[Federal Register Volume 89, Number 206 (Thursday, October 24, 2024)]
[Notices]
[Pages 84960-84972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24640]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101386; File No. SR-NYSEAMER-2024-49]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 3, To Permit the 
Listing and Trading of Options on Bitcoin Exchange-Traded Funds

October 18, 2024.
    On August 15, 2024, NYSE American LLC (``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 the Fidelity Wise Origin Bitcoin 
Fund (the ``Fidelity Fund''), the ARK21Shares Bitcoin ETF (the ``ARK 
21Shares Fund''), the Invesco Galaxy Bitcoin ETF (the ``Invesco 
Fund''), the Franklin Bitcoin ETF (the ``Franklin Fund''), the VanEck 
Bitcoin Trust (the ``VanEck Fund''), the WisdomTree Bitcoin Fund (the 
``WisdomTree Fund''), the Grayscale Bitcoin Trust BTC (the ``Grayscale 
Fund''), the Grayscale Bitcoin Mini Trust (the ``Grayscale Mini 
Fund''), the Bitwise Bitcoin ETF (the ``Bitwise Fund''), the iShares 
Bitcoin Trust ETF (the ``iShares Fund''), and the Valkyrie Bitcoin 
Fund.\3\ The proposed rule change was published for comment in the 
Federal Register on September 4, 2024.\4\ On September 9, 2024, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
replaced and superseded the original proposal in its entirety. On 
October 7, the Exchange filed Amendment No. 2 to the proposal, which 
replaced and superseded Amendment No. 1 in its entirety. On October 11, 
2024, the Exchange filed Amendment No. 3 to the proposal, which 
replaces and supersedes Amendment No. 2 in its entirety.\5\ The 
Commission received no comments regarding the proposal. The Commission 
is publishing this notice to solicit comments on Amendment No. 3 from 
interested persons, and is approving the proposed rule change, as 
modified by Amendment No. 3, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On 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 trusts underlying 
the proposed options. 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'').
    \4\ See Securities Exchange Act Release No. 100861 (Aug. 28, 
2024), 89 FR 71982.
    \5\ On September 9, 2024, the Exchange filed Amendment No. 1 to 
SR-NYSEAMER-2024-49, which replaced and superseded the original 
filing in its entirety and, on October 7, 2024, the Exchange filed 
Amendment No. 2 to SR-NYSEAMER-2024-49, which replaced and 
superseded in its entirety both Amendment No. 1 and the original 
filing. See https://www.sec.gov/comments/sr-nyseamer-2024-49/srnyseamer202449-518495-1491742.pdf and https://www.sec.gov/comments/sr-nyseamer-2024-49/srnyseamer202449-527736-1516262.pdf, 
respectively. Amendment No. 3, which supersedes and replaces 
Amendment No. 2 in its entirety, modifies the original filing by (1) 
including reference to, and reliance on, the ``ISE IBIT Approval 
Order,'' as referenced infra; (2) narrowing the scope of the 
original filing by (i) eliminating the following bitcoin-related 
funds, and any information related thereto: the ARK21Shares Bitcoin 
ETF, the Invesco Galaxy Bitcoin ETF, the Franklin Bitcoin ETF, the 
VanEck Bitcoin Trust, and the WisdomTree Bitcoin Fund, and (ii) 
excluding the (remaining) Bitcoin Fund options from being available 
for flexible (``FLEX'') option trading; (3) providing additional 
information and analysis of trading data for the Bitcoin Funds in 
support of this proposal, including the proposed position limits of 
25,000 per side for the options on the Bitcoin Funds; and (4) 
supplementing information related to the Exchange's surveillance 
program, including the manner in which it would surveil suspicious 
trading activity in the underlying Bitcoin Funds and where the 
Exchange would obtain information about the bitcoin market. 
Amendment No. 3 is available on the Exchange's website at https://www.nyse.com/regulation/rule-filings. A FLEX Option is a customized 
options contract that is subject to the rules in Section 15 of the 
Exchange's rules. A FLEX Equity Option is an option on a specified 
underlying equity security that is subject to the rules in Section 
15 of the Exchange's rules. See Exchange Rules 900G(b)(1) and (10). 
Except as provided in Exchange Rules 906G(b)(i) and (ii), there are 
no position limits for FLEX Equity options. See Exchange Rule 
906G(b).
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I. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 3

    The Exchange proposes to amend Rule 915 regarding the criteria for 
underlying securities. This Amendment No. 3 supersedes and replaces 
Amendment No. 2 to the original filing in its entirety. The proposed 
rule change is available on the Exchange's website at www.nyse.com, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 915 (Criteria for Underlying 
Securities). Specifically, the Exchange proposes to amend Rule 915, 
Commentary .10 to allow the Exchange to list and trade options on the 
following exchange-traded products: the

[[Page 84961]]

Grayscale Bitcoin Trust (BTC) (the ``Grayscale Fund'' or ``GBTC''), the 
Grayscale Bitcoin Mini Trust BTC (the ``Grayscale Mini Fund'' or 
``BTC''), and the Bitwise Bitcoin ETF (the ``Bitwise Fund'' or ``BITB'' 
and, collectively, the ``Bitcoin Funds'' or ``Funds'').\6\
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    \6\ See proposed Rule 915, Commentary .10(a). On January 11, 
2024, GBTC and BITB began trading on NYSE Arca, Inc. (``NYSE 
Arca''), the Exchange's affiliated SRO, after the Commission 
approved rule changes to list and trade shares of ``Bitcoin-Based 
Commodity-Based Trust Shares'' pursuant to Rule 8.201-E(c)(1) 
(Commodity-Based Trust Shares), including GBTC and BITB. See 
Securities Exchange Act Release No. 99306 (January 10, 2024) (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), 89 FR 3008 (January 17, 2024) 
(SR-NYSEARCA-2023-44; SR-NYSEARCA-2021-90).
    On July 13, 2024, after receiving approval of the Commission, 
BTC began trading on NYSE Arca. See Securities Exchange Act Release 
No. 100610 (July 26, 2024) (Order Granting Approval of Proposed Rule 
Changes, as Modified by Amendment No. 1, to List and Trade Share of 
BTC pursuant to NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares)), 89 FR 62821 (August 1, 2024) (SR-NYSEARCA-2023-45).
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    The Exchange notes that this is a competitive filing as the 
Commission recently approved a rule proposal by Nasdaq ISE, LLC 
(``ISE'') to allow the listing and trading of options on iShares 
Bitcoin Trust (or IBIT), which is a trust that holds bitcoin (referred 
to herein as the ``ISE IBIT Approval Order'').\7\ As discussed herein, 
the Exchange believes, like the recently-approved options on IBIT, 
options on the Bitcoin Funds would permit hedging, and allow for more 
liquidity, better price efficiency, and less volatility with respect to 
the underlying Funds. Further, permitting the listing of such options 
would enhance the transparency and efficiency of markets in these and 
correlated products.
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    \7\ See Securities Exchange Act Release No. 101128 (September 
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice 
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 
4, and 5, to Permit the Listing and Trading of Options on the 
iShares Bitcoin Trust (``IBIT'')) (``ISE IBIT Approval Order'').
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    Rule 915 provides that, subject to certain other criteria set forth 
in the Rule, securities deemed appropriate for options trading include 
Exchange-Traded Fund Shares (or ETFs) as defined in Commentary .06, 
that represent certain types of interests \8\ and exchange-traded 
products (``ETPs'') structured as trusts that hold precious metals 
(which are deemed commodities).\9\ Like ETPs backed by precious metals 
(i.e., commodities), the Exchange proposes to allow options trading on 
the Bitcoin Funds that hold Bitcoin--which is also deemed a 
commodity.\10\
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    \8\ See Rule 915, Commentary .06, which permits options trading 
on ETFs that are traded on a national securities exchange and are 
defined as an ``NMS stock'' in Rule 600(b)(55) of Regulation NMS, 
that represent interests in registered investment companies (or 
series thereof) organized as open-end management investment 
companies, unit investment trusts or similar entities that hold 
portfolios of securities and/or financial instruments including, but 
not limited to, stock index futures contracts, options on futures, 
options on securities and indexes, equity caps, collars and floors, 
swap agreements, forward contracts, repurchase agreements and 
reverse purchase agreements (the ``Financial Instruments''), and 
money market instruments, including, but not limited to, U.S. 
government securities and repurchase agreements (the ``Money Market 
Instruments'') comprising or otherwise based on or representing 
investments in indexes or portfolios of securities and/or Financial 
Instruments and Money Market Instruments (or that hold securities in 
one or more other registered investment companies that themselves 
hold such portfolios of securities and/or Financial Instruments and 
Money Market Instruments); interests in a trust or similar entity 
that holds a specified non-U.S. currency deposited with the trust or 
similar entity when aggregated in some specified minimum number may 
be surrendered to the trust by the beneficial owner to receive the 
specified non-U.S. currency and pays the beneficial owner interest 
and other distributions on deposited non-U.S. currency, if any, 
declared and paid by the trust (``Currency Trust Shares''); 
commodity pool interests principally engaged, directly or 
indirectly, in holding and/or managing portfolios or baskets of 
securities, commodity futures contracts, options on commodity 
futures contracts, swaps, forward contracts and/or options on 
physical commodities and/or non-U.S. currency (``Commodity Pool 
Units''); or represents an interest in a registered investment 
company (``Investment Company'') organized as an open-end management 
investment company or similar entity, that invests in a portfolio of 
securities selected by the Investment Company's investment adviser 
consistent with the Investment Company's investment objectives and 
policies, which is issued in a specified aggregate minimum number in 
return for a deposit of a specified portfolio of securities and/or a 
cash amount with a value equal to the next determined net asset 
value (``NAV''), and when aggregated in the same specified minimum 
number, may be redeemed at a holder's request, which holder will be 
paid a specified portfolio of securities and/or cash with a value 
equal to the next determined NAV (``Managed Fund Share''); provided 
that all of the conditions listed in Rules 915 and 916 are met.
    \9\ See Rule 915, Commentary .10 (permitting the listing and 
trading of options on shares of the following trusts: SPDR Gold 
Trust, the iShares COMEX Gold Trust the iShares Silver Trust, the 
ETFS Gold Trust, and the ETFS Silver Trust, pursuant to Rule 915 and 
916).
    \10\ See proposed Rule 915, Commentary .10(a) (added to include 
the listing and trading of options on shares of GBTC, BTC, and BITB, 
pursuant to Rule 915 and 916).
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    The Bitcoin Funds are structured as trusts that hold bitcoin. Like 
ETFs and ETPs currently deemed appropriate for options trading, the 
investment objective of each Bitcoin Fund trust is for its shares to 
reflect the performance of Bitcoin (less the expenses of the trust's 
operations), offering investors an opportunity to gain exposure to 
Bitcoin without the complexities of Bitcoin delivery. Each Bitcoin 
Fund's shares represent units of fractional undivided beneficial 
interest in the trust, the assets of which consist principally of 
Bitcoin and are designed to track Bitcoin or the performance of the 
price of Bitcoin and offer access to the Bitcoin market.\11\ The 
Bitcoin Funds provide investors with cost-efficient alternatives that 
allow a level of participation in the Bitcoin market through the 
securities market.
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    \11\ The trust may include minimal cash.
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    The Exchange believes each Bitcoin Fund satisfies the Exchange's 
initial listing standards set forth in Commentary .01 to Rule 915.\12\ 
The Exchange notes that the Bitcoin Funds also satisfy the listing 
standard applied to ETFs traded on the Exchange that they be available 
for creation and redemption each business day as set forth in 
Commentary .06(a)(ii).\13\
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    \12\ Commentary .01 to Rule 915 provides for guidelines to be by 
the Exchange when evaluating potential underlying securities for 
Exchange option transactions.
    \13\ Commentary .06(a)(ii) requires that ETFs must be available 
for creation or redemption each business day from or through the 
issuer in cash or in kind at a price related to net asset value, and 
the issuer must be obligated to issue ETFs in a specified aggregate 
number even if some or all of the investment assets required to be 
deposited have not been received by the issuer, subject to the 
condition that the person obligated to deposit the investments has 
undertaken to deliver the investment assets as soon as possible and 
such undertaking is secured by the delivery and maintenance of 
collateral consisting of cash or cash equivalents satisfactory to 
the issuer, as provided in the respective prospectus.
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    First, each of the Bitcoin Funds satisfy the criteria and 
guidelines set forth in Rule 915(a). Pursuant to Rule 915(a), a 
security on which options may be listed and traded on the Exchange must 
be duly registered (with the Commission) and be an NMS stock (as 
defined in Rule 600 of Regulation NMS under the Act) and be 
characterized by a substantial number of outstanding shares that are 
widely held and actively traded.\14\ Each of the Bitcoin Funds is an 
NMS Stock as defined in Rule 600 of Regulation NMS under the Act.\15\ 
The Exchange believes each Bitcoin Fund is characterized by a 
substantial number of outstanding shares that are widely held and 
actively traded.
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    \14\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Commentary .01 to 
Rule 915, subject to exceptions.
    \15\ An ``NMS stock'' means any NMS security other than an 
option, and an ``NMS security'' means any security or class of 
securities for which transaction reports are collected, processed, 
and made available pursuant to an effective transaction reporting 
plan (or an effective national market system plan for reporting 
transaction in listed options). See 17 CFR 242.600(b)(64) 
(definition of ``NMS security'') and (65) (definition of ``NMS 
stock'').
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    As of August 30, 2024, the Bitcoin Funds had the following number 
of

[[Page 84962]]

shares outstanding (and corresponding market capitalization):

------------------------------------------------------------------------
                                           Shares       Market value (8/
             Bitcoin fund                outstanding        30/2024)
------------------------------------------------------------------------
GBTC.................................     284,570,100    $13,443,091,524
BTC..................................     366,950,100      1,930,157,526
BITB.................................      68,690,000      2,221,640,670
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    As shown above, each of the Bitcoin Funds had significantly more 
than 7,000,000 shares outstanding, which is the minimum number of 
shares of a corporate stock that the Exchange generally requires to 
list options on that stock pursuant to Commentary .01(1) to Rule 915. 
The Exchange believes this demonstrates that each Bitcoin Fund is 
characterized by a substantial number of outstanding shares.
    Further, the below table contains information regarding the number 
of beneficial holders of the Bitcoin Funds as of August 14, 2024.

------------------------------------------------------------------------
                                                            Beneficial
                      Bitcoin Fund                        holders (8/14/
                                                                24)
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GBTC....................................................         464,364
BTC.....................................................          13,403
BITB....................................................          75,437
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    As this table shows, each Bitcoin Fund has significantly more than 
2,000 beneficial holders (approximately 232, 7, and 38 times more, 
respectively), which is the minimum number of holders the Exchange 
generally requires for corporate stock in order to list options on that 
stock pursuant to pursuant to [sic] Commentary .01(2) to Rule 915. 
Therefore, the Exchange believes the shares of each Bitcoin Fund are 
widely held.
    In addition, the Exchange believes the shares of each Bitcoin Fund 
are actively traded. Further, as of September 30, 2024, the total 
trading volume (by shares and notional) for these funds since they 
began trading \16\ and the average daily volume (``ADV'') over the 30-
day period of September 1 through September 30, 2024, was as follows: 
\17\
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    \16\ As noted supra, GBTC and BITB began trading on January 11th 
and BTC began trading on July 31st. Thus, the measurement period for 
the trading volume (shares/notional) is January 11 through September 
20, 2024, for GBTC and BITB (i.e., nine months) and July 31 through 
September 20, 2024, for BTC (i.e., two months).
    \17\ See FactSet, 9/30/2024, https://www.factset.com/data-attribution.

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                                                           Trading volume     Trading volume
                      Bitcoin Fund                            (shares)         (notional $)       ADV (shares)
----------------------------------------------------------------------------------------------------------------
GBTC...................................................      1,803,567,700     93,472,544,497          3,266,138
BTC....................................................        335,492,930      1,792,866,521          6,838,546
BITB...................................................        434,815,840     14,433,361,384          1,949,835
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    As demonstrated above, even though these Bitcoin Funds have been 
trading for less than one year (and in the case of the BTC, less than 
two months), the trading volume for each is substantially higher than 
2,400,000 shares (between roughly 165 and 700 times that amount), which 
is the minimum 12-month volume the Exchange generally requires for a 
security in order to list options on that security as set forth in 
Commentary .01 to Rule 915. The Exchange believes this data 
demonstrates each Bitcoin Fund is characterized by a substantial number 
of outstanding shares that are actively traded.
    In addition to satisfying the Exchange's initial listing standards, 
options on Bitcoin Funds will be subject to the Exchange's continued 
listing standards as set forth in Commentary .07 to Rule 916.\18\ 
Pursuant to Commentary .07 to Rule 916, the Exchange will not open for 
trading any additional series of option contracts covering a fund 
traded on the Exchange if such fund ceases to be an ``NMS stock'' as 
provided for Commentary .01(5) to Rule 915 or the fund is halted from 
trading on its primary market.\19\ Additionally, options on funds 
traded on the Exchange may be subject to the suspension of opening 
transactions as follows: (1) the fund no longer meets the terms of 
Commentary .01 to Rule 916; (2) following the initial twelve-month 
period beginning upon the commencement of trading of the fund, there 
are fewer than 50 record and/or beneficial holders of the fund for 30 
or more consecutive trading days; (3) the value of the underlying 
commodity is no longer calculated or available; or (4) such other event 
occurs or condition exists that in the opinion of the Exchange makes 
further dealing on the Exchange inadvisable.
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    \18\ The Exchange proposes to amend Commentary .11 to Rule 916 
to include the Bitcoin Funds in the list of ETPs deemed ``Exchange-
Traded Fund Shares''--of ETFs [sic]--for purposes of the continued 
listing standards set forth in Commentary .07 to Rule 916. See 
proposed Commentary .11 to Rule 916. For avoidance of doubt, the 
Exchange refers ``funds'' rather than ``ETFs'' to make clear that 
the Bitcoin Funds are subject to these continued listing standards.
    \19\ See Commentary .07 to Rule 916.
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    Options on each Bitcoin Fund will be physically settled contracts 
with American-style exercise.\20\ Consistent with Rule 903, which 
governs the opening of options series on a specific underlying security 
(including ETFs and ETPs), the Exchange will open at least one 
expiration month for options on each Bitcoin Fund \21\ at the 
commencement of trading on the Exchange and may also list series of 
options on Bitcoin Funds for trading on a weekly,\22\ monthly,\23\ or 
quarterly \24\ basis. The Exchange may also list long-term equity 
option series (``LEAPS'') that expire from twelve to thirty-nine months 
from the time they are listed.\25\
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    \20\ See Rule 902 (Rights and Obligations of Holders and 
Writers), which provides that the rights and obligations of holders 
and writers of option contracts of any class of options dealt in on 
the Exchange shall be as set forth in the Rules of the Clearing 
Corporation. See also OCC Rules, Chapter VIII, which governs 
exercise and assignment, and Chapter IX, which governs the discharge 
of delivery and payment obligations arising out of the exercise of 
physically settled stock option contracts. OCC Rules can be located 
at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf.
    \21\ See Rule 903(c), Commentary .03. The monthly expirations 
are subject to certain listing criteria for underlying securities 
described within Rule 915. Monthly listings expire the third Friday 
of the month. The term ``expiration date'' (unless separately 
defined elsewhere in the OCC By-Laws), when used in respect of an 
option contract (subject to certain exceptions), means the third 
Friday of the expiration month of such option contract, or if such 
Friday is a day on which the exchange on which such option is listed 
is not open for business, the preceding day on which such exchange 
is open for business. See OCC By-Laws Article I, Section 1. Pursuant 
to Rule 903(d), additional series of options of the same class may 
be opened for trading on the Exchange when the Exchange deems it 
necessary to maintain an orderly market, to meet customer demand or 
when the market price of the underlying stock moves more than five 
strike prices from the initial exercise price or prices. New series 
of options on an individual stock may be added until the beginning 
of the month in which the options contract will expire. Due to 
unusual market conditions, the Exchange, in its discretion, may add 
a new series of options on an individual stock until the close of 
trading on the business day prior to expiration.
    \22\ See Rule 903(h).
    \23\ See Rule 903, Commentary .11.
    \24\ See Rule 903, Commentary .09.
    \25\ See Rule 903, Commentary .03.
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    Pursuant to Rule 903, Commentary .05(a), which governs strike 
prices of series of options on ETFs, the interval between strike prices 
of series of options

[[Page 84963]]

on Bitcoin Funds will be $1 or greater when the strike price is $200 or 
less and $5 or greater where the strike price is over $200.\26\ 
Additionally, the Exchange may list series of options pursuant to the 
$1 Strike Price Interval Program,\27\ the $0.50 Strike Program,\28\ the 
$2.50 Strike Price Program,\29\ and the $5 Strike Program.\30\ Pursuant 
to Rule 960NY, where the price of a series of a Bitcoin Fund option is 
less than $3.00, the minimum increment will be $0.05, and where the 
price is $3.00 or higher, the minimum increment will be $0.10.\31\ Any 
and all new series of Bitcoin Fund options that the Exchange lists will 
be consistent and comply with the expirations, strike prices, and 
minimum increments set forth in Rules 903 and 960NY, as applicable. 
Further, the Exchange notes that Rule 462, which governs margin 
requirements applicable to the trading of all options on the Exchange, 
including options on ETFs and ETPs, will also apply to the trading of 
Bitcoin Fund options.
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    \26\ The Exchange notes that for options listed pursuant to the 
Short Term Option Series Program, the Monthly Options Series 
Program, and the Quarterly Options Series Program, Rules 903(h) and 
Commentaries .09 and .03 to Rule 903, specifically set forth 
intervals between strike prices on Quarterly Options Series, Short 
Term Option Series, and Monthly Options Series, respectively.
    \27\ See Rule 903, Commentary .06.
    \28\ See Rule 903, Commentary .13.
    \29\ See Rule 903, Commentary .07(a).
    \30\ See Rule 903, Commentary .12.
    \31\ If options on a Bitcoin Fund are eligible to participate in 
the Penny Interval Program, the minimum increment of $0.01 below 
$3.00 and $0.50 above $3.00 would apply. See Rule 960NY(a)(3). See 
also Rule 960.1NY (which describes the requirements for the Penny 
Interval Program).
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    Rule 903G(a)(1) permits the Exchange to authorize for trading a 
FLEX option class on any equity security if it may authorize for 
trading a non-FLEX option class on that equity security pursuant to 
Rule 915.\32\ At this time, the Exchange is not proposing to permit 
Bitcoin Fund options to trade as FLEX options.\33\ The Exchange 
therefore proposes to modify Rule 903G(a)(1) to specify this exception, 
which will add clarity and transparency to Exchange Rules.\34\
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    \32\ See Rule 903G(a)(1). See generally Section 15 (Flexible 
Exchange (``FLEX'') Options).
    \33\ The Exchange will continue ongoing discussions with the 
Commission regarding appropriate position limits for the Bitcoin 
Funds and plans to submit a separate rule filing that would permit 
the Exchange to authorize for trading FLEX options on the Funds 
(which filing may propose changes to existing FLEX option position 
limits for such options if appropriate).
    \34\ See proposed Rule 903G(a)(1) (providing, in relevant part, 
that the Exchange may approve and open for trading any FLEX Equity 
Options series on any equity security that is eligible for Non-FLEX 
Options trading under Rule 915 ``except those set forth in 
Commentary .10(a) to Rule 915,'' i.e., the Bitcoin Funds).
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Position and Exercise Limits
    Position and exercise limits for options, including options on 
Bitcoin Funds, are determined pursuant to Rules 904 and 905, 
respectively. Position and exercise limits for options vary according 
to the number of outstanding shares and the trading volumes of the 
underlying security over the past six months, where the largest in 
capitalization and the most frequently traded funds have an option 
position and exercise limit of 250,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market; and 
smaller capitalization funds have position and exercise limits of 
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market.\35\
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    \35\ See Commentary .07(a)-(d) to Rule 904. For 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 six-month 
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 Commentary .07(e) to Rule 904. In 
addition, Commentary .07(f) to Rule 904 establishes higher position 
limits for options on certain ETFs.
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    Position 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. The purpose of position limits, which are set 
forth in Rule 904, is to address potential manipulative schemes and 
adverse market impacts surrounding the use of options, such as 
disrupting the market in the security underlying the options. As such, 
position limits must balance concerns regarding mitigating potential 
manipulation and the cost of inhibiting potential hedging activity that 
investors may use for legitimate economic purposes. To achieve this 
balance, the Exchange proposes to set the position and exercise limits 
for the options on the Bitcoin Funds at 25,000 contracts, a limit which 
has already been approved for IBIT, an ETP that (like the Bitcoin 
Funds) holds bitcoin.\36\ Capping the position limit at 25,000 
contracts, the lowest limit available in options, would address 
concerns related to manipulation and protection of investors as this 
number is conservative for the Bitcoin Funds and therefore appropriate 
given their liquidity. While the Exchange believes that the proposed 
25,000-contract position limit is conservative for options on the 
Bitcoin Funds, it nonetheless believes that, for the reasons set forth 
below, evidence exists to support a much higher position limit.\37\
---------------------------------------------------------------------------

    \36\ See proposed Rule 904, Commentary .07(f). See also ISE IBIT 
Approval Order, supra note 6. [sic]
    \37\ The Exchange may file a subsequent rule change to amend the 
position and exercise limit for options on any or all the Bitcoin 
Funds based on additional data regarding trading activity, to 
continue to balance any concerns regarding manipulation. A higher 
position limit would allow institutional investors to utilize 
options on the Bitcoin Funds for prudent risk management purposes.
---------------------------------------------------------------------------

    As shown in the table below, GBTC, BITB and BTC would easily 
qualify for the 250,000-contract position limit available to other ETFs 
and ETPs pursuant to the criterion in Rule 904, Commentary .07(a)(i), 
which requires that, for the most recent six-month period, trading 
volume for the underlying security be at least 100,000,000 shares.\38\ 
As noted herein, BTC began trading on July 31, 2024, and therefore has 
only two months of trading data available as shown below.\39\
---------------------------------------------------------------------------

    \38\ Per Commentary .07(a) to Rule 904, to qualify for the 
250,000-contract position limit for options, the underlying security 
must (i) have trading volume of at least 100,000,000 shares during 
the most recent six-month trading period; or (ii) have trading 
volume of at least 75,000,000 shares during the most recent six-
month trading period and have at least 300,000,000 shares currently 
outstanding.
    \39\ See FactSet, 9/30/2024, https://www.factset.com/data-attribution. For avoidance of doubt, the Exchange notes that this 
chart depicts the most recent six months of trading data by shares 
for GBTC and BITB whereas the earlier chart (that depicts volume by 
notional and shares) covered the first nine months of trading. For 
BTC, both charts depict the same two-month trading volume by shares.

------------------------------------------------------------------------
               Bitcoin Fund                   Total volume (9/30/2024)
------------------------------------------------------------------------
GBTC......................................  723,758,100 (6-months)
BTC.......................................  335,492,930 (2-months)
BITB......................................  263,965,870 (6-months)
------------------------------------------------------------------------

    Thus, based on the most-recent trading volume, each Bitcoin Fund 
exceeded the requisite minimum of 100,000,000 shares necessary to 
qualify for the 250,000-contract position and exercise limits. By 
comparison, other options symbols with six-month trading volume less 
than GBTC, BITB, and BTC

[[Page 84964]]

are eligible for position and exercise limits of at least 250,000.\40\
---------------------------------------------------------------------------

    \40\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search (including the following 
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR, 
SGOL).
---------------------------------------------------------------------------

    With respect to the outstanding shares of each Bitcoin Fund, if a 
market participant held the maximum number of contracts possible 
pursuant to the proposed position and exercise limits (25,000 
contracts), the equivalent shares represented by the proposed position/
exercise limit (2,500,000 shares) would represent the following 
approximate percentage of current outstanding shares:

----------------------------------------------------------------------------------------------------------------
                                                         Proposed position/
                                                          exercise limits      Outstanding       Percentage of
                      Bitcoin Fund                         in equivalent     shares (8/30/24)     outstanding
                                                               shares                                shares
----------------------------------------------------------------------------------------------------------------
GBTC...................................................          2,500,000        284,570,100                0.9
BTC....................................................          2,500,000        366,950,100                0.7
BITB...................................................          2,500,000         68,690,000                3.6
----------------------------------------------------------------------------------------------------------------

    As this table demonstrates, if a market participant held the 
maximum permissible options positions in one of the Bitcoin Fund 
options and exercised all of them at the same time, that market 
participant would control a small percentage of the outstanding shares 
of the underlying Bitcoin Fund. For example, as noted above, a position 
limit of 25,000 same side contracts effectively restricts a market 
participant from holding positions that could result in the receipt of 
no more than 2,500,000 shares of the applicable Bitcoin Fund (if that 
market participant exercised all its options). Based on the number of 
shares outstanding for each Bitcoin Fund as of August 30, 2024, the 
table below sets forth the approximate number of market participants 
that could hold the maximum of 25,000 same side positions in each 
Bitcoin Fund that would equate to the number of shares outstanding of 
that Bitcoin Fund:

------------------------------------------------------------------------
                                                        Number of market
                                          Shares       participants with
           Bitcoin Fund                outstanding      25,000 same side
                                                           positions
------------------------------------------------------------------------
GBTC..............................        284,570,100                114
BTC...............................        366,950,100                147
BITB..............................         68,690,000                 27
------------------------------------------------------------------------

    This means if 114 market participants had 25,000 same side 
positions in options on GBTC, each of them would have to simultaneously 
exercise all of those options to create a scenario that may put the 
underlying security under stress. Similarly, this means if 147 market 
participants had 25,000 same side positions in options on BTC, each of 
them would have to simultaneously exercise all of those options to 
create a scenario that may put the underlying security under stress. 
Finally, this means if 27 market participants had 25,000 same side 
positions in options on BITB, each of them would have to simultaneously 
exercise all of those options to create a scenario that may put the 
underlying security under stress. The Exchange believes it is highly 
unlikely for this to occur; however, even if such event did occur, the 
Exchange would not expect any of the Bitcoin Fund to be under stress 
because such an event would merely induce the creation of more shares 
through the trust's creation and redemption process.
    Further, given that the issuer of each Bitcoin Fund may create and 
redeem shares that represent an interest in Bitcoin, the Exchange 
believes it is relevant to compare the size of a position limit to the 
market capitalization of the Bitcoin market. As of August 30, 2024, the 
global supply of Bitcoin was 19,747,066, and the price of one Bitcoin 
was approximately $59,108.23, which equates to a market capitalization 
of approximately $1.167 trillion.\41\ Consider the proposed position 
and exercise limit of 25,000 option contracts for each Bitcoin Fund 
option. A position and exercise limit of 25,000 same side contracts 
effectively restricts a market participant from holding positions that 
could result in the receipt of no more than 2,500,000 shares of GBTC, 
BTC, or BITB, as applicable (if that market participant exercised all 
its options). The following table shows the share price of each Bitcoin 
Fund on August 30, 2024, the value of 2,500,000 shares of the Bitcoin 
Fund at that price, and the approximate percentage of that value of the 
size of the Bitcoin market:
---------------------------------------------------------------------------

    \41\ See https://www.blockchain.com/explorer/charts/total-bitcoins.

----------------------------------------------------------------------------------------------------------------
                                                                                 Value of
                                                          Aug. 30th share    2,500,000 shares    Percentage of
                      Bitcoin Fund                           price ($)       of bitcoin fund     bitcoin market
                                                                                   ($)
----------------------------------------------------------------------------------------------------------------
GBTC...................................................              46.75        116,875,000              0.010
BTC....................................................               5.20         13,000,000              0.001
BITB...................................................              31.95         79,875,000              0.007
----------------------------------------------------------------------------------------------------------------

    Therefore, if a market participant with the maximum 25,000 same 
side contracts in options on GBTC, BTC, or BITB exercised all positions 
at one time, such an event would have no practical impact on the 
Bitcoin market.
    The Exchange also reviewed the market capitalization of each 
Bitcoin Fund relative to the market

[[Page 84965]]

capitalization of the entire bitcoin market, as of August 30, 2024.

----------------------------------------------------------------------------------------------------------------
                                                       bitcoin/shares    Market value (8/30/       % of total
                                                        outstanding             2024)            bitcoin market
----------------------------------------------------------------------------------------------------------------
Total Bitcoin Market \42\..........................         19,747,066     $1,167,214,096,788             100.00
GBTC...............................................        284,570,100         13,443,091,524               1.15
BTC................................................        366,950,100          1,930,157,526               0.17
BITB...............................................         68,690,000          2,221,640,670               0.19
----------------------------------------------------------------------------------------------------------------

    As shown above, the Bitcoin Funds collectively represent 
approximately 1.51% of the global supply of Bitcoin (19,747,066). Based 
on the $46.75 price of a GBTC share on August 30, 2024, a market 
participant could have redeemed one Bitcoin for approximately 1,264 
GBTC shares. Another 24,967,146,455 GBTC shares could be created before 
the supply of Bitcoin was exhausted. As a result, 9,987 market 
participants would have to simultaneously exercise 25,000 same side 
positions in GBTC options to receive shares of the GBTC holding the 
entire global supply of Bitcoin. Similarly, based on the $5.20 price of 
a BTC share on August 30, 2024, a market participant could have 
redeemed one Bitcoin for approximately 11,367 BTC shares. Another 
224,464,249,382 BTC shares could be created before the supply of 
Bitcoin was exhausted. As a result, 89,786 market participants would 
have to simultaneously exercise 25,000 same side positions in BTC 
options to receive shares of BTC holding the entire global supply of 
Bitcoin. Similarly, based on the $31.95 price of a BITB share on August 
30, 2024, a market participant could have redeemed one Bitcoin for 
approximately 1,850 BITB shares. Another 36,532,522,591 BITB shares 
could be created before the supply of Bitcoin was exhausted. As a 
result, 14,613 market participants would have to simultaneously 
exercise 25,000 same side positions in BITB options to receive shares 
of BITB holding the entire global supply of Bitcoin. Unlike the Bitcoin 
Funds, the number of shares that corporations may issue is limited. 
However, like corporations, which authorize additional shares, 
repurchase shares, or split their shares, the Bitcoin Funds may create, 
redeem, or split shares in response to demand. While the supply of 
Bitcoin is limited to 21,000,000, it is believed that it will take more 
than 100 years to fully mine the remaining Bitcoin.\43\ The supply of 
Bitcoin is larger than the available supply of most securities.\44\ 
Given the significant unlikelihood of any of these events ever 
occurring, the Exchange does not believe options on the Bitcoin Funds 
should be subject to position and exercise limits even lower than those 
proposed (which are already equal to the lowest available limit for 
equity options in the industry) to protect the supply of Bitcoin.
---------------------------------------------------------------------------

    \42\ See id.
    \43\ See https://www.blockchain.com/explorer/assets/btc (citing 
21 million as the ``total supply'' of bitcoin).
    \44\ The market capitalization of Bitcoin would rank in the top 
10 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
---------------------------------------------------------------------------

    The Exchange also believes the proposed limits are appropriate 
given position limits for Bitcoin futures. For example, the Chicago 
Mercantile Exchange (``CME'') imposes a position limit of 2,000 futures 
(for the initial spot month) on its Bitcoin futures contract.\45\ On 
August 28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. A 
position of 2,000 CME Bitcoin futures, therefore, would have a notional 
value of $589,500,000. The following table shows the share price of 
each Bitcoin Fund on August 28, 2024, and the approximate number of 
option contracts that equates to that notional value:
---------------------------------------------------------------------------

    \45\ See CME Rulebook Chapter 350 (description of CME Bitcoin 
Futures) and Chapter 5, Position Limit, Position Accountability and 
Reportable Level Table in the Interpretations & Special Notices. 
Each CME Bitcoin futures contract is valued at five Bitcoins as 
defined by the CME CF Bitcoin Reference Rate (``BRR''). See CME Rule 
35001.

------------------------------------------------------------------------
                                                             Number of
              Bitcoin Fund                   Aug. 28th        option
                                            share price      contracts
------------------------------------------------------------------------
GBTC....................................           46.94         125,585
BTC.....................................            5.23       1,127,151
BITB....................................           32.08         183,759
------------------------------------------------------------------------

    The approximate number of option contracts for each Bitcoin Fund 
that equate to the notional value of CME Bitcoin futures is 
significantly higher than the proposed limit of 25,000 options contract 
for each Bitcoin Fund option. The fact that many options ultimately 
expire out-of-the-money and thus are not exercised for shares of the 
underlying, while the delta of a Bitcoin Future is 1, further 
demonstrates how conservative the proposed limits of 25,000 options 
contracts are for the Bitcoin Fund options.
    The Exchange notes, 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).\46\ 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.\47\ If a position exceeds position limits because of an option 
assignment, CME permits market participants to liquidate the excess 
position within one business day without being considered in violation 
of its rules. Additionally, if at the close of trading, a position that 
includes options exceeds position limits for futures contracts, when 
evaluated using the delta factors as of that day's close of trading but 
does not exceed the limits when evaluated using the previous day's 
delta factors, then the position shall not constitute a position limit 
violation. Considering CME's position limits on futures for Bitcoin, 
the Exchange believes that that the proposed same side position limits 
are more than appropriate for the Bitcoin Fund options.
---------------------------------------------------------------------------

    \46\ See CME Rulebook Chapter 5, Position Limit, Position 
Accountability and Reportable Level Table in the Interpretations & 
Special Notices.
    \47\ Id.
---------------------------------------------------------------------------

    The Exchange believes the available supply of Bitcoin is not 
relevant to the determination of position and exercise limits for 
options overlying the Bitcoin Funds.\48\ Position and exercise limits 
are

[[Page 84966]]

not a tool that should be used to address a potential limited supply of 
the underlying of an underlying. Position and exercise limits do not 
limit the total number of options that may be held, but rather they 
limit the number of positions a single customer may hold or exercise at 
one time.\49\ ``Since the inception of standardized options trading, 
the options exchanges have had rules imposing limits on the aggregate 
number of options contracts that a member or customer could hold or 
exercise.'' \50\ Position and exercise limit rules 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. In particular, position and 
exercise limits are designed to minimize the potential for mini-
manipulations and for corners or squeezes of the underlying market. In 
addition, such limits serve to reduce the possibility for disruption of 
the options market itself, especially in illiquid options classes.'' 
\51\
---------------------------------------------------------------------------

    \48\ The Exchange is unaware of any proposed rule change related 
to position and exercise limits for any equity option (including 
commodity ETF options) for which the Commission required 
consideration of whether the available supply of an underlying 
(whether it be a corporate stock or an ETF) or the contents of an 
ETF (commodity or otherwise) should be considered when an exchange 
proposed to establish those limits. See, e.g., Securities Exchange 
Act Release No. 57894 May 30, 2008), 73 FR 32061 (June 5, 2008) (SR-
CBOE-2005-11) (approval order in which the Commission stated that 
the ``listing and trading of Gold Trust Options will be subject to 
the exchanges' rules pertaining to position and exercise limits and 
margin''). The Exchange notes when the Commission approved this 
filing, the position limits in Rule 9054 were the same as they are 
today. For reference, the current position and exercise limits for 
options on SPDR Gold Shares ETF (``GLD'') and options on iShares 
Silver Trust (``SLV'') are 250,000 contracts, or 10 times that 
proposed position and exercise limit for the Bitcoin Fund options.
    \49\ For example, suppose an option has a position limit of 
25,000 option contracts and there are a total of 10 investors 
trading that option. If all 10 investors max out their positions, 
that would result in 250,000 option contracts outstanding at that 
time. However, suppose 10 more investors decide to begin trading 
that option and also max out their positions. This would result in 
500,000 option contracts outstanding at that time. An increase in 
the number of investors could cause an increase in outstanding 
options even if position limits remain unchanged.
    \50\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
    \51\ Id.
---------------------------------------------------------------------------

    The Exchange notes that a Registration Statement on Form S-1 was 
filed with the Commission for each Bitcoin Fund, each of which 
described the supply of Bitcoin as being limited to 21,000,000 (of 
which approximately 90% had already been mined), and that the limit 
would be reached around the year 2140.\52\ Each Registration Statement 
permits an unlimited number of shares of the applicable Bitcoin Fund to 
be created. Further, the Commission approved proposed rule changes that 
permitted the listing and trading of shares of each Bitcoin Fund, which 
approval did not comment on the sufficient supply of Bitcoin or address 
whether there was a risk that permitting an unlimited number of shares 
for a Bitcoin Fund would impact the supply of Bitcoin.\53\ Therefore, 
the Exchange believes the Commission had ample time and opportunity to 
consider whether the supply of Bitcoin was sufficient to permit the 
creation of unlimited Bitcoin Fund shares, and does not believe 
considering this supply with respect to the establishment of position 
and exercise limits is appropriate given its lack of relevance to the 
purpose of position and exercise limits. However, given the significant 
size of the Bitcoin supply, the proposed positions limits are more than 
sufficient to protect investors and the market.
---------------------------------------------------------------------------

    \52\ See, e.g., GBTC Form S-1 Registration Statement, at p. 17, 
https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm; BTC Form S-1 Registration Statement, at p. 21, 
https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm; and BITB Amendment No 2. to S-1, at p. 47, https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm (``Bitcoin Funds Reg. Stmts.'').
    \53\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange believes the proposal to list 
options on the Bitcoin Funds with positions and exercise limits of 
25,000 on the same side, the lowest position limit available in the 
options industry, is conservative and appropriate given the market 
capitalization, average daily volume, and high number of outstanding 
shares for each of the Bitcoin Funds. The proposed position and 
exercise limits reasonably and appropriately balance the liquidity 
provisioning in the market against the prevention of manipulation. The 
Exchange believes these proposed limits are effectively designed to 
prevent an individual customer or entity from establishing options 
positions that could be used to manipulate the market of the underlying 
Bitcoin Funds as well as the Bitcoin market.\54\
---------------------------------------------------------------------------

    \54\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------

    As described herein, options on the Bitcoin Funds will trade in the 
same manner as any other ETF or ETP options on the Exchange, except 
that the Bitcoin Funds will not be eligible for FLEX option trading. 
The Exchange Rules that currently apply to the listing and trading of 
options on the Exchange, including, for example, Rules that govern 
listing criteria, expiration and exercise prices, minimum increments, 
margin requirements, customer accounts and trading halt procedures will 
apply to the listing and trading of Bitcoin Funds on the Exchange in 
the same manner as they apply to all other ETFs and ETPs that are 
listed and traded on the Exchange, including the precious metal-backed 
commodity ETPs already deemed appropriate for options trading on the 
Exchange pursuant to Commentary .10 to Rule 915. Further, as described 
above, Exchange Rules regarding position and exercise limits will 
likewise apply to options on the Bitcoin Funds except the that, as 
proposed, the position and exercise limits will be set at 25,000 on the 
same side.
* * * * *
    The Exchange notes that options on Bitcoin Funds would not be 
available for trading until The Options Clearing Corporation (``OCC'') 
represents to the Exchange that it is fully able to clear and settle 
such options. The Exchange has also analyzed its capacity and 
represents that it and The Options Price Reporting Authority (``OPRA'') 
have the necessary systems capacity to handle the additional traffic 
associated with the listing of options on Bitcoin Funds. The Exchange 
believes any additional traffic that would be generated from the 
trading of options on Bitcoin Funds would be manageable. The Exchange 
represents that Exchange members will not have a capacity issue as a 
result of this proposed rule change.
    The Exchange represents that the same surveillance procedures 
applicable to all other options currently listed and traded on the 
Exchange will apply to options on Bitcoin Funds, and that it has the 
necessary systems capacity to support the new option series. The 
Exchange's existing surveillance and reporting safeguards are designed 
to deter and detect possible manipulative behavior which might arise 
from listing and trading options on ETFs and ETPs, such as (existing) 
precious metal-commodity backed ETP options as well as the proposed 
options on Bitcoin Funds. The Exchange believes that its surveillance 
procedures are adequate to properly monitor the trading of options on 
Bitcoin Funds in all trading sessions and to deter and detect 
violations of Exchange rules. Specifically, the Exchange's market 
surveillance staff will have access to the surveillances conducted by 
its affiliate NYSE, Arca Inc. with respect to the Bitcoin Funds and 
would review activity in the underlying Funds when conducting 
surveillances for market abuse or manipulation in the options on the 
Trust. Additionally, the Exchange is a member of the Intermarket 
Surveillance Group (``ISG'') under the Intermarket Surveillance Group 
Agreement. ISG members work together to coordinate surveillance and 
investigative information sharing in the stock, options, and futures 
markets. In addition, the Exchange has a Regulatory Services Agreement 
with the Financial Industry Regulatory Authority (``FINRA''). Pursuant 
to a multi-party 17d-2 joint plan, all options exchanges

[[Page 84967]]

allocate regulatory responsibilities to FINRA to conduct certain 
options-related market surveillances.\55\ Further, the Exchange will 
implement any new surveillance procedures it deems necessary to 
effectively monitor the trading of options on the Bitcoin Funds.
---------------------------------------------------------------------------

    \55\ Section 19(g)(1) of the Act, among other things, requires 
every SRO registered as a national securities exchange or national 
securities association to comply with the Act, the rules and 
regulations thereunder, and the SRO's own rules, and, absent 
reasonable justification or excuse, enforce compliance by its 
members and persons associated with its members. See 15 U.S.C. 
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows 
the Commission to relieve an SRO of certain responsibilities with 
respect to members of the SRO who are also members of another SRO. 
Specifically, Section 17(d)(1) allows the Commission to relieve an 
SRO of its responsibilities to: (i) receive regulatory reports from 
such members; (ii) examine such members for compliance with the Act 
and the rules and regulations thereunder, and the rules of the SRO; 
or (iii) carry out other specified regulatory responsibilities with 
respect to such members.
---------------------------------------------------------------------------

    The underlying shares of spot bitcoin ETPs, including the Bitcoin 
Funds, are also subject to safeguards related to addressing market 
abuse and manipulation. As the Commission stated in its order approving 
proposals of several exchanges to list and trade shares of spot 
bitcoin-based exchange-traded products (``Bitcoin ETP Order''):

    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.\56\
---------------------------------------------------------------------------

    \56\ See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008, 3009 (January 17, 2024) (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; and 
SR-CboeBZX-2023-072) (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).

    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].'' \57\
---------------------------------------------------------------------------

    \57\ See Bitcoin ETP Order, 89 FR at 3010-11.
---------------------------------------------------------------------------

    In light of surveillance measures related to both options and 
futures as well as the underlying Bitcoin Funds,\58\ 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 options on the Bitcoin Funds.
---------------------------------------------------------------------------

    \58\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf ; Amendment No. 
2 to Proposed Rule Change to List and Trade Shares of the Bitwise 
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 2024, available at 
https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf; and Notice of Filing of Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Shares of the 
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E, 
Commodity-Based Trust Shares, Securities Exchange Act Release No. 
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
---------------------------------------------------------------------------

    Finally, quotation and last sale information for ETFs is available 
via the Consolidated Tape Association (``CTA'') high speed line. 
Quotation and last sale information for such securities is also 
available from the exchange on which such securities are listed. 
Quotation and last sale information for options on Bitcoin Funds will 
be available via OPRA and major market data vendors.
    The Exchange believes that offering options on Bitcoin Funds will 
benefit investors by providing them with an additional, relatively 
lower cost investing tool to gain exposure to the price of Bitcoin and 
hedging vehicle to meet their investment needs in connection with 
Bitcoin-related products and positions. The Exchange expects investors 
will transact in options on Bitcoin Funds in the unregulated over-the-
counter (``OTC'') options market,\59\ but may prefer to trade such 
options in a listed environment to receive the benefits of trading 
listed options, including (1) enhanced efficiency in initiating and 
closing out position; (2) increased market transparency; and (3) 
heightened contra-party creditworthiness due to the role of OCC as 
issuer and guarantor of all listed options. The Exchange believes that 
listing Bitcoin Fund options may cause investors to bring this 
liquidity to the Exchange, would increase market transparency and 
enhance the process of price discovery conducted on the Exchange 
through increased order flow. The Exchange notes that the ETPs that 
hold precious metal commodities on which the Exchange may already list 
and trade options are trusts structured in substantially the same 
manner as Bitcoin Funds and essentially offer the same objectives and 
benefits to investors, just with respect to different assets. The 
Exchange notes that it has not identified any issues with the continued 
listing and trading of options on any ETFs or ETPs that hold 
commodities (i.e., precious metals) that it currently lists and trades 
on the Exchange.
---------------------------------------------------------------------------

    \59\ The Exchange understands from customers that investors have 
historically transacted in options on ETFs in the OTC options market 
if such options were not available for trading in a listed 
environment.
---------------------------------------------------------------------------

    Finally, the Exchange notes that applicable Exchange rules will 
require that customers receive appropriate disclosure before trading 
options in Bitcoin Funds.\60\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\61\
---------------------------------------------------------------------------

    \60\ See Rules 921(c) and (f), and Commentary .01 to Rule 921 
and 481.
    \61\ See Rule 923.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \62\ in general and furthers the 
objectives of Section 6(b)(5) of the Act \63\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78f(b).
    \63\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposal to list and 
trade options on Bitcoin Funds will remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, protect investors because offering options on Bitcoin 
Funds will provide investors with an opportunity to realize the 
benefits of utilizing options on a Bitcoin Fund, including cost 
efficiencies and increased hedging strategies.
    The Exchange believes that offering Bitcoin Fund options will 
benefit investors by providing them with a relatively lower-cost risk 
management tool, which will allow them to manage their positions and 
associated risk in their portfolios more easily in connection with 
exposure to the price of Bitcoin and with Bitcoin-related products and 
positions. Additionally, the Exchange's offering of Bitcoin Fund 
options will provide investors with the ability to transact in such 
options in a listed market environment as opposed to in the unregulated 
OTC options market, which would increase market

[[Page 84968]]

transparency and enhance the process of price discovery conducted on 
the Exchange through increased order flow to the benefit of all 
investors. The Exchange also notes that it already lists options on 
other commodity-based ETPs,\64\ which, as described above, are trusts 
structured in substantially the same manner as Bitcoin Funds and 
essentially offer the same objectives and benefits to investors, just 
with respect to a different commodity (i.e., Bitcoin rather than 
precious metals) and for which the Exchange has not identified any 
issues with the continued listing and trading of commodity-backed ETP 
options it currently lists for trading.
---------------------------------------------------------------------------

    \64\ See Rule 915, Commentary .10.
---------------------------------------------------------------------------

    The Exchange also believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because it is consistent with current 
Exchange Rules previously filed with the Commission. Options on Bitcoin 
Funds satisfy the initial listing standards and continued listing 
standards currently in the Exchange Rules applicable to options on all 
ETFs and ETPs, including ETPs that hold other commodities already 
deemed appropriate for options trading on the Exchange. Additionally, 
as demonstrated above, each Bitcoin Fund is characterized by a 
substantial number of shares that are widely held and actively traded. 
Bitcoin Fund options will trade in the same manner as any other ETF or 
ETP options--the same Exchange Rules that currently govern the listing 
and trading of options, including permissible expirations, strike 
prices, minimum increments, and margin requirements, will govern the 
listing and trading of options on Bitcoin Funds in the same manner.
    The Exchange believes the proposed rule change to exclude the 
Bitcoin Funds from being eligible for trading as FLEX options is 
consistent with the Act, because it will permit the Exchange to 
continue to participate in ongoing discussions with the Commission 
regarding appropriate position limits for options on these Funds.\65\
---------------------------------------------------------------------------

    \65\ The Exchange will submit a separate rule filing that would 
permit the Exchange to authorize for trading FLEX options on the 
Bitcoin Funds (which filing may propose changes to existing FLEX 
option position limits for such options if appropriate).
---------------------------------------------------------------------------

    The proposed position and exercise limit for options on the Bitcoin 
Funds is 25,000 contracts. These position and exercise limits are the 
lowest position and exercise limits available in the options industry, 
are extremely conservative and more than appropriate given the Bitcoin 
Funds' market capitalization, average daily volume, number of 
beneficial holders, and high number of outstanding shares.\66\ The 
proposed position and exercise limits are consistent with the Act as 
they addresses concerns related to manipulation and protection of 
investors because the position and exercise limits are extremely 
conservative and more than appropriate given the Bitcoin Funds are 
actively traded.
---------------------------------------------------------------------------

    \66\ The Exchange notes that IBIT--which has been approved for 
options trading--represents a larger percentage of the bitcoin 
market than all three Bitcoin Funds. See ISE IBIT Approval Order, 
supra note 6. As noted herein, the Bitcoin Funds collectively 
represent approximately 1.51% of the bitcoin market. By comparison, 
IBIT options have an approved position limit of 25,000 contracts per 
side, which represents 4% of total underlying spot BTC liquidity, 
and IBIT is the most liquid spot Bitcoin ETF. See id.
---------------------------------------------------------------------------

    The Exchange also believes the proposed rule change to Rule 
903G(a), to make clear that options on the Bitcoin Funds are not 
eligible for FLEX trading, will remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it adds clarity and transparency to Exchange Rules making them 
easier to navigate and understand to the benefit of investors and the 
public interest.
    The Exchange represents that it has the necessary systems capacity 
to support the new Bitcoin Fund options. The Exchange believes that its 
existing surveillance and reporting safeguards are designed to deter 
and detect possible manipulative behavior which might arise from 
listing and trading options, including Bitcoin Fund options. The 
Exchange's existing surveillance and reporting safeguards are designed 
to deter and detect possible manipulative behavior which might arise 
from listing and trading options on ETFs and ETPs, such as (existing) 
precious metal-commodity backed ETP options as well as the proposed 
options on Bitcoin Funds. The Exchange believes that its surveillance 
procedures are adequate to properly monitor the trading of options on 
Bitcoin Funds in all trading sessions and to deter and detect 
violations of Exchange rules. Specifically, the Exchange's market 
surveillance staff will have access to the surveillances conducted by 
its affiliated NYSE, Arca Inc. with respect to the Bitcoin Funds and 
would review activity in the underlying Funds when conducting 
surveillances for market abuse or manipulation in the options on the 
Trust. Additionally, the Exchange is a member of the ISG under the 
Intermarket Surveillance Group Agreement. ISG members work together to 
coordinate surveillance and investigative information sharing in the 
stock, options, and futures markets. In addition, the Exchange has a 
Regulatory Services Agreement with the FINRA and, as noted herein, 
pursuant to a multi-party 17d-2 joint plan, all options exchanges 
allocate regulatory responsibilities to FINRA to conduct certain 
options-related market surveillances. Further, the Exchange will 
implement any new surveillance procedures it deems necessary to 
effectively monitor the trading of options on the Bitcoin Funds.
    The underlying shares of spot bitcoin ETPs, including the Bitcoin 
Funds, are also subject to safeguards related to addressing market 
abuse and manipulation. As the Commission stated in its order approving 
proposals of several exchanges to list and trade shares of spot 
bitcoin-based ETPs, ``[e]ach 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.\67\ 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].'' \68\ In light of surveillance 
measures related to both options and futures as well as the underlying 
Bitcoin Funds,\69\ the

[[Page 84969]]

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 options on the Bitcoin 
Funds. Further, the Exchange will implement any new surveillance 
procedures it deems necessary to effectively monitor the trading of 
options on Bitcoin ETPs.
---------------------------------------------------------------------------

    \67\ See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008, 3009 (January 17, 2024) (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; SRCboeBZX-2023-044; and 
SR-CboeBZX-2023-072) (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).
    \68\ See Bitcoin ETP Order, 89 FR at 3010-11.
    \69\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf; Amendment No. 2 
to Proposed Rule Change to List and Trade Shares of the Bitwise 
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 2024, available at 
https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf; and Notice of Filing of Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Shares of the 
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E, 
Commodity-Based Trust Shares, Securities Exchange Act Release No. 
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
---------------------------------------------------------------------------

    Finally, the Exchange notes that 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 because 
applicable Exchange rules will require that customers receive 
appropriate disclosure before trading options in Bitcoin Funds \70\ and 
will require that brokers opening accounts and recommending options 
transactions comply with relevant customer suitability standards.\71\
---------------------------------------------------------------------------

    \70\ See Rule 921(f). See also Rule 921(c), Commentary .01 to 
Rule 921, and Rule 481.
    \71\ See Rule 923.
---------------------------------------------------------------------------

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.
    Intramarket Competition: The Exchange does not believe that the 
proposed rule change will impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act as Bitcoin Funds would need to satisfy the initial listing 
standards set forth in the Exchange Rules in the same manner as any 
other ETF before the Exchange could list options on them. Additionally, 
Bitcoin Fund options will be equally available to all market 
participants who wish to trade such options. The Exchange Rules 
currently applicable to the listing and trading of options on ETFs on 
the Exchange will apply in the same manner to the listing and trading 
of all options on Bitcoin Funds. Also, and as stated above, the 
Exchange already lists options on other commodity-based ETPs.\72\
---------------------------------------------------------------------------

    \72\ See Rule 915, Commentary .10.
---------------------------------------------------------------------------

    Intermarket Competition: The Exchange does not believe that the 
proposal to list and trade options on Bitcoin Funds will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the extent that the 
advent of Bitcoin Fund options trading on the Exchange may make the 
Exchange a more attractive marketplace to market participants at other 
exchanges, such market participants are free to elect to become market 
participants on the Exchange. As noted herein, this is a competitive 
filing as the Commission recently approved the listing and trading of 
options on an ETP that, like the Bitcoin Funds, holds bitcoin.\73\ 
Additionally, other options exchanges are free to amend their listing 
rules, as applicable, to permit them to list and trade options on 
Bitcoin Funds. The Exchange notes that listing and trading Bitcoin Fund 
options on the Exchange will subject such options to transparent 
exchange-based rules as well as price discovery and liquidity, as 
opposed to alternatively trading such options in the OTC market.
---------------------------------------------------------------------------

    \73\ See ISE IBIT Approval Order, supra note 6.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change may relieve any 
burden on, or otherwise promote, competition as it is designed to 
increase competition for order flow on the Exchange in a manner that is 
beneficial to investors by providing them with a lower-cost option to 
hedge their investment portfolios. The Exchange notes that it operates 
in a highly competitive market in which market participants can readily 
direct order flow to competing venues that offer similar products. 
Ultimately, the Exchange believes that offering Bitcoin Fund options 
for trading on the Exchange will promote competition by providing 
investors with an additional, relatively low-cost means to hedge their 
portfolios and meet their investment needs in connection with Bitcoin 
prices and Bitcoin-related products and positions on a listed options 
exchange.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change, as modified by Amendment No. 3, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange,\74\ and, in particular, 
the requirements of Section 6 of the Act.\75\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\76\ 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.
---------------------------------------------------------------------------

    \74\ 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).
    \75\ 15 U.S.C. 78f.
    \76\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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.'' \77\ As described above, the Exchange states that, 
as of August 30, 2024, GBTC had 284,570,100 shares outstanding, BTC had 
366,950,100 shares outstanding, and BITB had 68,690,000 shares 
outstanding.\78\ The Exchange states that, as of August 14, 2024, GBTC 
had 464,364 beneficial holders, BTC had 13,403 beneficial holders, and 
BITB had 75,437 beneficial holders.\79\ In addition, the Exchange 
states that from January 11, 2024, through September 30, 2024, GBTC had 
trading volume of 1,803,567,700 shares ($93,472,544,497 notional 
volume) and BITB had trading volume of 434,815,840 shares 
($14,433,361,384 notional volume).\80\ The Exchange states that from 
July 31, 2024, through September 30, 2024, BTC had trading volume of 
335,492,930 shares ($1,792,866,521 notional volume).\81\ The Exchange 
further states that, for the 30-day period from September 1, 2024, 
through September 30, 2024, GBTC had ADV of 3,266,138 shares, BTC had 
ADV of 6,838,546 shares, and BITB had ADV of 1,949,835 shares.\82\ In 
addition, the Exchange states that, as of August 30, 2024, GBTC had 
market capitalization of $13,443,091,524, BTC had market capitalization 
of $1,930,157,526, and BITB had market capitalization of 
$2,221,640,670.\83\
---------------------------------------------------------------------------

    \77\ See Exchange Rule 915(a)(2).
    \78\ See Amendment No. 3 at 6.
    \79\ See id. at 7.
    \80\ See id. at 7.
    \81\ See id.
    \82\ See id.
    \83\ See id. at 6.

---------------------------------------------------------------------------

[[Page 84970]]

    The Commission has reviewed the Exchange's analysis and publicly 
available data regarding the Bitcoin Funds. Based on this review of 
information provided by the Exchange and publicly available 
information--including information regarding the number of shares 
outstanding and the number of beneficial holders for each Bitcoin Fund, 
the ADV of each Bitcoin Fund, and the market capitalization of each 
Bitcoin Fund--the Commission concludes that it is reasonable for the 
Exchange to determine that the Bitcoin Funds satisfy the requirement of 
Exchange Rule 915(a)(2) that the security underlying a listed option be 
widely held and actively traded.

B. Position and Exercise Limits

    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.\84\ In addition, such limits serve to reduce the 
possibility of disruption in the options market itself, especially in 
illiquid classes.\85\ 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.\86\ 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.\87\ 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.\88\
---------------------------------------------------------------------------

    \84\ See Securities Exchange Act Release No. 39489 (Dec. 24, 
1997), 63 FR 276, 279 (Jan 5. 1998) (order approving File No. SR-
Cboe-97-11) (``Position Limit Order'').
    \85\ Id.
    \86\ Id.
    \87\ See, 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).
    \88\ See id.
---------------------------------------------------------------------------

    The Exchange proposes a position limit of 25,000 contracts on the 
same side of the market for options on each Bitcoin Fund and an 
equivalent exercise limit.\89\ In proposing these position and exercise 
limits, the Exchange considered, among other things, the ADV, 
outstanding shares, and market capitalization of each Bitcoin Fund.\90\ 
The Exchange states that Exchange Rule 904, Commentary .07(a)(i) 
establishes a position limit of 250,000 contracts for options on an 
underlying security with six-month trading volume of 100,000,000 
shares.\91\ The Exchange states that six-month trading volumes for GBTC 
and BITB were, respectively, 723,758,100 shares and 263,965,870 shares, 
and that the two-month trading volume for BTC was 335,492,930 
shares.\92\ The Exchange further states that the proposed position and 
exercise limits are lower than the position and exercise limits for 
options other commodity-based ETPs that have lower trading volumes than 
the Bitcoin Funds.\93\ In addition, the Exchange states that, as of 
August 30, 2024, the number of shares represented by the proposed 
position and exercise limits were equal to approximately 0.9% of the 
outstanding shares of GBTC, 0.7% of the outstanding shares of BTC, and 
3.6% of the outstanding shares of BITB.\94\ The Exchange further states 
that the proposed ``position and exercise limits are the lowest 
position and exercise limits available in the options industry, are 
extremely conservative and more than appropriate given the Bitcoin 
Funds' market capitalization, average daily volume, number of 
beneficial holders, and high number of outstanding shares.'' \95\
---------------------------------------------------------------------------

    \89\ See Amendment No. 3 and proposed Exchange Rule 904, 
Commentary .07(f) and Exchange Rule 905(a)(i).
    \90\ See Amendment No. 3 at 16.
    \91\ See id. at 11.
    \92\ See id.
    \93\ See id.
    \94\ See id. at 11-12.
    \95\ Id. at 21.
---------------------------------------------------------------------------

    The Exchange also compared the size of the position and exercise 
limits to the market capitalization of the Bitcoin market, which, 
according to the Exchange, had a market capitalization of approximately 
$1.167 trillion as of August 30, 2024.\96\ The Exchange calculated that 
with a position limit of 25,000 contracts (2,500,000 shares of the 
underlying Bitcoin Fund), as of August 30, 2024, a market participant 
could hold a position in shares of GBTC that represented 0.010% of the 
bitcoin market, a position in BTC that represented 0.001% of the 
bitcoin market, and a position in BITB that represented 0.007% of the 
bitcoin market, positions that the Exchange states ``would have no 
practical impact on the Bitcoin market.'' \97\
---------------------------------------------------------------------------

    \96\ See id. at 12-13.
    \97\ Id. at 13.
---------------------------------------------------------------------------

    The Exchange states that the proposed position and exercise limits 
also are appropriate given position limits for Bitcoin futures.\98\ The 
Exchange states that the Chicago Mercantile Exchange (``CME'') 
establishes a position limit of 2,000 Bitcoin futures for the spot 
month and that, as of August 28, 2024, such a position would have had a 
notional value of $589,500,000.\99\ The Exchange states that, as of 
that date, 125,585 GBTC options, 1,127,151 BTC options, and 183,759 
BITB options would be the equivalent of the $589,500,000 CME bitcoin 
futures notional value.\100\ The Exchange states that the option 
contract equivalent numbers are significantly higher than the proposed 
position and exercise limit of 25,000 contracts.\101\
---------------------------------------------------------------------------

    \98\ See id. at 14-15.
    \99\ See id. at 14.
    \100\ See id.
    \101\ See id. at 15.
---------------------------------------------------------------------------

    In addition, the Exchange states that, based on the number of 
shares outstanding for each Bitcoin Fund as of August 30, 2024, and 
with a position limit of 25,000 option contracts, 114 market 
participants, each with a same side position of 25,000 contracts, would 
have to exercise all of their GBTC options to place the GBTC shares 
under stress; 147 market participants, each with a same side position 
of 25,000 contracts, would have to exercise all of their BTC options to 
place the BTC shares under stress; and 27 market participants, each 
with a same side position of 25,000 contracts, would have to exercise 
all of their BITB options to place the BITB shares under stress.\102\ 
The Exchange states that the proposed position and exercise limits 
``are extremely conservative and more than appropriate given the 
Bitcoin Funds' market capitalization, average daily volume, number of 
beneficial holders, and high number of outstanding shares.'' \103\ The 
Exchange states that the proposed position and exercise limits

[[Page 84971]]

reasonably and appropriately balance the liquidity provisioning in the 
market against the prevention of manipulation.\104\ The Exchange 
further states that the proposed limits are effectively designed to 
prevent an individual customer or entity from establishing options 
positions that could be used to manipulate the market of the underlying 
Bitcoin Funds as well as the Bitcoin market.\105\
---------------------------------------------------------------------------

    \102\ See id. at 12.
    \103\ Id. at 21.
    \104\ See id. at 16-17.
    \105\ See id. at 17 (citing the Position Limit Order supra note 
84.
---------------------------------------------------------------------------

    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.\106\ 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.\107\ 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, as of August 
30, 2024, the proposed position and exercise limits of 25,000 contracts 
represented approximately 0.9% of the outstanding shares of GBTC, 0.7% 
of the outstanding shares of BTC, and 3.6% of the outstanding shares of 
BITB.\108\ The Commission also has considered and reviewed the 
Exchange's statement that with a position limit of 25,000 contracts, 
114 market participants, each with a same side position of 25,000 
contracts, would have to exercise all of their GBTC options to place 
the GBTC shares under stress; 147 market participants, each with a same 
side position of 25,000 contracts, would have to exercise all of their 
BTC options to place the BTC shares under stress; and 27 market 
participants, each with a same side position of 25,000 contracts, would 
have to exercise all of their BITB options to place the BITB shares 
under stress.\109\ 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 securities 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.
---------------------------------------------------------------------------

    \106\ See supra note 73 and accompanying text.
    \107\ See Securities Exchange Act Release No. 57352 (Feb.19, 
2008), 73 FR 10076, 10080 (Feb. 25, 2008) (order approving File No. 
SR-Cboe-2008-07).
    \108\ See Amendment No. 3 at 11-12.
    \109\ See id. at 12.
---------------------------------------------------------------------------

    The proposal excludes the Bitcoin Fund options from FLEX 
trading.\110\ Excluding Bitcoin Fund options from FLEX trading will 
allow the Commission to consider the listing of FLEX options on the 
Bitcoin Funds in the context of any separate proposal to list such 
options.
---------------------------------------------------------------------------

    \110\ See proposed Exchange Rule 903G(a)(1). The Exchange states 
that excluding Bitcoin Fund options from FLEX trading will allow the 
Exchange to continue to participate in ongoing discussions with the 
Commission regarding appropriate position limits for options on the 
Bitcoin Funds. See Amendment No. 3 at 21.
---------------------------------------------------------------------------

C. Surveillance

    As described more fully above, the Exchange states that the same 
surveillance procedures applicable to all other options currently 
listed and traded on the Exchange will apply to options on the Bitcoin 
Funds.\111\ The Exchange states that its market surveillance staff 
would have access to the surveillances conducted by its affiliate, NYSE 
Arca, Inc. with respect to the Bitcoin Funds and would review activity 
in the underlying Bitcoin Funds when conducting surveillance for market 
abuse or manipulations in options on the Bitcoin Funds.\112\ 
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.\113\ CME also is a member of ISG. 
In approving the Bitcoin ETPs, the Commission concluded that:
---------------------------------------------------------------------------

    \111\ See id. at 17.
    \112\ See Amendment No. 3 at 17.
    \113\ See id.

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].\114\
---------------------------------------------------------------------------

    \114\ See Bitcoin ETP Order, 89 FR at 3010-11.

    Together, these surveillance procedures should allow the Exchange 
to investigate suspected manipulations or other trading abuses in 
options on the Bitcoin Funds.

D. Retail Customers

    The Exchange states that applicable Exchange rules will require 
that customers receive appropriate disclosure before trading options in 
Bitcoin Funds.\115\ Further, the Exchange states that brokers opening 
accounts and recommending options transactions must comply with 
relevant customer suitability standards.\116\
---------------------------------------------------------------------------

    \115\ See Amendment No. 3 at 19; Exchange Rules 921(c), (f), and 
Commentary .01 to Exchange Rule 921; and Exchange Rule 481.
    \116\ See Amendment No. 3 at 19 and Exchange Rule 923.
---------------------------------------------------------------------------

    Existing rules governing broker-dealer conduct when dealing with 
retail customers will apply to the proposed Bitcoin Fund 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.'' \117\ 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.\118\ 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.'' \119\
---------------------------------------------------------------------------

    \117\ See Exchange Rule 921(c).
    \118\ See Exchange Rule 921, Commentary .01.
    \119\ See FINRA Rule 2360(b)(19).

---------------------------------------------------------------------------

[[Page 84972]]

IV. Solicitation of Comments on Amendment No. 3 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 3 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1e6c6b727b337d7173737b706a6d5e6d7b7d30797168"><span class="__cf_email__" data-cfemail="dba9aeb7bef6b8b4b6b6beb5afa89ba8beb8f5bcb4ad">[email protected]</span></a>. Please include 
file number SR-NYSEAMER-2024-49 on the subject line.

Paper Comments

    <bullet> 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-NYSEAMER-2024-49. 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-NYSEAMER-2024-49 and should 
be submitted on or before November 14, 2024.

V. Accelerated Approval of Amendment No. 3

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act, for approving Amendment No. 3 prior to the 30th day after the 
date of publication of notice of Amendment No. 3 in the Federal 
Register. As described more fully above, Amendment No. 3 narrows the 
scope of the proposal to provide for the listing of options on GBTC, 
BTC, and BITB; provides additional information and analysis of trading 
data for the Bitcoin Funds in support of the proposal, including the 
proposed position and exercise limits of 25,000 contracts; provides 
additional information related to the Exchange's surveillance program, 
including the manner in which the Exchange would surveil suspicious 
trading activity in the underlying Bitcoin Funds and where the Exchange 
would obtain information about the bitcoin market; and provides that 
the Exchange will not list FLEX options on the Bitcoin Funds. Amendment 
No. 3 provides data and analysis supporting the proposed position and 
exercise limits and states, among other things, that the proposed 
position and exercise limits would represent approximately 0.9% of the 
outstanding shares of GBTC, 0.7% of the outstanding shares of BTC, and 
3.6% of the outstanding shares of BITB.\120\ The Commission concludes 
that proposed position and exercise limits are designed to minimize the 
potential for manipulations or disruptions of the underlying 
market.\121\ Amendment No. 3 also describes in greater detail the 
surveillance procedures that will apply to the proposed Bitcoin Fund 
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. In addition, Amendment No. 3 revises the proposal to exclude 
Bitcoin Fund options from FLEX trading. Excluding Bitcoin Fund options 
from FLEX trading will allow the Commission to consider the listing of 
FLEX options on the Bitcoin Funds in the context of any separate 
proposal to list such options. Accordingly, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\122\ to approve the 
proposed rule change, as modified by Amendment No. 3 on an accelerated 
basis.
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    \120\ See Amendment No. 3 at 11-12.
    \121\ The 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.
    \122\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    For the reasons set forth above, the Commission finds that the 
proposed rule change, as modified by Amendment No. 3, is consistent 
with the requirements of the 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.\123\
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    \123\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\124\ that the proposed rule change (SR-NYSEAMER-2024-49), as 
modified by Amendment No. 3, is approved.
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    \124\ 15 U.S.C. 78s(b)(2)

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\125\
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    \125\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-24640 Filed 10-23-24; 8:45 am]
BILLING CODE 8011-01-P


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