[Federal Register Volume 91, Number 39 (Friday, February 27, 2026)]
[Notices]
[Pages 9904-9913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-03917]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104884; File No. SR-ISE-2025-26]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Amendment No. 5 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 5, To Amend the Position and Exercise Limits for IBIT
Options
February 24, 2026.
I. Introduction
On November 13, 2025, Nasdaq ISE, LLC (``ISE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to increase the position and exercise limits for
options on the iShares Bitcoin Trust ETF (``IBIT'') to 1,000,000
contracts and to amend the position and exercise limits for flexible
exchange (``FLEX'') IBIT options. The proposed rule change was
published for comment in the Federal Register on November 26, 2025.\3\
The Commission received no comments regarding the proposed rule change.
On November 24, 2025, the Exchange filed Amendment No. 1 to the
proposed rule change. On January 5, 2026, pursuant to Section 19(b)(2)
of the Exchange Act,\4\ the Commission designated a longer period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ On January 26, 2026, the
Exchange filed Amendment No. 2 to the proposed rule change. On January
27, 2026, the Exchange filed Amendment No. 3 to the proposed rule
change, withdrew Amendment Nos. 2 and 3, and filed Amendment No. 4 to
the proposed rule change. On February 20, 2026, the Exchange filed
Amendment No. 5 to the proposal, which supersedes and replaces the
original proposal, as modified by Amendment Nos. 1and 4,
[[Page 9905]]
in their entirety.\6\ The Commission is publishing this notice to
solicit comment on Amendment No. 5 in Sections II and III below, which
sections are being published verbatim as filed by the Exchange, and is
instituting proceedings pursuant to Section 19(b)(2)(B) of the Act \7\
to determine whether to approve or disapprove the proposed rule change,
as modified by Amendment No. 5.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 104235 (Nov. 21,
2025), 90 FR 54414.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 104542 (Jan. 5,
2026), 91 FR 750 (Jan. 8, 2026). The Commission designated February
24, 2026, as the date by which the Commission shall approve or
disapprove, or institute proceedings to determine whether to
disapprove, the proposed rule change.
\6\ Amendment No. 5 revises the proposal to provide updated
information regarding IBIT's trading volume, market capitalization,
and other metrics discussed in the proposal; eliminate the proposed
changes related to the position and exercise limits for FLEX IBIT
options; remove statements indicating that the proposed position and
exercise limits would be reviewed on a six-month basis pursuant to
Options 9, Section 13(d); and eliminate references to reports
provided in connection with the Penny Program.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Self-Regulatory Organization's Description of the Proposed Rule
Change, as Modified by Amendment No. 5
The Exchange proposes to amend Options 9, Sections 13 and 15 to
increase the position and exercise limits for options on iShares
Bitcoin Trust ETF (``IBIT''). This Amendment No. 5 replaces and
supersedes the original filing as modified by Amendment Nos. 1 and 4 in
their entirety and proposes to update the data in this proposal.
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.
III. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Options 9, Section 13, Position
Limits, and Options 9, Section 15, Exercise Limits, to increase the
position and exercise limits for options on IBIT.
IBIT is an Exchange-Traded Fund (``ETF'') that holds Bitcoin and is
listed on The Nasdaq Stock Market LLC.\8\ On September 20, 2024, ISE
received approval to list options on IBIT.\9\ The position and exercise
limits for IBIT options are currently set as stated in Options 9,
Sections 13 and 15.\10\
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\8\ Nasdaq received approval to list and trade Bitcoin-Based
Commodity-Based Trust Shares in IBIT pursuant to Rule 5711(d) of
Nasdaq. See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (SR-NASDAQ-2023-016) (Order
Granting Accelerated Approval of Proposed Rule Changes, as Modified
by Amendments Thereto, To List and Trade Bitcoin-Based Commodity-
Based Trust Shares and Trust Units). IBIT started trading on January
11, 2024.
\9\ See Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1,
4, and 5, To Permit the Listing and Trading of Options on the
iShares Bitcoin Trust) (``IBIT Approval Order''). ISE began trading
IBIT options on November 19, 2024.
\10\ IBIT currently has a position limit of 250,000 contracts.
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Position limits, and exercise limits, are designed to limit the
number of options contracts traded on the exchange in an underlying
security that an investor, acting alone or in concert with others
directly or indirectly, may control. These limits, which are described
in ISE Options 9, Sections 13 and 15, are intended to address potential
manipulative schemes and adverse market impacts surrounding the use of
options, such as disrupting the market in the security underlying the
options. Position and exercise limits must balance concerns regarding
mitigating potential manipulation and the cost of inhibiting potential
hedging activity that could be used for legitimate economic purposes.
To achieve this balance, ISE proposes to increase the position
limits and exercise limits for options on IBIT to 1,000,000 contracts
by noting the proposed position limit in Supplementary Material .01 to
Options 9, Section 13 and noting the proposed exercise limits in
Supplementary Material .01 to Options 9, Section 15. The position limit
for options on IBIT is currently set pursuant to ISE Options 9, Section
13(d) where the largest in capitalization and the most frequently
traded stocks and ETFs have an option position limit of 250,000
contracts (with adjustments for splits, re-capitalizations, etc.) on
the same side of the market; and smaller capitalization stocks and ETFs
have position limits of 200,000, 75,000, 50,000 or 25,000 contracts
(with adjustments for splits, recapitalizations, etc.) on the same side
of the market. The Exchange notes that the proposed position limits and
exercise limits for options on IBIT are consistent with existing
position limits and exercise limits for options on iShares MSCI
Emerging Markets, iShares China Large-Cap ETF and iShares MSCI EAFE
ETF.
Composition and Growth Analysis for Underlying ETFs
As stated above, position (and exercise) limits are intended to
prevent the establishment of options positions that can be used or
might create incentives to manipulate the underlying market so as to
benefit options positions. The Commission has recognized that these
limits are designed to minimize the potential for mini-manipulations
and for corners or squeezes of the underlying market, as well as serve
to reduce the possibility for disruption of the options market itself,
especially in illiquid classes.\11\
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\11\ See Securities Exchange Act Release No. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012) (SR-NYSEAmex-2012-29).
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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.'' \12\ 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.'' \13\ The Exchange
has observed an ongoing increase in demand in options on IBIT in
2025.\14\ The Exchange believes the current position limit and exercise
limit of 250,000 contracts (the highest position limit available
pursuant to Options 9, Section 13 and exercise limit pursuant to
Options 9, Section 15) will impede trading activity and strategies of
investors, such as use of effective hedging vehicles or income
generating strategies (e.g., buy-write or put-write), and the ability
of Market Makers to
[[Page 9906]]
make liquid markets with tighter spreads in IBIT options.
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\12\ See supra note 4, IBIT Approval Order, 89 FR 78946.
\13\ See id.
\14\ In 2024, the Exchange filed a rule proposal, which was
later approved in 2025, to eliminate the 25,000 contract position
and exercise limits for IBIT options and apply the position and
exercise limits in ISE Options 9, Sections 13 and 15 to IBIT options
utilizing November 25, 2024 data. See Securities Exchange Act
Release No. 103564 (July 29, 2025), 90 FR 36229 (August 1, 2025)
(SR-ISE-2024-62) (Order Approving a Proposed Rule Change, as
Modified by Amendment Nos. 2 and 3, Regarding Position and Exercise
Limits for Options on the iShares Bitcoin Trust ETF) (``SR-ISE-2024-
62'').
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The Exchange believes that increasing the position limit (and
exercise limit) for options on IBIT to 1,000,000 contracts would enable
liquidity providers to provide additional liquidity to the Exchange, as
well as other options exchange on which they participate. As described
in further detail below, the Exchange believes that the continuously
increasing market capitalization of IBIT options, as well as the highly
liquid markets for those securities, reduces the concerns for potential
market manipulation and/or disruption in the underlying markets upon
increasing position limits, while the rising demand for trading options
on IBIT for legitimate economic purposes compels an increase in
position limits (and corresponding exercise limits).
IBIT currently qualifies for a 250,000 contract position limit
pursuant to the criteria in Options 9, Section 13(d), which requires
that, for the most recent six-month period, trading volume for the
underlying security be at least 100 million shares.\15\ As of February
11, 2026, the market capitalization for IBIT was 52,661,063,818 \16\
with an average daily volume (``ADV''), for the preceding 6 months
prior to February 11, 2026 of 61,803,035 shares. By comparison on the
same day, the iShares MSCI Emerging Markets (``EEM'') has an ADV of
29,459,889 shares and an AUM of 27,761,941,292 the iShares China Large-
Cap ETF (``FXI'') has an ADV 31,656,532 and an AUM of 6,594,337,253,
and the iShares MSCI EAFE ETF (``EFA'') has an ADV of 17,215,037 shares
and an AUM of 76,788,457,200.\17\
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\15\ Options 9, Section 13(d), Equity Option Position Limits,
provides at subparagraph (5) that to be eligible for the 250,000
contract limit, either the most recent six (6) month trading volume
of the underlying security must have totalled at least 100 million
shares or the most recent six-month trading volume of the underlying
security must have totalled at least seventy-five (75) million
shares and the underlying security must have at least 300 million
shares currently outstanding.
\16\ The market capitalization was determined by multiplying a
Net Asset Value [sic] of $38.29 by the number of shares outstanding
1,337,920,000. This figure was acquired as of February 11, 2026. See
https://www.ishares.com/us/products/333011/ishares-Bitcoin-trust-etf.
\17\ These figures are from February 11, 2026.
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In addition to IBIT's Options 9, Section 13(d) eligibility for
1,000,000 contracts, the Exchange performed additional analysis with
respect to IBIT. First, ISE considered IBIT's market capitalization and
ADV, and prospective position limit in relation to other securities. In
measuring IBIT against other securities, ISE aggregated market
capitalization and volume data for securities that have defined
position limits utilizing data from The Options Clearing Corporations
(``OCC'').\18\ This pool of data took into consideration 3,797 options
on single stock securities, excluding broad based ETFs.\19\ Next, the
data was aggregated based on market capitalization and ADV and grouped
by option symbol and position limit utilizing statistical thresholds
for ADV, based on 180 days, and market capitalization that were one
standard deviation \20\ above the mean for each position limit category
(i.e., 25,000, 50,000 to 52,000, 75,000, 200,000, 250,000 to 375,000,
450,000 to 650,000, 750,000 to 1,250,000 and, and greater than or equal
to 2,000,000).\21\ This exercise was performed to demonstrate IBIT's
position limit relative to other options symbols in terms of market
capitalization and ADV. For reference, the market capitalization for
IBIT was $52,661,063,818 \22\ with an ADV, for the preceding 180 days
prior to February 11, 2026, of 61,803,035 shares.
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\18\ The computations are based on OCC data from February 11,
2026. Data displaying zero values in market capitalization or ADV
were removed.
\19\ IBIT has one asset and therefore is not comparable to a
broad-based ETF where there are typically multiple components.
\20\ The standard deviation added limited utility to the
analysis given the heavily skewed distribution of market
capitalizations in the single stock securities.
\21\ These buckets are based on OCC's current positions limits.
See https://www.theocc.com/market-data/market-data-reports/series-and-trading-data/position-limits. ISE Options 9, Section 13(d) sets
out position limits for various contracts. For example, a 25,000
contract limit applies to those options having an underlying
security that does not meet the requirements for a higher options
contract limit. The Exchange notes that position limits may also be
higher due to corporate actions in the underlying equities, such as
a stock split.
\22\ Net Asset Value of $38.29 by the number of shares
outstanding 1,337,920,000. This figure was acquired as of February
11, 2026. See https://www.ishares.com/us/products/333011/ishares-Bitcoin-trust-etf.
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ADV data 25k 50k-52K 75k 200K 250k-375K 450K-650K 750K-1.25mm >2mm
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:
Number of observations........... 392 401 547 232 2154 27 8 9
Average.......................... 91157.18 218871.78 445897.84 664343.12 4749775.74 5176137.15 6008710.88 47286595.89
Median........................... 83656 206731 426420 679891.5 2015092 4027803 5637387.5 27354715.0
Min.............................. 9725 51064 27845 28156 22931 931337 4628363 11811713
Max.............................. 499461 1211984 3658653 3138784 170721127 19492918 8116652 182173328
Standard deviation............... 57591.57 86620.56 224453.69 242713.70 9812734.84 4852687.63 1079816.30 54318913.92
IBIT rank........................ 1 1 1 1 15 1 1 3
IBIT % rank...................... 99.75 99.75 99.82 99.57 99.30 96.43 88.89 70.00
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Market Cap Statistics:
Number of observations........... 392 401 547 232 2154 27 8 9
Average.......................... 1,057M 2,401M 4,105M 5,417M 28,792M 65,956M 70,543M 776,666M
Median........................... 364M 737M 1,375M 1,551M 3,769M 14,822M 56,721M 49,215M
Min.............................. 7.697M 16.1M 2.164M 3.030M 0.470M 1,440M 11.43M 371M
Max.............................. 62.137M 139,006M 102,316M 125,661M 4,070,890M 656,022M 177,131M 4,618,220M
Standard deviation............... 4,002M 8,164M 8,576M 12,956M 150,096M 142,724M 58,978M 1,529,883M
IBIT rank........................ 2 3 5 5 221 7 5 5
IBIT % rank...................... 99.49 99.25 99.09 97.85 89.74 75.00 44.44 50.00
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Based on the above table, if IBIT were compared to the 10 stocks
that have position limits of 750,000 contracts to 1.25 million
contracts it would rank in the 45th percentile for market
capitalization and the 89th percentile for ADV.
The Exchange also analyzed the position limits for IBIT by
regressing the median elements from each bucket of market
capitalization and 180-day ADV of all non-ETF equities, against their
respective position limit figures. From this regression, the Exchange
was able to determine the implied coefficients to create a formulaic
method for determining an appropriate position limit.\23\ The Exchange
utilized a linear model approach which incorporated the median metric
from each bucket given the data at both the lower end of each position
limit bucket and the higher end of each position limit bucket could be
[[Page 9907]]
considered significant outliers, thereby skewing the results. Below are
various linear models utilizing market capitalization and ADV as well
as a two-factor model to determine the appropriate coefficients when
both metrics are incorporated into the same model.\24\
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\23\ The Exchange utilized Excel's Data Analysis Package to
model the position limit.
\24\ See id.
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BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN27FE26.000
Figure 1 utilizes IBIT's market capitalization of 52,661,063,818 to
arrive at a modeled position limit of 1,707,654.
[[Page 9908]]
[GRAPHIC] [TIFF OMITTED] TN27FE26.001
Figure 2 utilizes IBIT's ADV of 61,803,035 to arrive at a modeled
position limit of 5,672,081. Based on the aforementioned analysis, the
Exchange believes that the proposed 1,000,000 contracts position and
exercise limit is appropriate.
[[Page 9909]]
[GRAPHIC] [TIFF OMITTED] TN27FE26.002
BILLING CODE 8011-01-C
Figure 3 shows the results when constructing a two-factor model
employing both metrics (180-day ADV and market capitalization). The
result is a modeled position limit of 4,952,107.\25\
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\25\ See id.
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Second, ISE reviewed IBIT's data relative to the market
capitalization of the entire Bitcoin market in terms of exercise risk
and availability of deliverables. Also, as of February 11, 2026, there
were approximately 20.5 million Bitcoins in circulation.\26\ At a price
of $66,938,\27\ that equates to a market capitalization of greater than
$1.374 trillion US. If a position limit of 1,000,000 contracts were
considered, the exercisable risk would represent 7.474%\28\ of the
outstanding shares outstanding of IBIT. Since IBIT has a creation and
redemption process managed through the issuer, the position limit can
be compared to the total market capitalization of the entire Bitcoin
market and in that case, the exercisable risk for options on IBIT would
represent 0.278% of all Bitcoin
[[Page 9910]]
outstanding.\29\ Assuming a scenario where all options on IBIT shares
were exercised given the proposed 1,000,000-contract position limit
(and exercise limit), this would have a virtually unnoticed impact on
the entire Bitcoin market. This analysis demonstrates that the proposed
1,000,000 per same side position and exercise limit is appropriate for
options on IBIT given its liquidity.
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\26\ See https://www.coingecko.com/en/coins/Bitcoin.
\27\ This is the approximate price of Bitcoin from February 11,
2026.
\28\ This percentage is arrived at with this equation:
(1,000,000 contract limit * 100 share per option/1,337,920,000
shares outstanding).
\29\ This number was arrived at with this calculation:
(1,000,000 limit * 100 shares per option * $38.29 IBIT NAV)/
(20,528,687 BTC outstanding * $66,938 BTC price).
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Third, ISE reviewed the proposed position limit by comparing it to
position limits for derivative products regulated by the Commodity
Futures Trading Commission (``CFTC''). While the CFTC, through the
relevant Designated Contract Markets, only regulates options positions
based upon delta equivalents (creating a less stringent standard), ISE
examined equivalent bitcoin futures position limits. In particular, ISE
looked to the CME bitcoin futures contract \30\ that has a position
limit of 2,000 futures.\31\ On February 11, 2026, CME bitcoin futures
settled at $67,71570,406.33.[sic]\32\ On February 11, 2026, IBIT
settled at $38.29, which would equate to greater than 17,684,774 shares
of IBIT if the CME notional position limit was utilized. Since
substantial portions of any distributed options portfolio is likely to
be out of the money on expiration, 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
176,848 limit. Of note, unlike options contracts, CME position limits
are calculated on a net futures-equivalent basis by contract and
include contracts that aggregate into one or more base contracts
according to an aggregation ratio(s).\33\ Therefore, if a portfolio
includes positions in options on futures, CME would aggregate those
positions into the underlying futures contracts in accordance with a
table published by CME on a delta equivalent value for the relevant
spot month, subsequent spot month, single month and all month position
limits.\34\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading,
but does not exceed the limits when evaluated using the previous day's
delta factors, then the position shall not constitute a position limit
violation. Based on the aforementioned analysis, the Exchange believes
that the proposed 1,000,000 contracts position and exercise limit is
appropriate.
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\30\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\31\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
\32\ 2,000 futures at a 5 bitcoin multiplier (per the contract
specifications) equates to $677,150,000 (2,000 contracts * 5 BTC per
contract * $67,715 price of February BTC future) of notional value.
\33\ See https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm.
\34\ Id.
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Fourth, ISE analyzed a position limit and exercise limit of
1,000,000 for IBIT options against other options on ETFs with an
underlying commodity, namely SPDR Gold Shares (``GLD''), iShares Silver
Trust (``SLV''), and ProShares Bitcoin ETF (``BITO'').\35\ GLD has a
float of 377 million shares \36\ and a position limit of 250,000
contract. SLV has a float of 552 million shares,\37\ and a position
limit of 250,000 contracts. Finally, BITO has 200.89 million shares
outstanding \38\ and a position limit of 250,000 contracts. As
previously noted, position limits and exercise limits are designed to
limit the number of options contracts traded on the exchange in an
underlying security that an investor, acting alone or in concert with
others directly or indirectly, may control. A position limit exercise
in GLD would represent 6.63% of the float of GLD; a position limit
exercise in SLV would represent 4.53% of the float of SLV, and a
position limit exercise of BITO would represent 12.44% of the float of
BITO. In comparison, a 1,000,000-contract position limit in IBIT
options would represent 7.474%\39\ of the float of IBIT. Consequently,
the 1,000,000 proposed IBIT options position and exercise limit is more
conservative than the standard applied to GLD, SLV and BITO, and
appropriate.
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\35\ GLD, SLV and BITO each hold one asset in trust similar to
IBIT.
\36\ See https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld.
\37\ See https://www.ishares.com/us/products/239855/ishares-silver-trust-fund.
\38\ See https://www.marketwatch.com/investing/fund/bito.
\39\ This percentage is arrived at with this equation:
(1,000,000 contract limit * 100 share per option/1,337,920,000
shares outstanding). This information was captured on February 11,
2026.
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Fifth, ISE notes that IBIT began trading in penny increments as of
January 2, 2025 pursuant to the Penny Interval Program.\40\ The
Commission noted that evidence and analysis provided in connection with
the Penny Pilot demonstrated that the Pilot benefitted investors and
other market participants in the form of narrower spreads.\41\ The most
actively traded options classes are included in the Penny Program based
on certain objective criteria (trading volume thresholds and initial
price tests). As noted in the Penny Approval Order, the Penny Program
reflects a certain level of trading interest (either because the class
is newly listed or a class experienced a significant growth in investor
interest) to quote in finer trading increments, which in turn should
benefit market participants by reducing the cost of trading such
options.\42\ IBIT options is among a select group of products that have
achieved a certain level of liquidity that have garnered it the ability
to trade in finer increments. Failing to increase position and exercise
limits for IBIT options, now that it is trading in finer increments,
may artificially inhibit liquidity and create price inefficiency. The
Exchange notes that options on iShares MSCI Emerging Markets, iShares
China Large-Cap ETF and iShares MSCI EAFE ETF also trade in penny
increments based on their liquidity.
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\40\ The Exchange may add to the Penny Program a newly listed
option class provided that (i) it is among the 300 most actively
traded multiply listed option classes, as ranked by National Cleared
Volume at OCC, in its first full calendar month of trading and (ii)
the underlying security is priced below $200 or the underlying index
is at an index level below $200. Any option class added under this
provision will be added on the first trading day of the month after
it qualifies and will remain in the Penny Program for one full
calendar year, after which it will be subject to the Annual Review
described in Supplementary Material .01(b) to Options 3, Section 3.
The Exchange may add any option class to the Penny Program, provided
that (i) it is among the 75 most actively traded multiply listed
option classes, as ranked by National Cleared Volume at OCC, in the
past six full calendar months of trading and (ii) the underlying
security is priced below $200 or the underlying index is at an index
level below $200. Any option class added under this provision will
be added on the first trading day of the second full month after it
qualifies and will remain in the Penny Program for the rest of the
calendar year, after which it will be subject to the Annual Review
as described in Supplementary Material .01(b) to Options 3, Section
3. See Supplementary Material .01 to ISE Options 3, Section 3.
\41\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545, 19548 (April 7, 2020) (File No. 4-443) (Joint
Industry Plan; Order Approving Amendment No. 5 to the Plan for the
Purpose of Developing and Implementing Procedures Designed To
Facilitate the Listing and Trading of Standardized Options To Adopt
a Penny Interval Program) (``Penny Approval Order'').
\42\ Id. at 19548.
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The Exchange believes that IBIT options have more than sufficient
liquidity to garner an increased position
[[Page 9911]]
and exercise limit of 1,000,000 contracts. The Exchange believes that
any concerns related to manipulation and protection of investors are
mollified by the significant liquidity provision in IBIT. The Exchange
states that, as a general principle, increases in active trading volume
and deep liquidity of the underlying securities do not lead to
manipulation and/or disruption.
The Exchange believes that increasing the position (and exercise)
limits for IBIT options would lead to a more liquid and competitive
market environment for IBIT options, which will benefit customers that
trade these options. Further, the reporting requirement for such
options would remain unchanged. Thus, the Exchange will still require
that each Member that maintains positions in impacted options on the
same side of the market, for its own account or for the account of a
customer, report certain information to the Exchange. This information
includes, but would not be limited to, the options' positions, whether
such positions are hedged and, if so, a description of the hedge(s).
Market Makers would continue to be exempt from this reporting
requirement, however, the Exchange may access Market Maker position
information.\43\ 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 and will continue to serve as an important part of the
Exchange's surveillance efforts.\44\
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\43\ 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 Financial Industry Regulatory Authority, Inc. (``FINRA''), acting
as its agent pursuant to a regulatory services agreement (``RSA'').
\44\ See Options 9, Section 16.
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The Exchange also has no reason to believe that the growth in
trading volume in IBIT will not continue. Rather, the Exchange expects
continued options volume growth in IBIT as opportunities for investors
to participate in the options markets increase and evolve. The Exchange
believes that the current position and exercise limits in IBIT options
are restrictive and will hamper the listed options markets from being
able to compete fairly and effectively with the over-the-counter
(``OTC'') markets. OTC transactions occur through bilateral agreements,
the terms of which are not publicly disclosed to the marketplace. As
such, OTC transactions do not contribute to the price discovery process
on a public exchange or other lit markets. The Exchange believes that
without the proposed changes to position and exercise limits for IBIT
options, market participants will find the 250,000-contract position
limit an impediment to their business and investment objectives as well
as an impediment to efficient pricing. As such, market participants may
find the less transparent OTC markets a more attractive alternative to
achieve their investment and hedging objectives, leading to a retreat
from the listed options markets, where trades are subject to reporting
requirements and daily surveillance.
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are capable of properly
identifying disruptive and/or manipulative trading activity. The
Exchange also represents that it has adequate surveillances in place to
detect potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. These
procedures monitor market activity via automated surveillance
techniques to identify unusual activity in both options and the
underlyings, as applicable. The Exchange also notes that large stock
holdings must be disclosed to the Commission by way of Schedules 13D or
13G,\45\ which are used to report ownership of stock which exceeds 5%
of a company's total stock issue and may assist in providing
information in monitoring for any potential manipulative schemes.
Further, the Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns regarding potentially large, unhedged positions in equity
options. Current margin and risk-based haircut methodologies serve to
limit the size of positions maintained by any one account by increasing
the margin and/or capital that a Member must maintain for a large
position held by itself or by its customer.\46\ In addition, Rule 15c3-
1 \47\ imposes a capital charge on Members to the extent of any margin
deficiency resulting from the higher margin requirement.
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\45\ 17 CFR 240.13d-1.
\46\ See Options 9, Section 3 regarding margin requirements.
\47\ 17 CFR 240.15c3-1.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\48\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\49\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Additionally, the Exchange
believes the proposed rule change is consistent with the Section
(6)(b)(5) \50\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\48\ 15 U.S.C. 78f(b).
\49\ 15 U.S.C. 78f(b)(5).
\50\ 15 U.S.C. 78(f)(b)(5).
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The Exchange believes that increasing the position limit and
exercise limit for options on IBIT to 1,000,000 contracts is consistent
with the Act. This proposal will remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, protect investors and the public interest, because it will
provide market participants with the ability to more effectively
execute their trading and hedging activities. Also, based on current
trading volume, the resulting increase in the position (and exercise)
limits for IBIT options may allow Market Makers to maintain their
liquidity in these options in amounts commensurate with the continued
high consumer demand in IBIT options. The increased position and
exercise limits may also encourage other liquidity providers to
continue to trade on the Exchange rather than shift their volume to OTC
markets, which will enhance the process of price discovery conducted on
the Exchange through increased order flow. Further, this amendment
would allow institutional investors to utilize IBIT options for prudent
risk management purposes.
In addition, the Exchange believes that the current liquidity in
IBIT will continue to mitigate concerns regarding potential
manipulation of IBIT options and/or disruption of IBIT upon amending
the table of position limits in Supplementary Material .01 to Options
9, Section 13 and the table of exercise limits in Supplementary
Material .01 to Options 9, Section 15.
Comparing IBIT's data relative to the market capitalization of the
entire Bitcoin market in terms of exercise risk and availability of
deliverables, the
[[Page 9912]]
Exchange was able to conclude that if a position limit of 1,000,000
contracts were considered, the exercisable risk would represent 7.474%
\51\ of the shares outstanding of IBIT. Since IBIT has a creation and
redemption process managed through the issuer (whereby Bitcoin is used
to create IBIT shares), the position limit can be compared to the total
market capitalization of the entire Bitcoin market and in that case,
the exercisable risk for options on IBIT would represent less than
0.278% of all Bitcoin outstanding.\52\ This analysis demonstrated that
a 1,000,000 contracts position and exercise limits would be
appropriate.
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\51\ This percentage is arrived at with this equation:
(1,000,000 contract limit * 100 share per option/1,337,920,000
shares outstanding). This information was captured on February 11,
2026.
\52\ This number was arrived at with this calculation:
(1,000,000 limit * 100 shares per option * $38.29 IBIT NAV)/
(20,528,687 BTC outstanding * $66,938 BTC price).
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Comparing a position limit of 1,000,000 for IBIT options against
other options on ETFs with an underlying commodity, namely GLD, SLV and
BITO, a position limit exercise in GLD represents 6.63% of the float of
GLD, a position limit exercise in SLV represents 4.53% of the float of
SLV, and a position limit exercise of BITO represents 12.44% of the
float of BITO. In comparison, a 1,000,000-contract position limit in
IBIT options would represent 7.474% \53\ of the float of IBIT.
Consequently, a 1,000,000 IBIT options position limit is generally
aligned with the standards applied to GLD, SLV and BITO, and
appropriate.
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\53\ This percentage is arrived at with this equation:
(1,000,000 contract limit * 100 share per option/1,337,920,000
shares outstanding). This information was captured on February 11,
2026.
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ISE notes that IBIT began trading in penny increments on January 2,
2025 pursuant to the Penny Interval Program.\54\ The Commission noted
that evidence and analysis provided in connection with the Penny Pilot
demonstrated that the Pilot benefitted investors and other market
participants in the form of narrower spreads.\55\ The most actively
traded options classes are included in the Penny Program based on
certain objective criteria (trading volume thresholds and initial price
tests).\56\ As noted in the Penny Approval Order, the Penny Program
reflects a certain level of trading interest (either because the class
is newly listed or a class that experience a significant growth in
investor interest) to quote in finer trading increments, which in turn
should benefit market participants by reducing the cost of trading such
options.\57\ IBIT options are among a select group of products that
have achieved a certain level of liquidity that have garnered it the
ability to trade in finer increments pursuant to the Penny Interval
Program. Failing to permit IBIT options to potentially increase
position and exercise limits given the trading in finer increments, may
artificially inhibit liquidity and create price inefficiency for IBIT
options.
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\54\ The Exchange may add to the Penny Program a newly listed
option class provided that (i) it is among the 300 most actively
traded multiply listed option classes, as ranked by National Cleared
Volume at OCC, in its first full calendar month of trading and (ii)
the underlying security is priced below $200 or the underlying index
is at an index level below $200. Any option class added under this
provision will be added on the first trading day of the month after
it qualifies and will remain in the Penny Program for one full
calendar year, after which it will be subject to the Annual Review
described in Supplementary Material .01(b) to Options 3, Section 3.
The Exchange may add any option class to the Penny Program, provided
that (i) it is among the 75 most actively traded multiply listed
option classes, as ranked by National Cleared Volume at OCC, in the
past six full calendar months of trading and (ii) the underlying
security is priced below $200 or the underlying index is at an index
level below $200. Any option class added under this provision will
be added on the first trading day of the second full month after it
qualifies and will remain in the Penny Program for the rest of the
calendar year, after which it will be subject to the Annual Review
as described in Supplementary Material .01(b) to Options 3, Section
3. See Supplementary Material .01 to ISE Options 3, Section 3.
\55\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545, 19548 (April 7, 2020) (File No. 4-443) (Joint
Industry Plan; Order Approving Amendment No. 5 to the Plan for the
Purpose of Developing and Implementing Procedures Designed To
Facilitate the Listing and Trading of Standardized Options To Adopt
a Penny Interval Program) (``Penny Approval Order'').
\56\ Options on iShares MSCI Emerging Markets, iShares China
Large-Cap ETF and iShares MSCI EAFE ETF also trade in penny
increments based on their liquidity.
\57\ Id. at 19548.
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Finally, as discussed above, the Exchange's surveillance and
reporting safeguards continue to be designed to deter and detect
possible manipulative behavior that might arise from increasing or
eliminating position and exercise limits in certain classes. The
Exchange believes that the current financial requirements imposed by
the Exchange and by the Commission adequately address concerns
regarding potentially large, unhedged positions in the options on the
underlying securities, further promoting just and equitable principles
of trading, the maintenance of a fair and orderly market, and the
protection of investors.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe that the proposed rule change will
impose any burden on inter-market competition as the proposal is not
competitive in nature. 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.
The Exchange's proposal does not burden intra-market competition
because all Members would be subject to the position limits in Options
9, Sections 13 and corresponding exercise limits in Options 9, Section
15. The Exchange believes that the proposed rule change will also
provide additional opportunities for market participants to continue to
efficiently achieve their investment and trading objectives for equity
options on the Exchange.
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.
IV. Proceedings To Determine Whether To Approve or Disapprove SR-ISE-
2025-26, as Modified by Amendment No. 5, and Grounds for Disapproval
Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \58\ to determine whether the proposed rule
change, as modified by Amendment No. 5, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposed rule
change. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide comments on the proposed rule
change.
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\58\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\59\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with the Act and, in
particular, with Section 6(b)(5) of the
[[Page 9913]]
Act, which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and to protect investors and the public interest.\60\
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\59\ Id.
\60\ 15 U.S.C. 78f(b)(5).
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The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, in addition to any
other comments they may wish to submit about the proposed rule change.
In particular, the Commission seeks comment on whether the data and
analysis provided by the Exchange support a conclusion that the
proposed position and exercise limits for IBIT options are consistent
with the requirements of Section 6(b)(5) of the Act, including the
requirements that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest.
V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal, as modified by Amendment No. 5. In particular, the
Commission invites the written views of interested persons concerning
whether the proposal is consistent with Section 6(b)(5) or any other
provision of the Act, and the rules and regulations thereunder.
Although there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral presentation.\61\
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\61\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by March 20, 2026. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
April 3, 2026.
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-2025-26 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-2025-26. 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-ISE-2025-26 and should be submitted on
or before March 20, 2026. Rebuttal comments should be submitted by
April 3, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\62\
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\62\ 17 CFR 200.30-3(a)(12), (57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-03917 Filed 2-26-26; 8:45 am]
BILLING CODE 8011-01-P