78942 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Notices 

201 15 U.S.C. 78o–3(b), 78s(b)(2)(C). 

202The commenter’s references to the Supreme 

Court’s decisions in Loper Bright Enterprises v. 

Raimondo, 144 S. Ct. 2244 (2024) and Ohio v. EPA, 

144 S. Ct. 2040 (2024), are similarly misplaced. 

Loper Bright is inapposite because the question here 

is whether FINRA’s proposed rule change is 

consistent with the requirements of Section 

15A(b)—in which case the Exchange Act requires 

the Commission to approve it—not whether the 

Commission would have statutory authority to 

adopt its own market-wide rule. And Ohio is 

inapposite because we explain above why 

commenters’ concerns do not establish that the 

Proposal is inconsistent with the requirements of 

the Act. 

203 15 U.S.C. 78s(b)(6). 

204 15 U.S.C. 78s(b)(5) (providing that the 

Commission ‘‘shall consult with and consider the 

views of the Secretary of the Treasury prior to 

approving a proposed rule filed by a registered 

securities association that primarily concerns 

conduct related to transactions in government 

securities, except where the Commission 

determines that an emergency exists requiring 

expeditious or summary action and publishes its 

reasons therefor’’). 

205 15 U.S.C. 78s(b)(2). 

206 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3On January 10, 2024, the Commission approved 

proposals by NYSE Arca, Inc., The Nasdaq Stock 

Market LLC, and Cboe BZX Exchange, Inc. to list 

and trade the shares of 11 bitcoin-based 

commodity-based trust shares and trust units, 

including the iShares Bitcoin Trust, the Grayscale 

Bitcoin Trust, and the Bitwise Bitcoin ETF. See 

Securities Exchange Act Release No. 99306 (Jan. 10, 

2024), 89 FR 3008 (Jan. 17, 2024) (order approving 

File Nos. SR–NYSEARCA–2021–90; SR– 

NYSEARCA–2023–44; SR–NYSEARCA–2023–58; 

SR–NASDAQ–2023–016; SR–NASDAQ–2023–019; 

SR–CboeBZX–2023–028; SR–CboeBZX–2023–038; 

SR–CboeBZX–2023–040; SR–CboeBZX–2023–042; 

SR–CboeBZX–2023–044; SR–CboeBZX–2023–072) 

(‘‘Bitcoin ETP Order’’). 

4See Securities Exchange Act Release No. 99396 

(Jan. 19, 2024), 89 FR 5047 (Jan. 25, 2024) (‘‘Notice’’ 

or ‘‘Proposal’’). 

5 15 U.S.C. 78s(b)(2). 

6See Securities Exchange Act Release No. 99681 

(Mar. 6, 2024), 89 FR 17886 (Mar. 12, 2024). 

7 15 U.S.C. 78s(b)(2)(B). 

8See Securities Exchange Act Release No. 100024 

(Apr. 24, 2024), 89 FR 34290 (Apr. 30, 2024) 

(‘‘Order Instituting Proceedings’’). 

9See Securities Exchange Act Release No. 100567 

(Jul. 19, 2024), 89 FR 60482 (Jul. 25, 2024). 

10Comment letters on the Proposal are available 

at https://www.sec.gov/comments/sr-ise-2024-03/ 

srise202403.htm. 

11See letter from Greg Ferrari, Vice President, 

U.S. Options, ISE, dated May 23, 2024 (‘‘ISE Letter 

I’’). 

12See letter from Angela Dunn, Nasdaq ISE, LLC, 

dated Aug. 21, 2024 (‘‘ISE Letter II’’). 

13Amendment No. 4 amends ISE Options 9, 

Section 13, Supplementary Material .01 and ISE 

Options 9, Section 15, Supplementary Material .01, 

respectively, to establish position and exercise 

limits of 25,000 contracts for the proposed IBIT 

options. 

14Amendment No. 5 amends the Proposal to 

describe in greater detail the surveillance 

procedures that will apply to the trading of options 

on IBIT. The full text of Amendment Nos. 4 and 5 

is available at the Exchange’s website at https://

listingcenter.nasdaq.com/rulebook/ISE/rulefilings. 

Nor does the Exchange Act require 

that a self-regulatory organization 

establish the existence of a market 

failure to justify a proposed rule change. 

Under Section 19(b) of the Exchange 

Act, the Commission must approve a 

rule change proposed by FINRA if the 

Commission finds that the proposed 

change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder, including 

the requirements of section 15A(b).201

For the reasons discussed above, the 

Commission finds that the Proposal is 

consistent with those requirements 

because, among other things, it is 

designed to promote just and equitable 

principles of trade, 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; and is not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

The Proposal also does not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act.202

H. Consultation With the Treasury 

Department 

Pursuant to section 19(b)(6) of the 

Act,203 the Commission has considered 

the sufficiency and appropriateness of 

existing laws and rules applicable to 

government securities brokers, 

government securities dealers, and their 

associated persons in approving the 

proposed rule change. Pursuant to 

section 19(b)(5) of the Act,204 the 

Commission consulted with and 

considered the views of the Treasury 

Department in determining whether to 

approve the proposed rule change. The 

Treasury Department did not object to 

the proposed rule change. 

IV. Conclusion 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act,205 that the 

proposed rule change (SR–FINRA– 

2024–004), as modified by Partial 

Amendment No. 1, be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.206

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–22027 Filed 9–25–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101128; File No. SR–ISE– 

2024–03] 

Self-Regulatory Organizations; Nasdaq 

ISE, LLC; 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 

September 20, 2024. 

I. Introduction 

On January 9, 2024, Nasdaq ISE, LLC 

(‘‘ISE’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and 

Rule 19b–4 thereunder,2 a proposed rule 

change to list and trade options on 

exchange-traded product (‘‘ETP’’) shares 

that represent interests in the iShares 

Bitcoin Trust (‘‘IBIT’’).3 On January 11, 

2024, the Exchange filed Amendment 

No. 1 to the proposed rule change, 

which replaced and superseded the 

proposed rule change as originally filed. 

On January 25, 2024, the proposed rule 

change, as modified by Amendment No. 

1, was published for comment in the 

Federal Register.4 On March 6, 2024, 

pursuant to Section 19(b)(2) of the Act,5

the Commission designated a longer 

period within which to approve the 

Proposal, disapprove the Proposal, or 

institute proceedings to determine 

whether to disapprove the Proposal.6

On April 24, 2024, the Commission 

instituted proceedings under Section 

19(b)(2)(B) of the Act 7 to determine 

whether to approve or disapprove the 

Proposal.8 On July 19, 2024, the 

Commission designated a longer time 

for Commission action on the Proposal.9

The Commission received comments 

addressing the proposed rule change.10

On May 23, 2024, ISE submitted a letter 

providing additional information 

regarding IBIT and other bitcoin-based 

ETPs.11 On August 21, 2024, ISE 

submitted a second letter that provides 

additional analysis supporting the 

proposed position limit of 25,000 

contracts for IBIT options.12 The 

Exchange filed Amendment Nos. 2 and 

3 to the Proposal on August 29, 2024, 

and September 12, 2024, respectively. 

On September 12, 2024, the Exchange 

withdrew Amendment Nos. 2 and 3 and 

filed Amendment No. 4 to the 

Proposal.13 The Exchange filed 

Amendment No. 5 to the Proposal on 

September 19, 2024.14 The Commission 

is publishing this notice to solicit 

comments on Amendment Nos. 4 and 5 

from interested persons, and is 

approving the proposed rule change, as 


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15See supra note 4. 

16See Notice, 89 FR at 5051. 

17See id. at 5050. 

18See Notice, 89 FR at 5049. See also ISE Options 

4, Section 3(a). 

19See Notice, 89 FR at 5049. 

20See id. at 5050. 

21See id. 

22For an option to be eligible for the 50,000- 

contract limit, the security underlying the option 

must have most recent six-month trading volume of 

at least 20,000,000 shares, or most recent six-month 

trading volume of at least 15,000,000 shares and at 

least 40,000,000 shares currently outstanding. For 

an option to be eligible for the 75,000-contract limit, 

the underlying security must have most recent sixmonth trading volume of at least 40,000,000 shares, 

or most recent six-month trading volume of at least 

30,000,000 shares and at least 120,000,000 shares 

currently outstanding. For an option to be eligible 

for the 200,000-contract limit, the underlying 

security must have most recent six-month trading 

volume of at least 80,000,000 shares, or most recent 

six-month trading volume of at least 60,000,000 

shares and at least 240,000,000 shares currently 

outstanding. For an option to be eligible for the 

250,000-contract limit, the security underlying the 

option must have most recent six-month trading 

volume of at least 100,000,000 shares, or most 

recent six-month trading volume of at least 

75,000,000 shares and at least 300,000,000 shares 

currently outstanding. The 25,000-contract limit 

applies to options on underlying securities that do 

not qualify for a higher contract limit. See ISE 

Options 9, Section 13. In addition, ISE Options 9, 

Section 13, Supplementary Material .01 establishes 

higher position limits for options on certain ETFs. 

23See Amendment 4. 

24See id. 

25See Notice, 89 FR at 5050. 

26The surveillance program includes real-time 

patterns for price and volume movements and posttrade surveillance patterns (e.g., spoofing, marking 

the close, pinging, phishing). See Amendment No. 

5. 

27See id. 

28See id. 

29Section 19(g)(1) of the Act, among other things, 

requires every SRO registered as a national 

securities exchange or national securities 

association to comply with the Act, the rules and 

regulations thereunder, and the SRO’s own rules, 

and, absent reasonable justification or excuse, 

enforce compliance by its members and persons 

associated with its members. See 15 U.S.C. 

78q(d)(1) and 17 CFR 240.17d–2. Section 17(d)(1) 

of the Act allows the Commission to relieve an SRO 

of certain responsibilities with respect to members 

of the SRO who are also members of another SRO 

(‘‘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. See 

Amendment No. 5. 

30See Amendment No. 5. 

31See supra note 3. 

32See Amendment No. 5 (citing the Bitcoin ETP 

Order, 89 FR at 3009). 

33See Amendment No. 5 (citing the Bitcoin ETP 

Order, 89 FR at 3010–11). 

modified by Amendment Nos. 1, 4, and 

5, on an accelerated basis. 

II. Description of the Proposed Rule 

Change, as Modified by Amendment 

Nos. 1, 4, and 5 

As described in detail in the Notice, 

the Exchange proposed to amend its 

rules to permit the listing and trading of 

options on IBIT.15 The Exchange stated 

that options on IBIT would provide 

investors with a hedging and risk 

management tool to manage exposure to 

the price of bitcoin and bitcoin-related 

products and positions.16

Options on IBIT will be physically 

settled with American-style exercise.17

The Exchange stated that options on 

IBIT will be subject to the Exchange’s 

respective initial and continued listing 

standards.18 The Exchange’s initial 

listing standards require, among other 

things, that the security underlying a 

listed option be ‘‘characterized by a 

substantial number of outstanding 

shares that are widely held and actively 

traded.’’ 19 The Exchange stated that 

options on IBIT will trade in the same 

manner as other exchange-traded fund 

(‘‘ETF’’) options, and that options on 

IBIT will be subject to the Exchange 

rules that currently apply to the listing 

and trading of all ETF options on the 

Exchange, including, for example, 

Exchange rules governing listing 

criteria, expiration and exercise prices, 

minimum increments, margin 

requirements, customer accounts, and 

trading halt procedures.20

As initially proposed, the position 

and exercise limits for options on IBIT 

would have been determined pursuant 

to the Exchange’s existing rules.21

Under these rules, the position and 

exercise limits applicable to an options 

class depend upon the trading volume 

and outstanding shares of the 

underlying security. Thus, position and 

exercise limits of 250,000, 200,000, 

75,000, 50,000 or 25,000 contracts on 

the same side of the market would have 

applied to options on IBIT depending 

on the six-month trading volume and 

number of shares outstanding for IBIT.22

In Amendment No. 4, the Exchange 

proposes to set the position and exercise 

limits for options on IBIT at 25,000 

contracts regardless of the trading 

volume and shares outstanding for 

IBIT.23 According to the Exchange, ‘‘this 

position limit is the lowest position 

limit available in the options industry, 

is extremely conservative and more than 

appropriate given the IBIT’s market 

capitalization, average daily volume, 

and high number of outstanding 

shares.’’ 24

The Exchange represents that the 

surveillance procedures that it applies 

to other ETF options will apply to 

options on IBIT, and that its existing 

surveillance and reporting safeguards 

are designed to deter and detect possible 

manipulative behavior that might arise 

from listing and trading options on 

ETFs.25 In Amendment No. 5, the 

Exchange more fully describes the 

surveillance procedures that will apply 

to options on IBIT. The Exchange states 

that it has an adequate surveillance 

program in place for options, and that 

the Exchange intends to apply the same 

program procedures to options on IBIT 

that it applies to the Exchange’s other 

options products.26 The Exchange states 

that it market surveillance staff would 

have access to the surveillances 

conducted by The Nasdaq Stock Market 

LLC (‘‘Nasdaq’’) with respect to IBIT 

and would review activity in IBIT when 

conducting surveillances for market 

abuse or manipulation in the options on 

the IBIT.27 Additionally, the Exchange 

states that it is a member of the 

Intermarket Surveillance Group (‘‘ISG’’) 

under the Intermarket Surveillance 

Group Agreement, and that ISG 

members work together to coordinate 

surveillance and investigative 

information sharing in the stock, 

options, and futures markets.28 The 

Exchange further states that it has a 

Regulatory Services Agreement with the 

Financial Industry Regulatory Authority 

(‘‘FINRA’’) and that, pursuant to a 

multi-party 17d–2 joint plan, all of the 

options exchanges allocate regulatory 

responsibilities to FINRA to conduct 

certain options-related market 

surveillance that are common to rules of 

all options exchanges.29

The Exchange states that underlying 

shares of spot bitcoin ETPs, including 

IBIT, are also subject to safeguards 

related to addressing market abuse and 

manipulation.30 The Exchange notes 

that the Commission stated in it its 

order approving proposals by several 

exchanges to list and trade shares of 

spot bitcoin-based exchange-traded 

products (‘‘Bitcoin ETP Order’’) 31 that: 

Each Exchange has a comprehensive 

surveillance-sharing agreement with the CME 

via their common membership in the 

Intermarket Surveillance Group. This 

facilitates the sharing of information that is 

available to the CME through its surveillance 

of its markets, including its surveillance of 

the CME bitcoin futures market.32

The Exchange states that, given the 

consistently high correlation between 

the CME bitcoin futures market and the 

spot bitcoin market, as confirmed by the 

Commission through robust correlation 

analysis, the Commission was able to 

conclude that such surveillance sharing 

agreements could reasonably be 

‘‘expected to assist in surveilling for 

fraudulent and manipulative acts and 

practices in the specific context of the 

[Bitcoin ETPs].’’ 33


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34See Securities Exchange Act Release No. 99295 

(Jan. 8, 2024), 89 FR 2321, 2334–35 (Jan.12, 2024) 

(notice of filing of Amendment No. 1 to SR– 

Nasdaq–2023–016). 

35See Amendment No. 5. 

36See Notice, 89 FR at 5050. 

37 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

38 15 U.S.C. 78f. 

39 15 U.S.C. 78f(b)(5). 

40 In addition to the Proposal, the Order 

Instituting Proceedings sought comment on several 

other proposals to list and trade options on bitcoin 

ETPs. See Order Instituting Proceedings, 89 FR at 

34294. See also ISE Letter I. 

41See letters from John C. Pickford, Susquehanna, 

dated Sept. 11, 2024; Steve Crutchfield, Head of 

Business Development, CTC, LLC, dated May 17, 

2024; Congressman Mike Flood and Congressman 

Wiley Nickel, dated May 1, 2024; Joseph Ferrucci, 

dated Feb. 28, 2024; Benjamin Pincock, CIO, 

Method and Theory Capital Management, dated 

Feb. 19, 2024; Derek Jerina, dated Feb. 10, 2024; 

Xplorer Trading, dated Feb. 7, 2024; and an 

anonymous commenter, dated Jan. 21, 2024. 

42See infra notes 45–49 and accompanying text. 

43See ISE Options 4, Section 3(a)(2). 

44See Order Instituting Proceedings, 89 FR at 

34294. See also ISE Options 4, Section 3(a). 

45See letter from Benjamin L. Schiffrin, Director 

of Securities Policy, Better Markets, Inc., dated May 

21, 2024 (‘‘Better Markets Letter I’’) at 2. 

46Better Markets Letter I at 2 and n. 17 (quoting 

Terrence Yang, managing director of Swan Bitcoin). 

47Better Markets Letter I at 1. See also letter from 

Benjamin L. Schiffrin, Director of Securities Policy, 

Better Markets, Inc., dated September 13, 2024 

(‘‘Better Markets Letter II’’). Better Markets Letter II 

reiterated the concerns that the commenter raised 

in Better Markets I and provided additional 

information regarding the volatility of bitcoin. 

Better Markets Letter II stated, for example, that in 

August 2024, bitcoin dropped 15% in a 24-hour 

period, a decline that, according to the commenter, 

affected more investors because of the 

Commission’s approval of bitcoin-based ETPs. See 

Better Markets Letter II at 2. The commenter stated 

that the risks to retail investors associated with 

options trading would be ‘‘compounded 

exponentially’’ because of the volatility of the 

crypto market and, further, that options on spot 

bitcoin-based exchange-traded products exacerbate 

the risks to retail investors of investing in bitcoin. 

See Better Markets Letter II at 3. 

48See Better Markets Letter I at 4. 

49Better Markets Letter I at 5. See also letter from 

anonymous commenter dated Apr. 15, 2024 (stating 

that the introduction of derivatives tied to the price 

of bitcoin would ‘‘spell disaster for the financial 

system and for global markets’’). 

50See ISE Letters I and II. 

51See ISE Letter I at 2. ISE stated that it obtained 

information regarding the number of shareholders 

by contacting broker-dealers and combining their 

reported shareholder counts. See ISE Letter I at 

notes 3 and 4. 

52 ISE Letter II at 3. As of September 6, 2024, IBIT 

had net assets of $20,083,776,594. See https://

www.ishares.com/us/products/333011/isharesbitcoin-trust. 

In light of surveillance measures 

related to both options and futures, as 

well as the underlying Trust,34 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 

IBIT options.35

The Exchange represents that it 

believes that both it and the Options 

Price Reporting Authority, LLC have the 

necessary systems capacity to handle 

the additional traffic associated with the 

listing of new series that may result 

from the introduction of options on 

IBIT.36

The Proposal also amends ISE 

Options 4, Section 3(h) to replace the 

reference to the ‘‘ETFS Gold Trust’’ with 

a reference to the Aberdeen Standard 

Physical Gold Trust, the current name of 

the trust. In addition, the Proposal 

replaces incorrect cross-references to 

‘‘Options 4, Section 3(h)(A)(i)’’ in ISE 

Options 4, Section 4(g) with references 

to the correct citation, ‘‘Options 4, 

Section 3(h)(i).’’ 

III. Discussion and Commission 

Findings 

After careful consideration, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange,37 and, in 

particular, the requirements of Section 6 

of the Act.38 Specifically, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,39 which requires that 

an exchange have rules designed to 

prevent fraudulent and manipulative 

acts and practices, to remove 

impediments to and perfect the 

mechanism of a free and open market, 

and to protect investors and the public 

interest. 

The Order Instituting Proceedings 

sought comment on several issues raised 

by the Proposal, including whether 

shares in the underlying bitcoin ETPs 

are ‘‘widely held and actively traded,’’ 

as required by ISE’s rules; whether the 

proposed bitcoin ETP options should be 

subject to the same position limits as 

stock options, and whether the available 

supply in the markets for bitcoin should 

be considered in establishing position 

limits for options on the bitcoin ETPs; 

and the potential impact on market 

quality and function that could result 

from listing bitcoin ETP options.40

Several commenters supported the 

Proposal, generally stating that the 

proposed options would help investors 

to hedge their positions and manage 

crypto-related risk.41 Other commenters 

raised concerns regarding the potential 

risks of the proposed options to 

individual investors and the financial 

system.42

A. Widely Held and Actively Traded 

The Exchange’s initial listing 

standards require, among other things, 

that the security underlying a listed 

option be ‘‘characterized by a 

substantial number of outstanding 

shares that are widely held and actively 

traded.’’ 43 The Order Instituting 

Proceedings requested comment on 

whether the Proposal should include 

data demonstrating that the shares of the 

underlying ETP are ‘‘widely held and 

actively traded,’’ as required by 

Exchange rules.44

One commenter stated that the 

Commission should wait and evaluate 

the market for spot bitcoin ETPs to 

determine the extent to which they are 

widely held and actively traded before 

approving options on the spot bitcoin 

ETPs.45 The commenter stated that data 

indicated that, compared to when spot 

bitcoin ETPs were launched, investor 

demand for spot bitcoin ETPs had 

diminished, and that one market 

participant had expressed the view that 

the bitcoin ETP market should ‘‘settle 

and find its footing’’ before the 

Commission approves the listing of 

options on spot bitcoin ETPs.46 In 

addition, the commenter urged the 

Commission to proceed cautiously 

because ‘‘options on spot bitcoin ETPs 

will expose retail investors to a 

tremendous amount of risk.’’ 47 The 

commenter also stated that the approval 

of options on spot bitcoin ETPs could 

pose risks to the broader financial 

system because the Commission’s 

approval of spot bitcoin ETPs had 

deepened the connection between 

‘‘volatile’’ cryptocurrencies and the 

traditional finance system.48 The 

commenter stated that options on spot 

bitcoin ETPs ‘‘would further entangle 

the crypto industry with traditional 

finance’’ and aggravate the risks 

associated with crypto assets.49

The Exchange has addressed 

comments regarding whether IBIT 

shares are widely held and actively 

traded.50 In particular, the Exchange 

represented that ‘‘on May 13, 2024, 

IBIT’s total shares outstanding equaled 

482,480,000. On May 13, 2024, IBIT’s 

total shares comprised approximately 

4% of total underlying spot BTC 

liquidity. IBIT is the most liquid spot 

Bitcoin ETF and the 11th most liquid 

ETF in the U.S. by average volume 

(34,825,921 shares) and 18th largest by 

average notional ($1,246,060,738). Of 

note, as of May 22, 2023, IBIT had 

approximately 193,956 shareholders.’’ 51

ISE further represented that ‘‘the 

market capitalization for IBIT was 

19,789,068 billion [sic], with an average 

daily volume (‘ADV’), for the preceding 

three months prior to August 7, 2024, of 

greater than 26 million shares.’’ 52 In 


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53See ISE Letter II at 5. 

54See Better Markets Letter I at 2. 

55For example, IBIT had net assets of 

$20,083,776,594 as of September 6, 2024, and net 

assets of $22,672,544,214 as of September 19, 2024. 

See supra note 52 and https://www.ishares.com/us/ 

products/333011/ishares-bitcoin-trust. 

56See supra notes 51–53 and accompanying text. 

57See Better Markets Letter II at 2–3. 

58See ISE Options 10, Section 6(b). 

59See ISE Options 10, Section 6(b)(1). 

60See FINRA Rule 2360(b)(19). 

61See Exchange Act Section 19(b)(2)(C), 15 U.S.C. 

78s(b)(2)(C). 

62See Order Instituting Proceedings, 89 FR at 

34294. 

63See Securities Exchange Act Release No. 39489 

(Dec. 24, 1997), 63 FR 276, 279 (Jan 5. 1998) (order 

approving File No. SR–Cboe–97–11). 

64 Id. 

65 Id. 

66See, e.g., Securities Exchange Act Release Nos. 

21907 (Mar. 29, 1985), 50 FR 13440, 13441 (Apr. 

4, 1985) (order approving File Nos. SR–CBOE–84– 

21, SR–Amex–84–30, SR–Phlx–84–25, and SR– 

PSE–85–1); and 40875 (Dec. 31, 1998), 64 FR 1842, 

1843 (Jan. 12, 1999) (order approving File Nos. SR– 

CBOE–98–25; Amex–98–22; PCX–98–33; and Phlx– 

98–36). 

67See id. 

68See Notice, 89 FR at 5050. 

69 In Amendment No.4, the Exchange also 

clarified that its analysis in ISE Letter II applies to 

exercise limits as well as position limits. 

70The Exchange represented that it aggregated 

market capitalization and volume data for securities 

that have defined position limits utilizing data from 

The Options Clearing Corporation. This pool of data 

took into consideration 3,984 options on single 

stock securities, excluding broad based ETFs. ISE 

aggregated the data based on market capitalization 

and ADV and grouped option symbols by position 

limit utilizing statistical thresholds for ADV and 

market capitalization that were one standard 

deviation above the mean for each position limit 

category (i.e., 25,000, 50,000 to 65,000, 75,000, 

100,000 to less than 250,000, 250,000 to 400,000, 

450,000 to 1,000,000, and greater than or equal to 

1,000,000). See ISE Letter II at 3–4. ISE Options 9, 

Section 13(d) establishes position limits for various 

options. For example, a 25,000-contract limit 

applies to options having an underlying security 

that does not meet the trading volume and 

outstanding shares requirements for a higher 

position limit. See supra note 22. 

addition, ISE represented that on 

August 12, 2024, IBIT had 611,040,000 

shares outstanding.53 The Commission 

has reviewed the Exchange’s analysis 

and publicly available data regarding 

IBIT. Based on this review of 

information provided by the Exchange 

and publicly available information— 

including information regarding the 

number of IBIT shareholders, the 

number of IBIT shares outstanding, the 

ADV of IBIT, and the net assets of 

IBIT—the Commission concludes that it 

is reasonable for the Exchange to 

determine that IBIT satisfies the 

requirement of ISE Options 4, Section 

3(a)(2) that an underlying be widely 

held and actively traded. As stated 

above, one commenter suggested that 

fund outflows could indicate waning 

investor demand for spot bitcoin-based 

ETPs.54 The Commission agrees that 

investor interest in IBIT may vary over 

time.55 Nonetheless, the data discussed 

above indicate that it is reasonable to 

conclude that IBIT shares are widely 

held and actively traded.56

With regard to comments regarding 

the Proposal’s potential risks to retail 

investors, including concerns regarding 

the volatility of bitcoin,57 existing rules 

governing broker-dealer conduct when 

dealing with retail customers would 

apply to the proposed IBIT options. For 

example, the Exchange’s rules require 

its members to ‘‘exercise due diligence 

to learn the essential facts as to the 

Customer and his investment objectives 

and financial situation.’’ 58 In fulfilling 

this obligation, the member must 

consider, among other things, a 

customer’s investment objectives; 

employment status; estimated annual 

income; estimated net worth; and 

investment experience and 

knowledge.59 Further, FINRA’s 

heightened suitability requirements for 

options trading accounts require that a 

person recommending an opening 

position in any option contract have ‘‘a 

reasonable basis for believing, at the 

time of making the recommendation, 

that the customer has such knowledge 

and experience in financial matters that 

he may reasonably be expected to be 

capable of evaluating the risks of the 

recommended transaction, and is 

financially able to bear the risks of the 

recommended position in the option 

contract.’’ 60

The Commission acknowledges the 

comments regarding the potential 

impact of bitcoin ETP options on the 

traditional financial system. Pursuant to 

Section 19(b)(2) of the Exchange Act, 

however, the Commission must approve 

a proposed rule change filed by a 

national securities exchange if it finds 

that the proposed rule change is 

consistent with the applicable 

requirements of the Exchange Act.61 For 

the reasons discussed herein, the 

Commission finds that the proposed 

rule change satisfies the requirements of 

the Exchange Act, including the 

requirements in Section 6(b)(5) that the 

rules of a national securities exchange 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

remove impediments to and perfect the 

mechanism of a free and open market, 

and to protect investors and the public 

interest. 

B. Position and Exercise Limits 

The Order Instituting Proceedings 

also requested comment on whether the 

Proposal demonstrated that options on 

the bitcoin ETPs should be subject to 

the same position limits as options on 

stock, and whether the available supply 

in the markets for bitcoin should be 

considered in establishing position 

limits for options on the bitcoin ETPs.62

Position and exercise limits serve as 

a regulatory tool designed to deter 

manipulative schemes and adverse 

market impact surrounding the use of 

options. Since the inception of 

standardized options trading, the 

options exchanges have had rules 

limiting the aggregate number of options 

contracts that a member or customer 

may hold or exercise. Options position 

and exercise limits are intended to 

prevent the establishment of options 

positions that can be used or might 

create incentives to manipulate or 

disrupt the underlying market to benefit 

the options position.63 In addition, such 

limits serve to reduce the possibility of 

disruption in the options market itself, 

especially in illiquid classes.64 As the 

Commission has previously recognized, 

markets with active and deep trading 

interest, as well as with broad public 

ownership, are more difficult to 

manipulate or disrupt than less active 

and deep markets with smaller public 

floats.65 The Commission also has 

recognized that position and exercise 

limits must be sufficient to prevent 

investors from disrupting the market for 

the underlying security by acquiring 

and exercising a number of options 

contracts disproportionate to the 

deliverable supply and average trading 

volume of the underlying security.66 At 

the same time, the Commission has 

recognized that limits must not be 

established at levels that are so low as 

to discourage participation in the 

options market by institutions and other 

investors with substantial hedging 

needs or to prevent specialists and 

market-makers from adequately meeting 

their obligations to maintain a fair and 

orderly market.67

The Exchange initially proposed to 

subject options on IBIT to the same 

position and exercise limit levels as 

other ETF options currently trading.68 In 

Amendment No. 4, however, the 

Exchange proposed to provide position 

and exercise limits of 25,000 contracts 

for options on IBIT,69 which are the 

lowest position and exercise limits to 

which other ETF options are subject. In 

proposing these position and exercise 

limits, the Exchange considered IBIT’s 

market capitalization and ADV, and its 

prospective position and exercise limits 

in relation to other securities.70 The 

Exchange stated that this analysis shows 

that options symbols with similar 

market capitalization and ADV to IBIT 

have a position and exercise limits in 


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78946 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Notices 

71See ISE Letter II at 4. 72See id. 73See id. 74 Id. 75 Id. 

76See id. 

77See id. 

78See id. 

79 Id. 

80See id. 

81The Exchange multiplied the 2,000-contract 

limit by a multiplier of five, resulting in $550 

million of notional value for bitcoin futures. See ISE 

Letter II for a detailed description of the Exchange’s 

methodology. 

82See id. at 5. 

83See id. 

84See id. 

85See supra note 19 and accompanying text. 

86See ISE Letter II at 3. 

87See supra note 66 and accompanying text. 

88See Securities Exchange Act Release No. 57352 

(Feb.19, 2008), 73 FR 10076, 10080 (Feb. 25, 2008) 

(order approving File No. SR–Cboe–2008–07). 

89See ISE Letter II at 4. 

90See id. at 5. 

91 ISE Letter I at 7. 

excess of 400,000 options. Thus, 

according to the Exchange, this 

demonstrates that ‘‘the proposed 25,000 

same side position limit for options on 

IBIT is extremely conservative relative 

to these options symbols which are a 

full standard deviation above the mean 

in comparison.’’ 71

The Exchange also stated that it 

reviewed IBIT’s data relative to the 

market capitalization of the entire 

bitcoin market in terms of exercise risk 

and availability of deliverables.72

Utilizing data as of August 3, 2024, 

there were 19,737,193 bitcoins in 

circulation.73 Using a price of $57,000 

per bitcoin, the market capitalization of 

bitcoin would be greater than $1.125 

trillion.74 According to the Exchange, if 

a position limit of 400,000 options were 

considered, ‘‘the exercisable risk would 

represent only 6.6% of the outstanding 

shares of IBIT.’’ 75 The Exchange also 

stated that, with the proposed 25,000 

position limit, the exercisable risk ‘‘only 

represents 0.4% of the outstanding 

shares of IBIT.’’ 76 Further, according to 

the Exchange, because IBIT has a 

creation and redemption process 

managed through the issuer, the 

exercisable risk for options on IBIT 

would be less than 0.01% of the market 

capitalization of all outstanding 

bitcoin.77 The Exchange stated that, 

assuming a scenario where all options 

on IBIT shares were exercised given the 

proposed 25,000 per same side position 

limit, this would have a virtually 

unnoticed impact on the entire bitcoin 

market.78 The Exchange also stated that 

‘‘[t]his analysis demonstrates that the 

proposed 25,000 per same side position 

limit is also ‘‘extremely conservative 

and more than appropriate for options 

on IBIT.’’ 79

In addition, the Exchange compared 

the proposed position limit to position 

limits for derivative products regulated 

by the Commodity Futures Trading 

Commission (‘‘CFTC’’). Specifically, the 

Exchange examined the equivalent 

bitcoin futures position limits, and, 

specifically, the CME bitcoin futures 

contract, which has a position limit of 

2,000 futures.80 Based on this analysis, 

the Exchange believes that a position 

limit of 176,338 contracts for IBIT 

options would be equivalent to the 

2,000-contract notional position limit 

for CME bitcoin futures.81 Stated 

another way, the Commission estimates 

that the proposed position limit of 

25,000 contracts for IBIT options is 

roughly equivalent to a position limit of 

280 bitcoin futures contracts. In 

analyzing the proposed position and 

exercise limits, ISE also considered the 

supply of IBIT and the number of 

market participants that would be 

required to exercise their positions in 

unison to place the underlying asset 

under stress.82 ISE concluded that with 

a position limit of 25,000 contracts on 

the same side of the market and 

611,040,000 shares of IBIT outstanding, 

244 market participants would have to 

simultaneously exercise their positions 

to place IBIT under stress.83 ISE further 

stated that, historically, from 

observation, it appears that no more 

than five market participants holding 

positions in a security have exercised 

their options at the same time.84

Option position limits are determined 

based on six-month trading volume in 

the underlying security or six-month 

trading volume and number of shares 

outstanding of the underlying 

security.85 The Exchange stated that 

position limits must balance concerns 

regarding mitigating potential 

manipulation and the cost of inhibiting 

potential hedging activity that could be 

used for legitimate economic purposes, 

and to achieve such balance, options on 

IBIT would be subject to the 25,000- 

option contract limit.86 The 

Commission finds that the proposed 

position and exercise limits are 

consistent with the Act, and in 

particular, with the requirements in 

Section 6(b)(5) that the rules of a 

national securities exchange designed to 

prevent fraudulent and manipulative 

acts and practices and to protect 

investors and the public interest. As 

discussed above, the Commission has 

recognized that position and exercise 

limits must be sufficient to prevent 

investors from disrupting the market for 

the underlying security by acquiring 

and exercising a number of options 

contracts disproportionate to the 

deliverable supply and average trading 

volume of the underlying security.87 In 

addition, the Commission has stated 

previously that rules regarding position 

and exercise limits are intended to 

prevent the establishment of options 

positions that can be used or might 

create incentives to manipulate or 

disrupt the underlying market so as to 

benefit the options position.88 Based on 

its review of the data and analysis 

provided by the Exchange, the 

Commission concludes that the 

proposed position and exercise limits 

satisfy these objectives. Specifically, the 

Commission has considered and 

reviewed the Exchange’s analysis that 

the exercisable risk associated with a 

position limit of 25,000 contracts 

represented only 0.4% of the 

outstanding shares of IBIT.89 The 

Commission also has considered and 

reviewed the Exchange’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.90 Based on 

the Commission’s review of this 

information and analysis, the 

Commission concludes that the 

proposed position and exercise limits 

are designed to prevent 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. 

C. Surveillance 

Lastly, in the Order Instituting 

Proceedings, the Commission asked 

whether the Proposal should include 

information regarding how the 

Exchange would obtain information 

concerning trading in the bitcoin ETPs 

from the exchanges where the bitcoin 

ETPs trade. In its letter to the 

Commission, the Exchange represented 

that it ‘‘would implement any new 

surveillance procedures it deemed 

necessary to effectively monitor the 

trading of options on Bitcoin ETPs.’’ 91

In Amendment No. 5 to the Proposal, 

ISE provided additional detail regarding 

the surveillance procedures that will 

apply to IBIT options. As described 

more fully above, the Exchange will 

apply its existing options surveillance 


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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Notices 78947 

92The Exchange states that its surveillance 

program includes real-time patterns for price and 

volume movements and post-trade surveillance 

patterns (e.g., spoofing, marking the close, pinging, 

phishing). See Amendment No. 5. 

93See id. 

94See id. 

95See Bitcoin ETP Order, 89 FR at 3010–11. 

96See ISE Letter II at 6 (stating that the SPDR 

Gold Shares ETF and the iShares Silver Trust ETF 

have position limits of 250,000 contracts). 

97See ISE Letter II at 4. 

98The Commission recognizes that position limits 

should not be established at levels that are so low 

as to discourage participation in the options market 

by institutions and other investors with substantial 

hedging needs or to prevent specialists and market 

makers from adequately meeting their obligations to 

maintain a fair and orderly market. See, e.g., 

Securities Exchange Act Release Nos. 21907 (Mar. 

29, 1985), 50 FR 13440 (Apr. 4, 1985) (order 

approving File Nos. SR–CBOE–84–21, SR–Amex– 

84–30, SR–Phlx–84–25, and SR–PSE–85–1); 40875 

(Dec. 31, 1998), 64 FR 1842, 1843 (Jan. 12, 1999) 

(order approving File Nos. SR–CBOE–98–25; 

Amex–98–22; PCX–98–33; and Phlx–98–36). The 

Commission finds that the proposed position and 

exercise limits are consistent with these objectives. 

99 15 U.S.C. 78s(b)(2). 

100 15 U.S.C. 78f(b)(5). 

101 15 U.S.C. 78s(b)(2). 

102 17 CFR 200.30–3(a)(12). 

procedures to IBIT options.92 The 

Exchange states that it market 

surveillance staff will have access to the 

surveillances conducted by Nasdaq with 

respect to IBIT and will review activity 

in IBIT when conducting surveillances 

for market abuse or manipulation in 

options on IBIT.93 Additionally, the 

Exchange states that it is a member of 

ISG, whose members work together to 

coordinate surveillance and 

investigative information sharing in the 

stock, options, and futures markets.94

CME also is a member of ISG. In 

approving the Bitcoin ETPs, the 

Commission concluded that: 

fraud or manipulation that impacts prices in 

spot bitcoin markets would likely similarly 

impact CME bitcoin futures prices. And 

because the CME’s surveillance can assist in 

detecting those impacts on CME bitcoin 

futures prices, the Exchanges’ comprehensive 

surveillance-sharing agreement with the 

CME—a U.S. regulated market whose bitcoin 

futures market is highly correlated to spot 

bitcoin—can reasonably be expected to assist 

in surveilling for fraudulent and 

manipulative acts and practices in the 

specific context of [the Bitcoin ETPs].95

Together, these surveillance 

procedures should allow the Exchange 

to investigate suspected manipulations 

or other trading abuses in IBIT options. 

D. Additional Changes 

The proposed changes to update the 

name of the ETFS Gold Trust to the 

Aberdeen Standard Physical Gold Trust 

and to correct the cross-references in 

ISE Options 4, Section 4(g) will protect 

investors and the public interest by 

helping to ensure that the Exchange’s 

rules remain accurate and up-to-date. 

IV. Solicitation of Comments on 

Amendment Nos. 4 and 5 to the 

Proposed Rule Change 

Interested persons are invited to 

submit written data, views, and 

arguments concerning whether 

Amendment Nos. 4 and 5 are 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 rule-comments@

sec.gov. Please include file number SR– 

ISE–2024–03 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–2024–03. 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 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

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–2024–03 and should be 

submitted on or before October 17, 

2024. 

V. Accelerated Approval of 

Amendment Nos. 4 and 5 

The Commission finds good cause, 

pursuant to Section 19(b)(2) of the Act, 

for approving Amendment Nos. 4 and 5 

prior to the 30th day after the date of 

publication of notice of Amendment No. 

3 in the Federal Register. Amendment 

No. 4 amends the Proposal to establish 

position and exercise limits of 25,000 

contract for the proposed IBIT options, 

instead of the same position and 

exercise limits as other options 

currently trading. The Exchange stated 

that some commodity-based ETPs 

currently have position and exercise 

limits of 250,000 contracts.96 As 

described above, ISE provided data and 

analysis supporting the proposed 

position and exercise limits and stated, 

among other things, that the proposed 

position and exercise limits would 

represent 0.4% of the outstanding 

shares of IBIT.97 The Commission 

concludes that proposed position and 

exercise limits are designed to minimize 

the potential for manipulations or 

disruptions of the underlying market.98

Amendment No. 5 describes in greater 

detail the surveillance procedures that 

will apply to IBIT options. The 

additional information regarding these 

procedures assists the Commission in 

evaluating the Proposal and determining 

that the Proposal is consistent with the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange, as discussed above. 

Accordingly, the Commission finds 

good cause, pursuant to Section 19(b)(2) 

of the Act,99 to approve the proposed 

rule change, as modified by Amendment 

Nos. 4 and 5, on an accelerated basis. 

VI. Conclusion 

For the reasons set forth above, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

Nos. 1, 4, and 5, is consistent with the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

applicable to a national securities 

exchange and, in particular, the 

requirements of Section 6(b)(5) of the 

Act.100

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,101 that the 

proposed rule change (SR–ISE–2024– 

03), as modified by Amendment Nos. 1, 

4, and 5, be, and is hereby, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.102

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–22024 Filed 9–25–24; 8:45 am] 

BILLING CODE 8011–01–P 


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