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[Federal Register Volume 89, Number 220 (Thursday, November 14, 2024)]
[Notices]
[Pages 90133-90136]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-26533]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101573; File No. SR-NYSEAMER-2024-45]

Self-Regulatory Organizations; NYSE American LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Amend Exchange Rule 915 To Permit the Listing 
and Trading of Options on the Bitwise Ethereum ETF, the Grayscale 
Ethereum Trust, the Grayscale Ethereum Mini Trust, and Any Trust That 
Holds Ether

November 8, 2024.

I. Introduction

    On July 23, 2024, NYSE American LLC (``NYSE American'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Exchange Rule 915 to 
permit the listing and trading of options on the Bitwise Ethereum ETF, 
the Grayscale Ethereum Trust (ETH), the Grayscale Ethereum Mini Trust, 
and any trust that holds ether. The proposed rule change was published 
for comment in the Federal Register on August 13, 2024.\3\ The 
Commission has received no comments regarding the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100666 (Aug. 7, 
2024), 89 FR 65957 (``Notice'').
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    On September 24, 2024, pursuant to Section 19(b)(2) of the Exchange 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ This order institutes proceedings under

[[Page 90134]]

Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 101157 (Sept. 24, 
2024), 89 FR 79678 (Sept. 30, 2024) (designating November 11, 2024, 
as the date by which the Commission shall either approve, 
disapprove, or institute proceedings to determine whether to 
disapprove the proposed rule change).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

    As described more fully in the Notice,\7\ the Exchange proposes to 
amend Exchange Rule 915, Commentary .10, to allow the Exchange to list 
and trade options on the Bitwise Ethereum ETF, the Grayscale Ethereum 
Trust, the Grayscale Ethereum Mini Trust, and any trust that holds 
ether (collectively, the ``Ether ETPs'').\8\ The Exchange states that 
Ether ETPs are ether-backed commodity ETPs structured as trusts, and 
that, similar to exchange-traded funds (``ETFs'') currently deemed 
appropriate for options trading under Exchange Rule 915, the investment 
objective of an Ether ETP trust is for its shares to reflect the 
performance of ether (less the expenses of the trust's operations), 
thereby offering investors an opportunity to gain exposure to ether 
without the complexities of ether delivery.\9\ The Exchange states that 
an Ether ETP's shares represent units of fractional undivided 
beneficial interest in the trust, and that Ether ETPs provide investors 
with cost efficient alternatives that allow a level of participation in 
the ether market through the securities market.\10\
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    \7\ See supra note 3.
    \8\ The Exchange states that the Commission approved rule 
changes to list and trade shares of Ether-based exchange-traded 
products (``ETPs''), including, among others, the Bitwise Ethereum 
ETF, the Grayscale Ethereum Trust, and the Grayscale Ethereum Mini 
Trust. See Notice, 89 FR at 65958, note 4, and Securities Exchange 
Act Release Nos. 100224 (May 23, 2024), 89 FR 3008 (May 30, 2024); 
and 100541 (July 17, 2024) 89 FR 59786 (July 23, 2024).
    \9\ See Notice, 89 FR at 65958.
    \10\ See id.
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    The Exchange states that Ether ETPs will trade in the same manner 
as options on other ETFs and will be subject to the same rules as 
options on other ETFs, including, for example, rules that govern 
listing criteria, expirations, exercise prices, minimum increments, 
position and exercise limits, margin requirements, customer accounts 
and trading halt procedures.\11\ In addition, the Exchange states that 
its initial listing standards for ETFs on which options may be listed 
and traded on the Exchange will apply to Ether ETPs, and that the 
Exchange expects the Ether ETPs to satisfy the initial listing 
standards in Exchange Rule 915(a) and in Commentary .06 to Exchange 
Rule 915.\12\ The Exchange states that, pursuant to Exchange Rule 
915(a), a security on which options may be listed and traded on the 
Exchange must be 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.\13\ In addition, the Exchange states 
that Commentary .06 requires that ETFs must either (1) meet the 
criteria and standards set forth in Commentary .01 to Rule 915; or (2) 
be available for creation and redemption each business day as set forth 
in Commentary .06(a)(ii).\14\ The Exchange states that options on Ether 
ETPs will also be subject to the Exchange's continued listing standards 
set forth in Exchange Rule 916, Commentary .07, which provides that 
options on ETFs may be subject to the suspension of opening 
transactions if: (1) the ETF 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 ETF, there are fewer 
than 50 record and/or beneficial holders of the ETF 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.\15\ In addition, the Exchange 
states that ETFs will be deemed to not meet the requirements for 
continued approval, and the Exchange states that it will not open for 
trading any additional series of option contracts covering the ETF if 
such security ceases to be an ``NMS stock,'' as provided in Exchange 
Rule 915, Commentary .01(5), or the ETF is halted from trading on its 
primary market.\16\
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    \11\ See id.
    \12\ See Notice, 89 FR at 65958-9.
    \13\ See Notice, 89 FR at 65959.
    \14\ See id.
    \15\ See id.
    \16\ See id. For avoidance of doubt, the Exchange proposes to 
amend Exchange Rule 916 to include the Ether ETPs in the list of 
ETFs subject to the continued listing standards. See id. at note 11.
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    The Exchange states that options on Ether ETPs listed pursuant to 
proposed Exchange Rule 915, Commentary .10 would be physically settled 
contracts with American-style exercise and would be subject to Exchange 
rules and procedures that currently govern the trading of securities on 
the Exchange, including Exchange rules governing the trading of equity 
options.\17\ The Exchange further states that its rules pertaining to 
position and exercise limits or margin will apply to options on Ether 
ETPs.\18\ As described more fully in the Notice, the Exchange's rules 
governing the opening of options series and the strike prices for ETP 
options also would apply to the proposed Ether ETP options.\19\
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    \17\ See Notice, 89 FR at 65959.
    \18\ See id.
    \19\ See id.
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    The Exchange states that position and exercise limits for options 
on the proposed Ether ETP options will be determined pursuant to 
Exchange Rules 904 and 905, respectively.\20\ The Exchange further 
states that position and exercise limits for ETF options vary according 
to the number of outstanding shares and the trading volumes of the 
underlying ETF over the past six months, where the largest in 
capitalization and the most frequently traded ETFs have an option 
position and exercise limit of 250,000 contracts (with adjustments for 
splits, recapitalizations, etc.) on the same side of the market; and 
smaller capitalization ETFs have position and exercise limits of 
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for 
splits, recapitalizations, etc.) on the same side of the market.\21\
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    \20\ See id.
    \21\ See id.
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    The Exchange states that options on Ether ETPs 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.\22\ In addition, the Exchange states that it has analyzed 
its capacity and represents that it and The Options Price Reporting 
Authority (``OPRA'') have the necessary systems capacity to handle the 
additional traffic associated with the listing of options on Ether 
ETPs.\23\ In addition, the Exchange represents that the same 
surveillance procedures applicable to all other options on other ETFs 
currently listed and traded on the Exchange will apply to options on 
Ether ETPs.\24\ Further, as described in the Notice, the Exchange 
states that it will implement any new surveillance procedures it deems 
necessary to effectively monitor the trading of options on Ether 
ETPs.\25\ Finally, the Exchange states that the quotation and last sale 
information for ETFs is available via the Consolidated Tape Association 
high speed line, and that quotation and last sale information for such 
securities is also available from the exchange on which such securities 
are listed.\26\ The Exchange states that quotation and last sale 
information for options on Ether ETPs will be available

[[Page 90135]]

via OPRA and major market data vendors.\27\
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    \22\ See id. at 65960.
    \23\ See id.
    \24\ See id.
    \25\ See id.
    \26\ See id.
    \27\ See id.
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    The Exchange states that the proposal is consistent with Section 
6(b) of the Act, in general, and furthers the objectives of Section 
6(b)(5) of the Act, 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. The Exchange believes that the proposal to list and trade 
options on Ether ETPs 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 Ether ETPs 
will provide investors with a greater opportunity to realize the 
benefits of utilizing options on an ETF based on spot ether, including 
cost efficiencies and increased hedging strategies.\28\ The Exchange 
states that offering options on a competitively priced ETF based on 
spot ether will benefit investors by providing them with an additional, 
relatively lower cost risk management tool that will allow them to more 
easily manage their positions, and the associated risks, in their 
portfolios in connection with exposure to spot ether.\29\ The Exchange 
states that it currently lists options on other commodity ETFs 
structured as a trust and that it has not identified any issues with 
the continued listing and trading of options on those ETFs.\30\ In 
addition, the Exchange states that the proposal to permit options on 
Ether ETPs will remove impediments to and perfect the mechanism of a 
free and open market and a national market system because options on 
Ether ETPs will comply with current Exchange rules, as discussed 
above.\31\ The Exchange states that the Commission has previously 
approved the listing and trading of options on other commodity-based 
ETFs structured as a trust, including options on the SPDR Gold Trust, 
the iShares COMEX Gold Trust, the iShares Silver Trust, the ETFS Gold 
Trust, and the ETFS Silver Trust.\32\
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    \28\ See id.
    \29\ See id.
    \30\ See id.
    \31\ See id.
    \32\ See id.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEAMER-2024-45 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \33\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposed rule change. Institution of proceedings does not 
indicate that the Commission has reached any conclusions with respect 
to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \33\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\34\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act,\35\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and protect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
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    \34\ Id.
    \35\ 15 U.S.C. 78f(b)(5).
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
self-regulatory organization that proposed the rule change.'' \36\ The 
description of a proposed rule change, its purpose and operation, its 
effect, and a legal analysis of its consistency with applicable 
requirements must all be sufficiently detailed and specific to support 
an affirmative Commission finding,\37\ and any failure of a self-
regulatory organization to provide this information may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that a proposed rule change is consistent with the Act and the 
applicable rules and regulations.\38\ The Commission is instituting 
proceedings to allow for additional consideration and comment on the 
issues raised herein, including as to whether the proposal is 
consistent with the Act. In particular, the Commission asks commenters 
to address whether the proposal includes sufficient data and analysis 
to support a conclusion that the proposal is consistent with the 
requirements of Section 6(b)(5) of the Act.
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    \36\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \37\ See id.
    \38\ See id.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, and 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\39\
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    \39\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by December 5, 2024. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 19, 2024.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEAMER-2024-45 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-NYSEAMER-2024-45. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your

[[Page 90136]]

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-2024-45 and should be submitted on or before December 5, 
2024. Rebuttal comments should be submitted by December 19, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-26533 Filed 11-13-24; 8:45 am]
BILLING CODE 8011-01-P
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