`[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94846-94856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101711; File No. SR-CBOE-2024-051]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rules 4.3, 4.20, and 8.30

November 22, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 21, 2024, Cboe Exchange, Inc. (``Exchange'' or ``Cboe 
Options'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rules 4.3, 4.20, and 8.30. The text of the proposed rule 
change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, 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 Rules 4.3 regarding the criteria for 
underlying securities. Specifically, the Exchange proposes to amend 
Rule 4.3, Interpretation and Policy .06(a)(4) to allow the Exchange to 
list and trade options on Units \3\ that represent interests in the 
iShares Bitcoin Trust (the ``iShares Fund''), the Grayscale Bitcoin 
Trust (the ``Grayscale Fund''), the Grayscale Bitcoin Mini Trust (the 
``Grayscale Mini Fund''), or the Bitwise Bitcoin ETF (the ``Bitwise 
Fund'' and, together with the iShares Fund, the Grayscale Fund, and the 
Grayscale Mini Fund, the ``Bitcoin Funds''),\4\ designating them as 
``Units'' deemed appropriate for options trading on the Exchange. This 
is a competitive filing based on similar proposals submitted by Nasdaq 
ISE, LLC (``ISE'') (with respect to the iShares Fund) and NYSE 
American, LLC (``NYSE American'') (with respect to the Grayscale Fund, 
the Grayscale Mini Fund, and the Bitwise Fund), which were recently 
approved by the Securities and Exchange

[[Page 94847]]

Commission (the ``Commission'').\5\ Current Rule 4.3, Interpretation 
and Policy .06 provides that, subject to certain other criteria set 
forth in that Rule, securities deemed appropriate for options trading 
include Units that represent certain types of interests,\6\ including 
interests in certain specific trusts that hold financial instruments, 
money market instruments, precious metals (which are deemed 
commodities), or Bitcoin (which is deemed a commodity). In addition, 
Rule 4.3, Interpretation and Policy .06 requires that Units must either 
(1) meet the criteria and standards set forth in Rule 4.3, 
Interpretation and Policy .01(a),\7\ or (2) 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 Units 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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    \3\ Rule 1.1 defines a ``Unit'' (which may also be referred to 
as an ETF) as a share or other security traded on a national 
securities exchange and defined as an NMS stock as set forth in Rule 
4.3.
    \4\ See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008, 3009 (January 17, 2024) (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) 
(``Bitcoin ETP Approval Order'').
    \5\ See Securities Exchange Act Release Nos. 101128 (September 
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (``ISE 
Approval''); and 101386 (October 18, 2024), 89 FR 84960 (October 24, 
2024) (SR-NYSEAMER-2024-49) (``NYSE American Approval'').
    \6\ See Rule 4.3, Interpretation and Policy .06(a), which 
permits options trading on Units that represent (1) 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); (2) 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''); (3) 
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''); (4) interests in the SPDR Gold Trust, the iShares COMEX 
Gold Trust, the iShares Silver Trust, the Aberdeen Standard Physical 
Silver Trust, the Aberdeen Standard Physical Gold Trust, the 
Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard 
Physical Platinum Trust, the Sprott Physical Gold Trust, the Goldman 
Sachs Physical Gold ETF, the Fidelity Wise Origin Bitcoin Fund (the 
``Fidelity Fund''), or the ARK 21Shares Bitcoin ETF (the ``Ark 21 
Fund''); or (5) 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'').
    \7\ Rule 4.3, Interpretation and Policy .01 provides for 
guidelines to be by the Exchange when evaluating potential 
underlying securities for Exchange option transactions.
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    The Bitcoin Funds are Bitcoin-backed commodity ETFs structured as 
trusts. Similar to any Unit currently deemed appropriate for options 
trading under Rule 4.3, Interpretation and Policy .06, the investment 
objective of each Bitcoin Fund 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. As is the case for Units 
currently deemed appropriate for options trading, a 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.\8\ The Bitcoin Funds provide 
investors with cost-efficient alternatives that allow a level of 
participation in the Bitcoin market through the securities market. The 
Bitcoin Funds are similar to the Fidelity Fund and the Ark 21 Fund, 
which are already eligible for options trading on the Exchange.
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    \8\ The trust may include minimal cash.
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    The Exchange's initial listing standards for Units on which options 
may be listed and traded on the Exchange will apply to the Bitcoin 
Funds. Pursuant to Rule 4.3(a), a security (which includes a Unit) 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 Securities Exchange Act of 1934, 
as amended (the ``Act'')), and be characterized by a substantial number 
of outstanding shares that are widely held and actively traded.\9\ 
Additionally, Rule 4.3(a), Pursuant to Rule 4.3, Interpretation and 
Policy .06, requires that Units must either (1) meet the criteria and 
standards set forth in Rule 4.3, Interpretation and Policy .01(a),\10\ 
or (2) 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 Units 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. Each Bitcoin Fund 
satisfies Rule 4.3, Interpretation and Policy .06(b)(2), as each is 
subject to this creation and redemption process.
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    \9\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Rule 4.3, 
Interpretation and Policy .01, subject to exceptions.
    \10\ Rule 4.3, Interpretation and Policy .01 provides for 
guidelines to be by the Exchange when evaluating potential 
underlying securities for Exchange option transactions.
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    Options on the Bitcoin Funds will be subject to the Exchange's 
continued listing standards set forth in Rule 4.4, Interpretation and 
Policy .06 for Units deemed appropriate for options trading pursuant to 
Rule 4.3, Interpretation and Policy .06. Specifically, Rule 4.4, 
Interpretation and Policy .06 provides that Units that were initially 
approved for options trading pursuant to Rule 4.3, Interpretation and 
Policy .06 shall be deemed not to meet the requirements for continued 
approval, and the Exchange shall not open for trading any additional 
series of option contracts of the class covering that such Units, if 
the Units cease to be an NMS stock or the Units are halted from trading 
in their primary market. Additionally, options on Units may be subject 
to the suspension of opening transactions in any of the following 
circumstances: (1) in the case of options covering Units approved for 
trading under Rule 4.3, Interpretation and Policy .06(b)(1), in 
accordance with the terms of paragraphs (a), (b), and (c) of Rule 4.4, 
Interpretation and Policy .01; (2) in the case of options covering 
Units approved for trading under Rule

[[Page 94848]]

4.3 Interpretation and Policy .06(b)(2) (as is the case for the Bitcoin 
Funds), following the initial twelve-month period beginning upon the 
commencement of trading in the Units on a national securities exchange 
and are defined as an NMS stock, there are fewer than 50 record and/or 
beneficial holders of such Units for 30 or more consecutive trading 
days; (3) the value of the index or portfolio of securities, non-U.S. 
currency, or portfolio of commodities including commodity futures 
contracts, options on commodity futures contracts, swaps, forward 
contracts and/or options on physical commodities and/or financial 
instruments and money market instruments on which the Units are based 
is no longer calculated or available; or (4) such other event shall 
occur or condition exist that in the opinion of the Exchange makes 
further dealing in such options on the Exchange inadvisable.
    Options on each Bitcoin Fund will be physically settled contracts 
with American-style exercise.\11\ Consistent with current Rule 4.5, 
which governs the opening of options series on a specific underlying 
security (including Units), the Exchange will open at least one 
expiration month for options on each Bitcoin Fund \12\ at the 
commencement of trading on the Exchange and may also list series of 
options on a Bitcoin Fund for trading on a weekly,\13\ monthly,\14\ or 
quarterly \15\ basis. The Exchange may also list long-term equity 
option series (``LEAPS'') that expire from 12 to 180 months from the 
time they are listed.\16\
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    \11\ See Rule 4.2, which provides that the rights and 
obligations of holders and writers are set forth in the Rules of the 
Options Clearing Corporation (``OCC''); and Equity Options Product 
Specifications January 3, 2024), available at Equity Options 
Specifications (cboe.com); see also OCC Rules, Chapters 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).
    \12\ See Rule 4.5(b). The monthly expirations are subject to 
certain listing criteria for underlying securities described within 
Rule 4.3. 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 4.5(c), 
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.
    \13\ See Rule 4.5(d).
    \14\ See Rule 4.5(g).
    \15\ See Rule 4.5(e).
    \16\ See Rule 4.5(f).
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    Pursuant to Rule 4.5, Interpretation and Policy .07, which governs 
strike prices of series of options on Units, the interval of strikes 
prices for series of options 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.\17\ Additionally, the Exchange may list 
series of options pursuant to the $1 Strike Price Interval Program,\18\ 
the $0.50 Strike Program,\19\ the $2.50 Strike Price Program,\20\ and 
the $5 Strike Program.\21\ Pursuant to Rule 5.4, 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.\22\ 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 4.5 and 5.4, as applicable.
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    \17\ 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 4.5(d), 
(e), and (g) specifically sets forth intervals between strike prices 
on Quarterly Options Series, Short Term Option Series, and Monthly 
Options Series, respectively.
    \18\ See Rule 4.5, Interpretation and Policy .01(a).
    \19\ See Rule 4.5, Interpretation and Policy .01(b).
    \20\ See Rule 4.5, Interpretation and Policy .04.
    \21\ See Rule 4.5, Interpretation and Policy .01(f).
    \22\ If options on a Bitcoin Fund are eligible to participate in 
the Penny Interval Program, the minimum increment will be $0.01 for 
series with a price below $3.00 and $0.05 for series with a price at 
or above $3.00. See 5.4(d) (which describes the requirements for the 
Penny Interval Program).
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    Bitcoin Fund options will trade in the same manner as any other 
Unit options on the Exchange. The Exchange Rules that currently apply 
to the listing and trading of all Unit options on the Exchange, 
including, for example, Rules that govern listing criteria, 
expirations, exercise prices, minimum increments, margin requirements, 
customer accounts, and trading halt procedures will apply to the 
listing and trading of Bitcoin Funds options on the Exchange in the 
same manner as they apply to other options on all other Units that are 
listed and traded on the Exchange, including the precious-metal backed 
commodity Units and the Fidelity and Ark 21 Funds already deemed 
appropriate for options trading on the Exchange pursuant to current 
Rule 4.3, Interpretation and Policy .06(a)(4).
    Rule 4.20 currently permits the Exchange to authorize for trading a 
FLEX option class on any equity security if it may authorize for a 
trading a non-FLEX option class on that equity security pursuant to 
Rule 4.3. The proposed rule change amends Rule 4.20 to exclude the 
Bitcoin Funds from this provision.
    The Exchange also proposes to amend Rule 8.30. Specifically, the 
Exchange proposes to amend Rule 8.30, Interpretation and Policy .10 to 
provide a position limit of 25,000 same side option contracts for each 
Bitcoin Fund option. Additionally, pursuant to the Rule 8.42, 
Interpretation and Policy .02, the exercise limits for options on each 
Bitcoin Fund will be equivalent to this proposed position limit. In 
considering the appropriate position and exercise limits for the 
Bitcoin Funds, the Exchange reviewed the data presented by ISE in its 
filing (specifically in Exhibit 3 of the filing) with respect to the 
iShares Fund \23\ and by NYSE American in its filing with respect to 
the Grayscale Fund, the Grayscale Mini Fund, and the Bitwise Fund.\24\
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    \23\ See ISE Approval; and Letter from Angela Dunn, Nasdaq ISE, 
LLC, to Vanessa Countryman, Secretary, Commission, dated August 21, 
2024) (``ISE Letter'').
    \24\ See NYSE American Approval.
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    With respect to the iShares Fund, in its filing, ISE considered the 
iShares Fund market capitalization and average daily volume (``ADV'') 
against those of other underlying securities, as well as the proposed 
position limit in relation to other options. In measuring the iShares 
Fund against other securities, ISE aggregated market capitalization and 
volume data for securities that have defined position limits utilizing 
data from The Options Clearing Corporations (``OCC'').\25\ This pool of 
data took into consideration 3,984 options on single stock securities, 
excluding broad based ETFs.\26\ Next, ISE aggregated the data based on 
market capitalization and ADV and grouped option symbols by position 
limit utilizing statistical thresholds for ADV and market 
capitalization that were one standard deviation above the mean for each 
position limit category (i.e., 25,000, 50,000 to 65,000, 75,000, 
100,000 to less than 250,000, 250,000 to 400,000, 450,000 to 1,000,000, 
and greater than or equal to 1,000,000) (sic).\27\ Rule 8.30 sets out 
position limits

[[Page 94849]]

for various contracts. For example, on the Exchange, like ISE, a 25,000 
contract position limit applies to options with an underlying security 
that does not meet the requirements for a higher options contract 
position limit. ISE performed an exercise to demonstrate the iShares 
Fund position limit relative to other options symbols in terms of 
market capitalization and ADV. For reference the market capitalization 
for the iShares Fund was 19,789,068 billion \28\ with an ADV, for the 
preceding three months prior to August 7, 2024, of greater than 26 
million shares.\29\ By comparison, other options symbols with similar 
market capitalization and ADV have a position limit in excess of 
400,000.\30\ Therefore, the proposed 25,000 same side position limit 
for options on the iShares Fund is extremely conservative relative to 
these options symbols which are a full standard deviation above the 
mean in comparison.
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    \25\ The computations are based on OCC data from August 6, 2024. 
Data displaying zero values in market capitalization or ADV were 
removed.
    \26\ The iShares Fund has one asset and therefore is not 
comparable to a broad based ETF where there are typically multiple 
components.
    \27\ See ISE Letter at 10.
    \28\ ISE acquired this figure as of August 13, 2024. See https://www.ishares.com/us/products/333011/ishares-bitcoin-trust. The 
global supply of Bitcoin grows each day Bitcoin are minted.
    \29\ See ISE Letter at 10.
    \30\ See, e.g., iShares[supreg] iBoxx[supreg] $ High Yield 
Corporate Bond ETF (``HYG'') with a market capitalization of 
13,859,235,000 billion as of November 4, 2024. See https://www.ishares.com/us/products/239565/ishares-iboxx-high-yield-corporate-bond-etf. The Exchange notes that HYG has a position limit 
of 500,000 contracts.
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    Second, ISE reviewed the iShares Fund's data relative to the market 
capitalization of the entire Bitcoin market in terms of exercise risk 
and availability of deliverables. Utilizing data as of August 3, 2024, 
there were 19,737,193 Bitcoins in circulation.\31\ ISE took a price of 
$57,000 that equates to a market capitalization of greater than 1.125 
trillion U.S. dollars, and applied that to a position limit of 400,000 
for options on the iShares Fund.\32\ If a position limit of 400,000 
options were considered (the position limit that would be typically 
assigned based upon data) the exercisable risk would represent only 
6.6% of the outstanding shares of the iShares Fund. The 25,000 position 
limit being sought only represents 0.4% of the outstanding shares of 
the iShares Fund. Since the iShares Fund has a creation and redemption 
process managed through the issuer, additionally it can be compared the 
position limit sought to the total market capitalization of the entire 
Bitcoin market. In this case, the exercisable risk for options on the 
iShares Fund would be less than 0.01% of the market capitalization of 
all outstanding Bitcoin. Assuming a scenario where all options on the 
iShares Fund's shares were exercised given the proposed 25,000 per same 
side position limit, this would have a virtually unnoticed impact on 
the entire Bitcoin market. This analysis demonstrates that the proposed 
25,000 per same side position limit is also extremely conservative and 
more than appropriate for options on the iShares Fund.
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    \31\ See ISE Letter at 10.
    \32\ Id.
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    Third, ISE reviewed the proposed position limit by comparing it to 
position limits for derivative products regulated by the Commodity 
Futures Trading Commission (``CFTC''). While the CFTC, through the 
relevant Designated Contract Markets, only regulates options positions 
based upon delta equivalents (creating a less stringent standard), ISE 
examined equivalent bitcoin futures position limits. In particular, ISE 
looked at the CME Bitcoin futures contract that has a position limit of 
2,000 futures.\33\ On August 7, 2024, CME Bitcoin futures settled at 
$55,000.\34\ Taking the position limit of 2,000 futures at a $5 
multiplier equates to $550 million of notional value for Bitcoin 
futures. By way of comparison, on August 7, 2024, the iShares Fund 
settled at $31.19 per share, which would equate to 17,633,857 shares of 
the iShares Fund \35\ if the CME notional position limit were utilized. 
Since substantial portions of any distributed options portfolio are 
likely to be out of the money on expiration, an options position limit 
equivalent to the CME position limit for Bitcoin futures (considering 
that all options deltas are <=1.00) should be a bit higher than the CME 
implied 176,338 limit.
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    \33\ 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.
    \34\ See https://finance.yahoo.com/quote/BTC%3DF/history/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAM7ngaS6ZQS9c2Wzx7JW2IUe-_-_1FnLyr8T-Qw4jjkleHyCENfSMIEpPPt2hCzPDEryTVyB78NIwxkwFB5Fuw-jA-YiuSmYJHBriWbV6dYn91VQfzQNt3p0I2RkYLD3HhzXPwu4AP5as-_WzHNpEBon4sk5sUZXgkapMrZR--CS.
    \35\ See ISE Letter at 11.
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    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).\36\ 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.\37\ 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 iShares Fund options.
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    \36\ See CME Rulebook Chapter 5, Position Limit, Position 
Accountability and Reportable Level Table in the Interpretations & 
Special Notices.
    \37\ Id.
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    In analyzing the proposed position limit for options on the iShares 
Fund, ISE also considered the supply of Bitcoin. Specifically, ISE 
examined the number of market participants with position limits that 
would need to exercise in unison to put the underlying asset under 
stress. In the case of options on the iShares Fund, the proposed 25,000 
same side position limit effectively restricts a market participant 
from holding positions that could be exercised in excess of 2,500,000 
shares of the iShares Fund. Utilizing data from August 12, 2024, the 
iShares Fund had 611,040,000 shares outstanding, therefore 244 market 
participants would have to simultaneously exercise position limits in 
order to create a scenario that may put the underlying asset (iShares 
Fund) under stress.\38\ The Exchange notes that historically, from 
observation only, it appears that no more than five market participants 
holding position limits in any security have exercised in unison in any 
option. As unlikely an occurrence as all market participants exercising 
their position limits in unison would be, if it were to occur, it 
should be noted that even such an occurrence would not likely put the 
iShares Fund under stress as economic incentives, would induce the 
creation of more shares through the ETF creation and redemption 
process.
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    \38\ See https://www.ishares.com/us/products/333011/ishares-bitcoin-trust.
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    By way of example, given that the current global supply of Bitcoin, 
the underlying asset of the iShares Fund, is

[[Page 94850]]

19,789,068 \39\ and that each Bitcoin can currently be redeemed for 
1,755 shares of the iShares Fund, another 34,729,814,340 shares of the 
iShares Fund could be created. To exhaust this supply of the iShares 
Fund, 13,891 market participants would have to simultaneously exercise 
their position limit. Comparing the iShares Fund to the SPDR Gold 
Shares (``GLD'') ETF or the iShares Silver Trust (``SLV'') ETF, which 
have position limits of 250,000 or ten times the proposed position 
limit for the iShares Fund as well as lower shares outstanding in both 
products,\40\ it is unjustified to mandate a different level of 
stringency with respect to a position limit for options on the iShares 
Fund.
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    \39\ This figure was acquired as of August 13, 2024. See https://www.ishares.com/us/products/333011/ishares-bitcoin-trust. The 
global supply of Bitcoin grows each day Bitcoin are minted.
    \40\ As of August 13, 2024, GLD had 294,000,000 shares 
outstanding and SLV had 510,200,000 shares outstanding. See https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-gold-shares-gld and 
https://www.ishares.com/us/products/239855/ishares-silver-trust-fund.
---------------------------------------------------------------------------

    With respect to the Grayscale Fund, the Grayscale Mini Fund, and 
the Bitwise Fund, the Exchange reviewed the data presented by NYSE 
American in its filing. NYSE American aggregated market capitalization, 
volume, and shares outstanding data of the Bitcoin Funds and compared 
that data to those of other ETFs, and compared the proposed position 
limit of the Bitcoin Funds to the position limits of the options 
overlying those other ETFs. The Exchange reviewed NYSE American's data 
that demonstrated that each of these three Bitcoin Funds would easily 
qualify for the 250,000-contract position limit available to other ETFs 
and ETPs pursuant to the criterion in Rule 8.30, Interpretation and 
Policy .02, which requires the most recent six-month trading volume of 
the underlying security to be at least 100,000,000 shares.\41\
---------------------------------------------------------------------------

    \41\ Rule 8.30, Interpretation and Policy .02(e) states that to 
be eligible for the 250,000 option contract limit, either the most 
recent six-month trading volume of the underlying security must have 
totaled at least 100,000,000 shares; or the most recent six-month 
trading volume of the underlying security must have totaled at least 
75,000,000 shares and the underlying security must have at least 
300,000,000 currently outstanding.

------------------------------------------------------------------------
                                                          Total volume
                                                        (shares) (as of
                     Bitcoin fund                        September 30,
                                                             2024)
------------------------------------------------------------------------
Grayscale Fund.......................................        723,758,100
Grayscale Mini Fund..................................        335,492,930
Bitwise Fund.........................................        263,965,870
------------------------------------------------------------------------

    Based on this trading volume,\42\ each Bitcoin Fund exceeded the 
requisite 100,000,000 shares necessary to qualify for the 250,000-
contract position and exercise limits. By comparison, the underlying of 
other options with six-month trading volume less than the volumes in 
the table above are eligible for position and exercise limits of at 
least 250,000.\43\
---------------------------------------------------------------------------

    \42\ See FactSet, 9/30/2024, https://www.factset.com/data-attribution. Bitwise Fund shares began trading on July 31, 2024, and 
therefore the data in the above table has only two months of trading 
data available.
    \43\ 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).
---------------------------------------------------------------------------

    Second, with respect to the outstanding shares of these three 
Bitcoin Funds, the Exchange reviewed NYSE American's data regarding the 
outstanding shares of each of these Bitcoin Funds. NYSE American 
performed an exercise to demonstrate that 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 and exercise limits (2,500,000 
shares) would represent the following approximate percentage of 
outstanding shares as of August 30, 2024:

----------------------------------------------------------------------------------------------------------------
                                                               Proposed position/
                                                                exercise limits     Outstanding    Percentage of
                         Bitcoin Fund                            in equivalent        shares        outstanding
                                                                     shares                         shares (%)
----------------------------------------------------------------------------------------------------------------
Grayscale Fund...............................................          2,500,000     284,570,100             0.9
Grayscale Mini Fund..........................................          2,500,000     366,950,100             0.7
Bitwise Fund.................................................          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). NYSE American used the 
number of shares outstanding for each Bitcoin Fund as of August 30, 
2024, and calculated 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
                                    Outstanding       participants with
          Bitcoin Fund                 shares         25,000 same side
                                                          positions
------------------------------------------------------------------------
Grayscale Fund.................        284,570,100                   114
Grayscale Mini Fund............        366,950,100                   147
Bitwise Fund...................         68,690,000                    27
------------------------------------------------------------------------

    This means if 114 market participants had 25,000 same side 
positions in options on the Grayscale Fund, 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 
the Grayscale Mini Fund, 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

[[Page 94851]]

25,000 same side positions in options on the Bitwise Fund, 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.
    NYSE American also performed an exercise to compare the size of the 
proposed position limit to the market capitalization of the Bitcoin 
market given that the issuer of each of these three Bitcoin Funds may 
create and redeem shares that represent an interest in Bitcoin. NYSE 
American took the global supply of Bitcoin, which was 19,747,066, and 
the price of one Bitcoin, which was approximately $59,108.23, as of 
August 30, 2024, which equates to a market capitalization of 
approximately $1.167 trillion.\44\ 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 the Grayscale Fund, 
the Grayscale Mini Fund, or the Bitwise Fund, as applicable (if that 
market participant exercised all its options). NYSE American considered 
the share price of each Bitcoin Fund on August 30, 2024 and calculated 
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:
---------------------------------------------------------------------------

    \44\ See https://www.blockchain.com/explorer/charts/total-bitcoins.

----------------------------------------------------------------------------------------------------------------
                                                                                     Value of      Percentage of
                          Bitcoin Fund                              Share price      2,500,000    bitcoin market
                                                                        ($)           shares            (%)
----------------------------------------------------------------------------------------------------------------
Grayscale Fund..................................................           46.75     116,875,000           0.010
Grayscale Mini Fund.............................................            5.20      13,000,000           0.001
Bitwise Fund....................................................           31.95      79,875,000           0.007
----------------------------------------------------------------------------------------------------------------

    Therefore, if a market participant with the maximum 25,000 same 
side contracts in options on the Grayscale Fund, the Grayscale Mini 
Fund, or the Bitwise Fund exercised all positions at one time, such an 
event would have no practical impact on the Bitcoin market.
    The Exchange also reviewed NYSE American's data regarding the 
market capitalization of each of these three Bitcoin Funds relative to 
the market capitalization of the entire Bitcoin market, as of August 
30, 2024: \45\
---------------------------------------------------------------------------

    \45\ See id.

----------------------------------------------------------------------------------------------------------------
                                                               Bitcoin/shares                       % of total
                                                                 outstanding    Market value ($)  bitcoin market
----------------------------------------------------------------------------------------------------------------
Total Bitcoin Market.........................................      19,747,066  1,167,214,096,788             100
Grayscale Fund...............................................     284,570,100     13,443,091,524            1.15
Grayscale Mini Fund..........................................     366,950,100      1,930,157,526            0.17
Bitwise Fund.................................................      68,690,000      2,221,640,670            0.19
----------------------------------------------------------------------------------------------------------------

    As this data gathered by NYSE American demonstrates, none of these 
three Bitcoin Funds represent more than 1.2% of the global supply of 
Bitcoin (19,747,066). Based on the $46.75 price of a Grayscale Fund 
share on August 30, 2024, a market participant could have redeemed one 
Bitcoin for approximately 1,264 Grayscale Fund shares. Another 
24,967,146,455 Grayscale Fund 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 Grayscale 
Fund options receive shares of the Grayscale Fund holding the entire 
global supply of Bitcoin. Similarly, based on the $5.20 price of a 
Grayscale Mini Fund share on August 30, 2024, a market participant 
could have redeemed one Bitcoin for approximately 11,367 Grayscale Mini 
Fund shares. Another 224,464,249,382 Grayscale Mini Fund 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 Grayscale Mini Fund options to receive shares of 
Grayscale Mini Fund holding the entire global supply of Bitcoin. 
Similarly, based on the $31.95 price of a Bitwise Fund share on August 
30, 2024, a market participant could have redeemed one Bitcoin for 
approximately 1,850 Bitwise Fund shares. Another 36,532,522,591 Bitwise 
Fund 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 Bitwise Fund 
options to receive shares of Bitwise Fund holding the entire global 
supply of Bitcoin.
    As ISE did with respect to the iShares Fund, NYSE American compared 
the proposed position limits to the position limit of CME Bitcoin 
futures, which as noted above is 2,000 futures. 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:

------------------------------------------------------------------------
                                                        Number of option
           Bitcoin Fund              Share price ($)       contracts
------------------------------------------------------------------------
Grayscale Fund....................              46.94            125,585
Grayscale Mini Fund...............               5.23          1,127,151
Bitwise Fund......................              32.08            183,759
------------------------------------------------------------------------


[[Page 94852]]

    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. As noted above, 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, again, 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 Grayscale Fund, Grayscale Mini Fund, 
and Bitwise Fund options.
---------------------------------------------------------------------------

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

    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.\48\ The Exchange notes that Bitcoin is a viable 
economic alternative to traditional assets. The price of goods 
denominated by Bitcoin has actually declined. This dynamic not only 
makes a fixed supply desirable, but a necessary condition of the value 
added by this asset in the broader economy. 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. Given the significant unlikelihood 
of any of events described above 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.
---------------------------------------------------------------------------

    \48\ See https://www.blockchain.com/explorer/assets/btc (citing 
21 million as the ``total supply'' of bitcoin).
---------------------------------------------------------------------------

    Importantly, because the supply of Bitcoin is much larger than the 
available supply of most securities and the proposed 25,000 contract 
position limit is so conservative, the Exchange believes that 
evaluating the available supply of Bitcoin in establishing a position 
limit for options on each of the Bitcoin Funds would demonstrate that 
the proposed limit is safe for investors and the market.\49\ Each 
Bitcoin Fund represents less than 2% of the entire Bitcoin supply. When 
comparing the market capitalization of bitcoin against the largest 
securities, Bitcoin would rank 7th among those securities.\50\ Further, 
the Exchange believes that its proposal to list options on the Bitcoin 
Funds each with a position limit of 25,000 on the same side is a 
conservative position limit that does not lend itself to manipulation 
in the market given the ample market capitalization and liquidity in 
each Bitcoin Fund. If we look to the liquidity statistics of similar 
instruments and their concomitant position limits, we are able to 
extrapolate a reasonable standard for arriving at a position limit for 
a new product. In this case we can look to GLD, SLV, and the ProShares 
Bitcoin Strategy ETF. These products have volume statistics and 
``float'' statistics, which gauge liquidity, which are in line, yet 
slightly lower than the Bitcoin Funds. All three of these reference 
products have position limits of 250,000 contracts. These reference 
products are remarkably similar in nature to the Bitcoin Funds; they 
are exchange-traded products (``ETPs'') holding one asset in a trust.
---------------------------------------------------------------------------

    \49\ A supply consideration would likely be valuable for an 
option symbol that had far less liquidity than the Trust.
    \50\ See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
---------------------------------------------------------------------------

    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.\51\ Position and exercise limits 
are 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.\52\ ``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.'' \53\ 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.'' 
\54\
---------------------------------------------------------------------------

    \51\ 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 8.30 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.
    \52\ 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.
    \53\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
    \54\ See 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

[[Page 94853]]

the limit would be reached around the year 2140.\55\ 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.\56\ 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.
---------------------------------------------------------------------------

    \55\ See iShares Fund Form S-1 Registration Statement, at p. 25, 
bit20230608_s1.htm; Grayscale Fund Form S-1 Registration Statement, 
at p. 17, https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm; Grayscale Mini Fund, Form S-1 
Registration Statement, at p. 21, https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm; and Bitwise 
Amendment No 2. to S-1, at p. 47, https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm.
    \56\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------

    All of the above information demonstrates that the proposed 
position and exercise limits for the Bitcoin Fund options are more than 
reasonable and appropriate. The trading volume, ADV, and outstanding 
shares of each Bitcoin Fund demonstrate that these funds are actively 
traded and widely held, and proposed position and exercise limits are 
well below those of other ETFs with similar market characteristics. The 
proposed position and exercise limits are the lowest position and 
exercise limits available for equity options in the industry, are 
extremely conservative, and are more than appropriate given each 
Bitcoin Fund's market capitalization and ADV.
    Today, the Exchange has an adequate surveillance program in place 
for options. Cboe intends to apply those same program procedures to 
options on the Bitcoin Funds that it applies to the Exchange's other 
options products.\57\ Cboe's market surveillance staff would have 
access to the surveillances conducted by Cboe BYX Exchange, Inc., Cboe 
BZX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe EDGX Exchange, 
Inc.\58\ with respect to the Bitcoin Funds and would review activity in 
the underlying Bitcoin Funds when conducting surveillances for market 
abuse or manipulation in the options on the Bitcoin Funds. 
Additionally, the Exchange is a member of the Intermarket Surveillance 
Group (``ISG'') under the Intermarket Surveillance Group Agreement. ISG 
members work together to coordinate surveillance and investigative 
information sharing in the stock, options, and futures markets. In 
addition to obtaining information from its affiliated markets, the 
Exchange would be able to obtain information regarding trading in 
shares of the Bitcoin Funds from their primary listing markets and from 
other markets that trades shares of the Bitcoin Funds through ISG. In 
addition, Cboe has a Regulatory Services Agreement with the Financial 
Industry Regulatory Authority (``FINRA'') for certain market 
surveillance, investigation and examinations functions. Pursuant to a 
multi-party 17d-2 joint plan, all options exchanges allocate amongst 
themselves and FINRA responsibilities to conduct certain options-
related market surveillance that are common to rules of all options 
exchanges.\59\
---------------------------------------------------------------------------

    \57\ The surveillance program includes surveillance patterns for 
price and volume movements as well as patterns for potential 
manipulation (e.g., spoofing and marking the close).
    \58\ Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA 
Exchange, Inc., and Cboe EDGX Exchange, Inc. are affiliated markets 
of the Exchange.
    \59\ Section 19(g)(1) of the Act, among other things, requires 
every self-regulatory organization (``SRO'') registered as a 
national securities exchange or national securities association to 
comply with the Act, the rules and regulations thereunder, and the 
SRO's own rules, and, absent reasonable justification or excuse, 
enforce compliance by its members and persons associated with its 
members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 
17(d)(1) of the Act allows the Commission to relieve an SRO of 
certain responsibilities with respect to members of the SRO who are 
also members of another SRO (``common members''). Specifically, 
Section 17(d)(1) allows the Commission to relieve an SRO of its 
responsibilities to: (i) receive regulatory reports from such 
members; (ii) examine such members for compliance with the Act and 
the rules and regulations thereunder, and the rules of the SRO; or 
(iii) carry out other specified regulatory responsibilities with 
respect to such members.
---------------------------------------------------------------------------

    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.\60\ 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].'' \61\ In light of surveillance 
measures related to both options and futures as well as the underlying 
Bitcoin Funds,\62\ 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. Further, the Exchange will 
implement any new surveillance procedures it deems necessary to 
effectively monitor the trading of options on Bitcoin ETPs.
---------------------------------------------------------------------------

    \60\ See Bitcoin ETP Approval Order.
    \61\ See Bitcoin ETP Approval Order, 89 FR 3010-11.
    \62\ See Securities Exchange Act Release Nos. 99290 (January 8, 
2024), 89 FR 2338, 2343, 2347-2348 (January 12, 2024) (SR-CboeBZX-
2023-044) Notice of Filing of Amendment No. 3 to a Proposed Rule 
Change to List and Trade Shares of the Fidelity Wise Origin Bitcoin 
Fund Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares); and 
99288 (January 8, 2024), 89 FR 2387, 2392, 2399-2400 (January 12, 
2024) (SR-CboeBZX-2023-028) (Notice of Filing of Amendment No. 5 to 
a Proposed Rule Change To List and Trade Shares of the ARK 21Shares 
Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares). See also Securities Exchange Act Release No. 99306 (January 
10, 2024), 89 FR 3008, 3009 (January 17, 2024) (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) 
(``Bitcoin ETP Approval Order'').
---------------------------------------------------------------------------

    The Exchange has also analyzed its capacity and represents that it 
believes the Exchange and OPRA have the necessary systems capacity to 
handle the additional traffic associated with the listing of new series 
that may result from the introduction of options on Bitcoin Funds up to 
the number of expirations currently permissible under the Rules. 
Because the proposal is limited to four classes, the Exchange believes 
any additional traffic that may be generated from the introduction of

[[Page 94854]]

Bitcoin Fund options will be manageable.
    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,\63\ but may prefer to trade such 
options in a listed environment to receive the benefits of trading 
listing options, including (1) enhanced efficiency in initiating and 
closing out positions; (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 Units that hold financial 
instruments, money market instruments, or 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 any 
Unit options, including Units that hold commodities (i.e., precious 
metals and Bitcoin) that it currently lists and trades on the Exchange.
---------------------------------------------------------------------------

    \63\ The Exchange understands from customers that investors have 
historically transacted in options on Units in the OTC options 
market if such options were not available for trading in a listed 
environment.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\64\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \65\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \66\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 78f(b).
    \65\ 15 U.S.C. 78f(b)(5).
    \66\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposal to list and 
trade options on the 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 
the Bitcoin Funds will provide investors with a greater opportunity to 
realize the benefits of utilizing options on an ETF based on spot 
Bitcoin, including cost efficiencies and increased hedging strategies. 
The Exchange believes that offering options on a competitively priced 
ETF based on spot Bitcoin will benefit investors by providing them with 
an additional, relatively lower-cost risk management tool, allowing 
them to manage, more easily, their positions and associated risks in 
their portfolios in connection with exposure to spot Bitcoin. Today, 
the Exchange lists options on other commodity (including Bitcoin) ETFs 
structured as a trust, which essentially offer the same objectives and 
benefits to investors, and for which the Exchange has not identified 
any issues with the continued listing and trading of options on those 
ETFs.
    The Exchange also believes the proposal to permit options on the 
Bitcoin Funds will remove impediments to and perfect the mechanism of a 
free and open market and a national market system, because options on 
the Bitcoin Funds will comply with current Exchange Rules. Options on 
the Bitcoin Funds must satisfy the initial listing standards and 
continued listing standards currently in the Rules, applicable to 
options on all ETFs, including options on other commodity ETFs already 
deemed appropriate for options trading on the Exchange pursuant to Rule 
4.3, Interpretation and Policy .06(a)(d). Additionally, as demonstrated 
above, the Bitcoin Funds are characterized by a substantial number of 
shares that are widely held and actively traded. Further, Rules that 
currently govern the listing and trading of options on ETFs, including 
permissible expirations, strike prices, minimum increments, position 
and exercise limits (as proposed herein), and margin requirements, will 
govern the listing and trading of options on the Bitcoin Funds.
    The proposed position and exercise limits for options on each of 
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 Bitcoin Fund's market capitalization, ADV, and high number of 
outstanding shares. The proposed position limit, and exercise limit, is 
consistent with the Act as it addresses concerns related to 
manipulation and protection of investors because, as demonstrated 
above, the position limit (and exercise limit) is extremely 
conservative and more than appropriate given the Bitcoin Funds are 
actively traded. In support of the proposed position and exercise 
limits for options on the Bitcoin Funds are 25,000 contracts, the 
Exchange is citing the in depth analysis each of ISE and NYSE American 
did in their respective filings. As noted above, in the ISE and NYSE 
American Approvals, each of ISE and NYSE American considered the: (1) 
applicable Bitcoin Fund's market capitalization and ADV, and proposed 
position limit in relation to other securities; (2) market 
capitalization of the entire Bitcoin market in terms of exercise risk 
and availability of deliverables; (3) proposed position limit by 
comparing it to position limits for derivative products regulated by 
the CFTC; and (4) supply of Bitcoin. Based on the Exchange's review of 
these analyses, the Exchange believes that the setting position and 
exercise limits for options on each of the Bitcoin Funds is 25,000 
contracts is more than appropriate. 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 as well as the 
Bitcoin market.\67\
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    \67\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
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    The Exchange represents that it has the necessary systems capacity 
to support the new Bitcoin Fund options. As discussed above, the 
Exchange

[[Page 94855]]

believes that its existing surveillance and reporting safeguards are 
designed to deter and detect possible manipulative behavior which might 
arise from listing and trading Unit options, including Bitcoin Fund 
options.
    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 ETF options.\68\
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    \68\ 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).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed rule change will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as the Bitcoin Fund options will 
be equally available to all market participants who wish to trade such 
options and will trade generally in the same manner as other options. 
The Rules that currently apply to the listing and trading of all Unit 
options on the Exchange, including, for example, Rules that govern 
listing criteria, expirations, exercise prices, minimum increments, 
margin requirements, customer accounts, and trading halt procedures 
will apply to the listing and trading of Bitcoin Funds options on the 
Exchange in the same manner as they apply to other options on all other 
Fund Shares that are listed and traded on the Exchange. Also, and as 
stated above, the Exchange already lists options on other commodity-
based Units (including Bitcoin-based).\69\ Further, the Bitcoin Funds 
would need to satisfy the maintenance listing standards set forth in 
the Exchange Rules in the same manner as any other Unit for the 
Exchange to continue listing options on them.
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    \69\ See Rule 4.3, Interpretation and Policy .06(a)(4).
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    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. The Commission recently approved rule filings of other 
exchanges to permit the listing and trading of options on the Bitcoin 
Funds.\70\ 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.
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    \70\ See ISE Approval and NYSE American Approval.
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    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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \71\ and Rule 19b-
4(f)(6) thereunder.\72\
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    \71\ 15 U.S.C. 78s(b)(3)(A).
    \72\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Commission waives this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act normally does not become operative for 30 days after the date of 
its filing. However, Rule 19b-4(f)(6)(iii) \73\ permits the Commission 
to designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The 
Commission previously approved the listing of options on the Bitcoin 
Funds.\74\ The Exchange has provided information regarding the 
underlying Bitcoin Funds, including, among other things, information 
regarding trading volume, the number of beneficial holders, and the 
market capitalization of the Bitcoin Funds. The proposal also 
establishes position and exercise limits for options on the Bitcoin 
Funds and provides information regarding the surveillance procedures 
that will apply to options on the Bitcoin Funds. The Commission 
believes that waiver of the operative delay could benefit investors by 
providing an additional venue for trading Bitcoin Fund options. 
Therefore, the Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.
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    \73\ 17 CFR 240.19b-4(f)(6)(iii).
    \74\ See supra note 5.
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    Thus, the Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Accordingly, the Commission hereby waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\75\
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    \75\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

[[Page 94856]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CBOE-2024-051 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-CBOE-2024-051. 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-CBOE-2024-051 and should be 
submitted on or before December 20, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\76\
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    \76\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27994 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P`