority (``FINRA'')
for certain market surveillance, investigation and examinations
functions. Pursuant to a multi-party 17d-2 joint plan, all options
exchanges allocate amongst themselves and FINRA responsibilities to
conduct certain options-related market surveillance that are common to
rules of all options exchanges.\38\
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\37\ The surveillance program includes surveillance patterns for
price and volume movements as well as patterns for potential
manipulation (e.g., spoofing and marking the close).
\38\ Section 19(g)(1) of the Act, among other things, requires
every self-regulatory organization (``SRO'') registered as a
national securities exchange or national securities association to
comply with the Act, the rules and regulations thereunder, and the
SRO's own rules, and, absent reasonable justification or excuse,
enforce compliance by its members and persons associated with its
members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section
17(d)(1) of the Act allows the Commission to relieve an SRO of
certain responsibilities with respect to members of the SRO who are
also members of another SRO (``common members''). Specifically,
Section 17(d)(1) allows the Commission to relieve an SRO of its
responsibilities to: (i) receive regulatory reports from such
members; (ii) examine such members for compliance with the Act and
the rules and regulations thereunder, and the rules of the SRO; or
(iii) carry out other specified regulatory responsibilities with
respect to such members.
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The proposed rule change is designed to allow investors seeking to
trade options on the Funds to utilize FLEX Fund 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 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
Fund Options. The Exchange believes that introducing FLEX Fund Options
would further broaden the base of investors that use FLEX Equity
Options (and options on the Funds 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.
As discussed herein, the Exchange does not believe that this
proposed rule change raises any unique regulatory concerns because the
proposal to aggregate FLEX and non-FLEX option positions in each Fund
at the (most conservative) 25,000-contract position and exercise limit,
which currently applies solely to non-FLEX options on each Fund, should
provide an adequate safeguard.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\39\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \40\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \41\ requirement that the rules of an exchange not be
designed
[[Page 40673]]
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\39\ 15 U.S.C. 78f(b).
\40\ 15 U.S.C. 78f(b)(5).
\41\ Id.
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The Exchange believes that the proposal to permit FLEX Fund Options
would remove impediments to and perfect the mechanism of a free and
open market. The Exchange believes that offering FLEX Fund 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.
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 in that it should 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 Fund 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 does not believe that this proposed rule change raises
any unique regulatory concerns because the proposal to aggregate any
FLEX and non-FLEX options in each Fund at the current (and most
conservative) 25,000-contract limit should provide an adequate
safeguard. As noted herein, the purpose of position (and exercise)
limits is 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. The Exchange believes the
proposal will benefit investors and public interest because the
aggregated position and exercise limits for (FLEX and non-FLEX) options
on the same underlying Fund at 25,000 contracts, the lowest limit
available in options, would address concerns related to manipulation
and protection of investors as this number is conservative and
therefore appropriate given the sufficient liquidity in each Fund.
The Exchange believes that offering innovative products benefits
the investing public. A robust and competitive market requires that
exchanges respond to the evolving needs of their members by constantly
improving their offerings. Such efforts would be stymied if exchanges
were prohibited from offering innovative products such as the proposed
FLEX Fund Options. The Exchange does not believe that allowing FLEX
Fund 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
Fund Options. Regarding the proposed FLEX Fund Options, the Exchange
would use the same surveillance procedures utilized for FLEX Options
currently listed on the Exchange (as well as for non-FLEX options on
each Fund). For surveillance purposes, the Exchange would have access
to information regarding trading activity in the underlying Funds
(i.e., IBIT, GBTC, BTC, and BITB). In light of surveillance measures
related to both options 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 Fund 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. The Exchange does not
believe that its proposed rule change will impose any burden on
intramarket competition as all market participants would have the
option of utilizing the FLEX Fund Options. The proposed rule change is
designed to allow investors seeking option exposure to bitcoin to trade
FLEX Fund Options. Moreover, the Exchange believes that the proposal to
permit FLEX Fund 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 does not believe that its proposed rule change will
impose any burden on intermarket competition as the Exchange operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues. The proposed rule change would
support that intermarket competition by allowing the Exchange to offer
additional functionality to TPHs. The Exchange believes that the
proposed FLEX Fund Options will increase the variety of options
products available for trading in general and bitcoin-related products
in particular and, as such, will provide a valuable tool for investors
to manage risk. As such, the Exchange believes that this proposal does
not create an undue burden on intermarket competition. Rather, the
Exchange believes that the proposed rule would bolster intermarket
competition by promoting fair competition among individual markets. As
noted above, this is a competitive filing based on a similar proposals
submitted by NYSE American and Phlx, which were recently approved by
the Commission.\42\
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\42\ See Phlx FLEX Approval Order and NYSE FLEX Approval Order.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \43\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\44\
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\43\ 15 U.S.C. 78s(b)(3)(A)(iii).
\44\ 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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[[Page 40674]]
A proposed rule change filed under Rule 19b-4(f)(6) \45\ 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),\46\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. The
Commission previously approved FLEX trading on IBIT, BTC, GBTC, and
BITB on other exchanges as discussed herein.\47\ The Commission does
not believe that this proposed rule change raises new or novel legal
issues, and would allow the Exchange to begin offering FLEX Fund
Options without delay. Therefore, the Commission believes that waiver
of 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.\48\
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\45\ 17 CFR 240.19b-4(f)(6).
\46\ 17 CFR 240.19b-4(f)(6)(iii).
\47\ See supra notes 4-5.
\48\ 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-CBOE-2025-058 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-CBOE-2025-058. 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-CBOE-2025-058 and should be submitted on
or before September 10, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
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\49\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2025-15834 Filed 8-19-25; 8:45 am]
BILLING CODE 8011-01-P