```

[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94818-94828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27997]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101714; File No. SR-CboeBZX-2024-118]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To List 
Options on Certain Bitcoin ETFs

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 BZX Exchange, Inc. (``Exchange'' or ``BZX 
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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX Options'') 
proposes to amend Rule 19.3. 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://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 Rule 19.3 regarding the criteria for 
underlying securities. Specifically, the Exchange proposes to amend 
Rule 19.3(i)(4) to allow the Exchange to list and trade options on 
shares or other securities (``Fund Shares'') that are principally 
traded on a national securities exchange and are defined as an ``NMS 
stock'' under Rule 600 of Regulation NMS and that represent interests 
in the Fidelity Wise Origin Bitcoin Fund (the ``Fidelity Fund'') and 
the ARK 21Shares Bitcoin ETF (the ``ARK 21 Fund'' and, with the 
Fidelity

[[Page 94819]]

Fund, the ``Bitcoin Funds'').\3\ Current Rule 19.3(i) provides that, 
subject to certain other criteria set forth in that Rule, securities 
deemed appropriate for options trading include Fund Shares that 
represent certain types of interests,\4\ including interests in certain 
specific trusts that hold financial instruments, money market 
instruments, or precious metals (which are deemed commodities).
---------------------------------------------------------------------------

    \3\ 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'').
    \4\ See Rule 19.3(i) which permits options trading on Fund 
Shares that (1) represent interests in registered investment 
companies (or series thereof) organized as open-end management 
investment companies, unit investment trusts or similar entities, 
and that hold portfolios of securities comprising or otherwise based 
on or representing investments in indexes or portfolios of 
securities (or that hold securities in one or more other registered 
investment companies that themselves hold such portfolios of 
securities) (``Funds '') 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 repurchase agreements (the ``Financial Instruments''), and 
money market instruments, including, but not limited to, U.S. 
government securities and repurchase agreements (the ``Money Market 
Instruments'') constituting or otherwise based on or representing an 
investment in an index or portfolio of securities and/or Financial 
Instruments and Money Market Instruments, or (2) represent 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 477 contracts and/or options on physical commodities 
and/or non-U.S. currency (``Commodity Pool ETFs'') or (3) represent 
interests in a trust or similar entity that holds a specified non-
U.S. currency or currencies 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 or currencies and pays the beneficial 
owner interest and other distributions on the deposited non-U.S. 
currency or currencies, if any, declared and paid by the trust 
(``Currency Trust Shares''), or (4) represent interests in the SPDR 
Gold Trust or are issued by the iShares COMEX Gold Trust or iShares 
Silver Trust.
---------------------------------------------------------------------------

    The Bitcoin Funds are Bitcoin-backed commodity exchange-traded 
funds (``ETFs'') structured as trusts. Similar to any Fund Share 
currently deemed appropriate for options trading under Rule 19.3(i), 
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 Fund Shares 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.\5\ The Bitcoin Funds provide investors with cost-efficient 
alternatives that allow a level of participation in the Bitcoin market 
through the securities market. The primary substantive difference 
between Bitcoin Funds and Fund Shares currently deemed appropriate for 
options trading are that Fund Shares may hold securities, certain 
financial instruments, and specified precious metals (which are deemed 
commodities), while Bitcoin Funds hold Bitcoin (which is also deemed a 
commodity).
---------------------------------------------------------------------------

    \5\ The trust may include minimal cash.
---------------------------------------------------------------------------

    The Exchange believes each Bitcoin Fund satisfies the Exchange's 
initial listing standards for Fund Shares on which the Exchange may 
list options. Specifically, each Bitcoin Fund satisfies the initial 
listing standards set forth in Rule 19.3(i), as is the case for other 
Fund Shares on which the Exchange lists options (including trusts that 
hold commodities). Rule 19.3(i)(1) requires that Fund Shares either (1) 
meet the criteria and standards set forth in Rule 19.3(a) and (b),\6\ 
or (2) are available for creation or redemption each business day in 
cash or in kind from the investment company, commodity pool or other 
entity at a price related to net asset value, and the investment 
company, commodity pool or other entity is obligated to provide that 
Fund Shares may be created even if some or all of the securities and/or 
cash required to be deposited have not been received by the Fund, the 
unit investment trust or the management investment company, provided 
the authorized creation participant has undertaken to deliver the 
securities and/or cash 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 Fund, all as described in 
the Fund's or unit trust's prospectus. Each Bitcoin Fund satisfies Rule 
19.3(i)(1)(B) as each is subject to this creation and redemption 
process.
---------------------------------------------------------------------------

    \6\ Rule 19.3(a) and (b) sets forth the criteria an underlying 
security must meet for the Exchange to be able to list options on 
the underlying.
---------------------------------------------------------------------------

    While not required by the Rules for purposes of options listings, 
the Exchange believes each Bitcoin Fund satisfies the criteria and 
guidelines set forth in Rule 19.3(a) and (b). Pursuant to Rule 19.3(a), 
a security (which includes a Fund Share) on which options may be listed 
and traded on the Exchange must be registered with the Securities and 
Exchange Commission (``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.\7\ Each 
Bitcoin Fund is an NMS Stock as defined in Rule 600 of Regulation NMS 
under the Act.\8\ The Exchange believes each Bitcoin Fund is 
characterized by a substantial number of outstanding shares that are 
widely held and actively traded.
---------------------------------------------------------------------------

    \7\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Rule 19.3(b), 
subject to exceptions.
    \8\ An ``NMS stock'' means any NMS security other than an 
option, and an ``NMS security'' means any security or class of 
securities for which transaction reports are collected, processed, 
and made available pursuant to an effective transaction reporting 
plan (or an effective national market system plan for reporting 
transaction in listed options). See 17 CFR 242.600(b)(64) 
(definition of ``NMS security'') and (65) (definition of ``NMS 
stock'').
    \9\ The Exchange continues to believe assets under management 
(``AUM''), rather than shares outstanding and number of holders, is 
a better measure of investable capacity of ETFs and a more 
appropriate figure for determining position and exercise limits of 
ETFs and looks forward to further discussions with the Commission 
staff on this topic.
    \10\ The Bitcoin Funds began trading on January 11, 2024.
---------------------------------------------------------------------------

    As of August 7, 2024, the Bitcoin Funds had the following number of 
shares outstanding:

------------------------------------------------------------------------
                                                             Shares
                     Bitcoin Fund                         outstanding
------------------------------------------------------------------------
Fidelity Fund........................................        201,100,100
ARK 21 Fund..........................................         45,495,000
------------------------------------------------------------------------

    Each Bitcoin Fund had significantly more than 7,000,000 shares 
outstanding (approximately 29 and 6.5 times that amount, respectively), 
which is the minimum number of shares of a corporate stock that the 
Exchange generally requires to list options on that stock pursuant to 
Rule 19.3(b). The Exchange believes this demonstrates that each Bitcoin 
Fund is characterized by a substantial number of outstanding shares.
    Further, the below table contains information regarding the number 
of beneficial holders of the Bitcoin Funds as of the specified dates:

[[Page 94820]]

------------------------------------------------------------------------
                                            Beneficial
              Bitcoin Fund                    holders          Date
------------------------------------------------------------------------
Fidelity Fund...........................         279,656       6/27/2024
ARK 21 Fund.............................          69,425       6/26/2024
------------------------------------------------------------------------

    As this table shows, each Bitcoin Fund has significantly more than 
2,000 beneficial holders (approximately 140 and 35 times more, 
respectively), which is the minimum number of holders the Exchange 
generally requires for corporate stock in order to list options on that 
stock pursuant to Rule 19.3(b). Therefore, the Exchange believes the 
shares of each Bitcoin Fund are widely held.\9\
    The Exchange also believes the shares of each Bitcoin Fund are 
actively traded. As of August 7, 2024, the total trading volume (by 
shares) for each fund for the six-month period of February 8 through 
August 7, 2024 and the approximate average daily volume (``ADV'') (in 
shares and notional) over the 30-day period of July 9 through August 7, 
2024 for each Bitcoin Fund was as follows:

----------------------------------------------------------------------------------------------------------------
                                                             6-Month trading     30-Day ADV        30-Day ADV
                       Bitcoin Fund                          volume (shares)      (shares)        (notional $)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund.............................................      1,112,861,581       6,014,335        250,354,755
ARK 21 Fund...............................................        297,360,739       1,893,335         90,484,307
----------------------------------------------------------------------------------------------------------------

    As demonstrated above, despite the fact that the Bitcoin Funds had 
been trading for approximately seven months \10\ only as of August 7, 
2024, the six-month trading volume for each as of that date was 
substantially higher than 2,400,000 shares (approximately 464 and 124 
times that amount, respectively), which is the minimum 12-month volume 
the Exchange generally requires for a corporate stock in order to list 
options on that security as set forth in Rule 19.3(b). Additionally, as 
of August 7, 2024, the trading volume for each Bitcoin Fund was in the 
top 5% of all ETFs that are currently trading. The Exchange believes 
this data demonstrates each Bitcoin Fund is characterized as having 
shares that are actively traded.
    Options on the Bitcoin Funds will be subject to the Exchange's 
continued listing standards set forth in Rule 19.4(g) for Fund Shares 
deemed appropriate for options trading pursuant to Rule 19.3(i). 
Specifically, 19.4(g) provides that Fund Shares that were initially 
approved for options trading pursuant to Rule 19.3 will not be deemed 
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 such Fund Shares if the security ceases to be an NMS 
stock (see Rule 19.4(b)(4)). Additionally, the Exchange will not open 
for trading any additional series of option contracts of the class 
covering Fund Shares in any of the following circumstances: (1) in the 
case of options covering Fund Shares approved for trading under Rule 
19.3(i)(4)(A), in accordance with the terms of Rule 19.4(b)(1), (2) and 
(3); (2) in the case of options covering Fund Shares approved pursuant 
to Rule 19.3(i)(4)(B), following the initial 12-month period beginning 
upon the commencement of trading in the Fund Shares on a national 
securities exchange and are defined as NMS stock under Rule 600 of 
Regulation NMS, there were fewer than 50 record and/or beneficial 
holders of such Fund Shares for 30 consecutive days; (3) the value of 
the index, non-U.S. currency, 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 or Money Market Instruments, or portfolio of 
securities on which the Fund Shares are based 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 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 19.6, 
which governs the opening of options series on a specific underlying 
security (including Fund Shares), 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 39 months from the 
time they are listed.\16\
---------------------------------------------------------------------------

    \11\ See Rule 19.2, 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 19.6(b). The monthly expirations are subject to 
certain listing criteria for underlying securities described within 
Rule 19.3. 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 
19.6(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 19.6, Interpretation and Policy .05.
    \14\ See Rule 19.6, Interpretation and Policy .08.
    \15\ See Rule 19.6, Interpretation and Policy .04.
    \16\ See Rule 19.8.
---------------------------------------------------------------------------

    Pursuant to Rule 19.6, Interpretation and Policy .01, which governs 
strike prices of series of options on Fund Shares, 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\

[[Page 94821]]

the $2.50 Strike Price Program,\20\ and the $5 Strike Program.\21\ 
Pursuant to Rule 21.5, 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 19.6 and 21.5, 
as applicable.
---------------------------------------------------------------------------

    \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, Rule 19.6, 
Interpretations and Policies .05, .08, and .04 specifically sets 
forth intervals between strike prices on Quarterly Options Series, 
Short Term Option Series, and Monthly Options Series, respectively.
    \18\ See Rule 19.6, Interpretation and Policy .02.
    \19\ See Rule 19.6, Interpretation and Policy .06.
    \20\ See Rule 19.6, Interpretation and Policy .03.
    \21\ See Rule 19.6(d)(5).
    \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 21.5(d) (which describes the requirements for 
the Penny Interval Program).
---------------------------------------------------------------------------

    Bitcoin Fund options will trade in the same manner as any other 
Fund Share options on the Exchange. The Exchange Rules that currently 
apply to the listing and trading of all Fund Share 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, including the precious-
metal backed commodity Fund Shares already deemed appropriate for 
options trading on the Exchange pursuant to current Rule 19.3(i).
    Pursuant to Rules 18.7 and 18.9, the position and exercise limits, 
respectively, for each Bitcoin Fund option will be 25,000 same side 
option contracts.\23\ The Exchange believes these proposed position and 
exercise limits considering, among other things, the approximate six-
month average daily volume (``ADV'') and outstanding shares of each 
underlying Bitcoin Fund (which as discussed above demonstrate that each 
Bitcoin Fund is widely held and actively traded and thus justify these 
conservatively proposed position limits), as set forth below, along 
with market capitalization (as of August 7, 2024):
---------------------------------------------------------------------------

    \23\ Rule 18.7(a)(1) provides that no Options Member shall make, 
for any account in which it has any interest or for the account of 
any Customer, an opening transaction on any exchange if the Options 
Member has reason to believe that as a result of such transaction 
the Options Member or its Customer would, acting alone or in concert 
with others, directly or indirectly, exceed the applicable position 
limit fixed by Cboe Exchange, Inc. (``Cboe Options''). Cboe Options 
Rule 8.30, Interpretation and Policy .10 establishes a position 
limit for the Bitcoin Fund options of 25,000.

----------------------------------------------------------------------------------------------------------------
                                                        Six-month ADV       Outstanding            Market
               Underlying Bitcoin Fund                     (shares)            shares        capitalization ($)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund.......................................          8,902,893        201,100,100        14,217,013,188
ARK 21 Fund.........................................          2,378,886         45,495,000         2,487,666,600
----------------------------------------------------------------------------------------------------------------

    The Exchange then compared the number of outstanding shares of the 
Bitcoin Funds to those of other ETFs. The following table provides the 
approximate average position (and exercise limit) of ETF options with 
similar outstanding shares (as of August 27, 2024), compared to the 
proposed position and exercise limit for the Bitcoin Fund options: \24\
---------------------------------------------------------------------------

    \24\ With respect to the Fidelity Fund, over 80% of the ETFs 
used for comparison have a limit of at least 200,000, and more than 
half have a limit of 250,000. Additionally, the three-month ADV of 
the majority of the ETFs used for comparison to the Fidelity Fund 
was lower than the Fidelity Fund three-month ADV of 5,665,027 
shares. With respect to the ARK 21 Fund, nearly 80% of the ETFs used 
for comparison have a limit of at least 75,000 (and up to 250,000). 
Additionally, the three-month ADV of the majority of ETFs used for 
comparison was lower (many more than four times lower) than the ARK 
21 Fund three-month ADV of 1,737,327 shares.

------------------------------------------------------------------------
                                   Average limit of
    Underlying Bitcoin Fund        other ETF options     Proposed limit
                                      (contracts)         (contracts)
------------------------------------------------------------------------
Fidelity Fund..................               188,110             25,000
ARK 21 Fund....................               108,696             25,000
------------------------------------------------------------------------

    The Exchange considered current position and exercise limits of 
options on ETFs with outstanding shares comparable to those of each 
Bitcoin Fund, with the proposed limit significantly lower (between two 
and ten times lower) than the average limits of the options on the 
other ETFs. As discussed above, the Bitcoin Funds are actively held and 
widely traded: (1) each Bitcoin Fund (as of August 7, 2024) had 
significantly more than 7,000,000 shares outstanding, which is the 
minimum number of shares of a corporate stock that the Exchange 
generally requires to list options on that stock pursuant to Rule 
19.3(b)(1); (2) each Bitcoin Fund (as of the dates listed above) had 
significantly more than 2,000 beneficial holders, which is the minimum 
number of holders the Exchange generally requires for corporate stock 
in order to list options on that stock pursuant to Rule 19.3(b)(2); and 
(3) each Bitcoin Fund had a six-month trading volume substantially 
higher than 2,400,000 shares, which is the minimum 12-month volume the 
Exchange generally requires for a security in order to list options on 
that security as set forth in Rule 19.3(b)(4).
    With respect to outstanding shares, if a market participant held 
the maximum number of positions possible pursuant to the proposed 
position and exercise limits, the equivalent shares represented by the 
proposed position/exercise limit would represent the following 
approximate percentage of current outstanding shares:

[[Page 94822]]

----------------------------------------------------------------------------------------------------------------
                                                              Proposed
                                                         position/exercise                         Percentage of
                Underlying Bitcoin Fund                       limit (in      Outstanding shares     outstanding
                                                             equivalent                             shares (%)
                                                              shares)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund..........................................          2,500,000           201,100,100             1.2
ARK 21 Fund............................................          2,500,000            45,495,000             5.5
----------------------------------------------------------------------------------------------------------------

    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.
    Cboe Options Rule 8.30, Interpretation and Policy .02 (which 
governs position limits on the Exchange pursuant to Rule 18.7, provides 
two methods of qualifying for a position limit tier above 25,000 option 
contracts. The first method is based on six-month trading volume in the 
underlying security, and the second method is based on slightly lower 
six-month trading volume and number of shares outstanding in the 
underlying security. An underlying stock or ETF that qualifies for 
method two based on trading volume and number of shares outstanding 
would be required to have the minimum number of outstanding shares as 
shown in middle column of the table below.
    The table, which provides the equivalent shares of the position 
limits applicable to equity options, including ETFs, further represents 
the percentages of the minimum number of outstanding shares that an 
underlying stock or ETF must have to qualify for that position limit 
(under the second method described above), all of which are higher than 
the percentages for the Bitcoin Funds.\25\
---------------------------------------------------------------------------

    \25\ 6,300,000 is the minimum number of outstanding shares an 
underlying security must have for the Exchange to continue to list 
options on that security, so this would be the smallest number of 
outstanding shares permissible for any corporate option that would 
have a position limit of 25,000 contract. See Rule 19.4(b)(1). This 
rule applies to corporate stock options but not ETF options, which 
currently have no requirement regarding outstanding shares of the 
underlying ETF for the Exchange to continue listing options on that 
ETF. Therefore, there may be ETF options trading for which the 
25,000 contract position limits represents an even larger percentage 
of outstanding shares of the underlying ETF than set forth above.

------------------------------------------------------------------------
                                                           Percentage of
  Position/exercise limit (in      Minimum  outstanding     outstanding
       equivalent shares)                 shares              shares
------------------------------------------------------------------------
2,500,000......................                6,300,000            40.0
5,000,000......................               40,000,000            12.5
7,500,000......................              120,000,000             6.3
20,000,000.....................              240,000,000             8.3
25,000,000.....................              300,000,000             8.3
------------------------------------------------------------------------

    The equivalent shares represented by the proposed position and 
exercise limits for each Bitcoin Fund as a percentage of outstanding 
shares of the underlying Bitcoin Fund is significantly lower than the 
percentage for the lowest possible position limit for equity options of 
25,000 (under 6% compared to 40%) and is lower than that percentage for 
each current position limit bucket.\26\
---------------------------------------------------------------------------

    \26\ As these percentages are based on the minimum number of 
outstanding shares an underlying security must have to qualify for 
the applicable position limit, these are the highest possible 
percentages that would apply to any option subject to that position 
and exercise limit.
---------------------------------------------------------------------------

    Further, the proposed position and exercise limits for each Bitcoin 
Fund option are significantly below the limits that would otherwise 
apply pursuant to current Rules 18.7 and 18.9 (by reference to Cboe 
Rules 8.30 and 8.42). These position and exercise limits are the lowest 
position and exercise limits available in the options industry, are 
extremely conservative and more than appropriate given the market 
capitalization, average daily volume, and high number of outstanding 
shares of the Bitcoin Funds.
    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, ADV, and high number of 
outstanding shares.
    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.\27\ The Exchange's market surveillance staff would 
have access to the surveillances conducted by the Exchange 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, the 
Exchange has a Regulatory Services Agreement with the Financial 
Industry Regulatory Authority (``FINRA'') for certain market 
surveillance, investigation and examinations functions. Pursuant to a

[[Page 94823]]

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.\28\
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    \27\ 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).
    \28\ 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 exchange-traded products 
(``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.\29\ 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].'' \30\ In 
light of surveillance measures related to both options and futures as 
well as the underlying Bitcoin Funds,\31\ 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.
---------------------------------------------------------------------------

    \29\ See Bitcoin ETP Approval Order.
    \30\ See Bitcoin ETP Approval Order, 89 FR 3010-11.
    \31\ 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 two classes, the Exchange believes 
any additional traffic that may be generated from the introduction of 
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,\32\ 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 Fund Shares 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 
Fund Share options, including Fund Shares that hold commodities (i.e., 
precious metals) that it currently lists and trades on the Exchange.
---------------------------------------------------------------------------

    \32\ The Exchange understands from customers that investors have 
historically transacted in options on Fund Shares 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 Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\33\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \34\ 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) \35\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f(b).
    \34\ 15 U.S.C. 78f(b)(5).
    \35\ 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 an opportunity to realize 
the benefits of utilizing options on a Bitcoin Fund, including cost 
efficiencies and increased hedging strategies. The Exchange believes 
that offering Bitcoin Fund options will benefit investors by providing 
them with a relatively lower-cost risk management tool, which will

[[Page 94824]]

allow them to manage their positions and associated risk in their 
portfolios more easily in connection with exposure to the price of 
Bitcoin and with Bitcoin-related products and positions. Additionally, 
the Exchange's offering of Bitcoin Fund options will provide investors 
with the ability to transact in such options in a listed market 
environment as opposed to in the unregulated OTC options market, which 
would increase market transparency and enhance the process of price 
discovery conducted on the Exchange through increased order flow to the 
benefit of all investors. The Exchange also notes that it already lists 
options on other commodity-based Fund Shares,\36\ which, as described 
above, are trusts structured in substantially the same manner as 
Bitcoin Funds and essentially offer the same objectives and benefits to 
investors, just with respect to a different commodity (i.e., Bitcoin 
rather than precious metals) and for which the Exchange has not 
identified any issues with the continued listing and trading of 
commodity-backed Fund Share options it currently lists for trading.
---------------------------------------------------------------------------

    \36\ See Rule 19.3(i)(4).
---------------------------------------------------------------------------

    The Exchange also believes the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, because it is consistent with current 
Exchange Rules previously filed with the Commission. Options on the 
Bitcoin Funds satisfy the initial listing standards and continued 
listing standards currently in the Exchange Rules applicable to options 
on all Fund Shares, including Fund Shares that hold other commodities 
already deemed appropriate for options trading on the Exchange. 
Additionally, as demonstrated above, each Bitcoin Fund is characterized 
by a substantial number of shares that are widely held and actively 
traded. Bitcoin Fund options will trade in the same manner as any other 
Fund Share options--the same Exchange Rules that currently govern the 
listing and trading of all Fund Share options, including permissible 
expirations, strike prices and minimum increments, and applicable 
margin requirements, will govern the listing and trading of options on 
Bitcoin Funds in the same manner.
    The Exchange believes the proposed position and exercise limits are 
designed to prevent fraudulent and manipulative acts and practices and 
promote just and equitable principles of trade, as they are designed to 
address potential manipulative schemes and adverse market impacts 
surrounding the use of options, such as disrupting the market in the 
security underlying the options. The proposed position and exercise 
limits are 25,000 contracts, which is the lowest limit applicable to 
any equity options (including ETF and options on other Bitcoin 
ETFs).\37\ The Exchange believes the proposed position and exercise 
limits are extremely conservative for each Bitcoin Fund option given 
the trading volume and outstanding shares for each. The information 
above demonstrates that the average position and exercise limits of 
options on ETFs with comparable outstanding shares and trading volume 
to those of the Bitcoin Funds are significantly higher than the 
proposed position and exercise limits for Bitcoin Fund options. 
Therefore, the proposed position and exercise limits for the Bitcoin 
Fund options are conservative relative to options on ETFs with 
comparable market characteristics.
---------------------------------------------------------------------------

    \37\ See Cboe Options Rule 8.30.
---------------------------------------------------------------------------

    Further, given that the issuer of each Bitcoin Fund may create and 
redeem shares that represent an interest in Bitcoin, the Exchange 
believes it is relevant to compare the size of a position limit to the 
market capitalization of the Bitcoin market. As of August 27, 2024, the 
global supply of Bitcoin was 19,745,940, and the price of one Bitcoin 
was approximately $59,466.82,\38\ which equates to a market 
capitalization of approximately $1.165 trillion. 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 of 
Fidelity Fund shares or ARK 21 Fund shares, as applicable (if that 
market participant exercised all its options. The following table shows 
the share price of each Bitcoin Fund on August 27, 2024, the value of 
2,500,000 shares of the Bitcoin Fund at that price, and the approximate 
percentage of that value of the size of the Bitcoin market:
---------------------------------------------------------------------------

    \38\ See Blockchain.com [bond] Charts--Total Circulating 
Bitcoin.

----------------------------------------------------------------------------------------------------------------
                                                                                    Value of
                                                                 August 27,     2,500,000 shares   Percentage of
                         Bitcoin Fund                            2024  share    of Bitcoin fund   bitcoin market
                                                                  price ($)           ($)
----------------------------------------------------------------------------------------------------------------
Fidelity Fund................................................           54.33        135,825,000            0.01
ARK 21 Fund..................................................           62.08        155,200,000            0.01
----------------------------------------------------------------------------------------------------------------

    Therefore, if a market participant with the maximum 25,000 same 
side contracts in either Fidelity Fund options or ARK 21 Fund options 
exercised all positions at one time, such an event would have no 
practical impact on the Bitcoin market.
    The Exchange also believes the proposed limits are appropriate 
given position limits for Bitcoin futures. For example, the Chicago 
Mercantile Exchange (``CME'') imposes a position limit of 2,000 futures 
(for the initial spot month) on its Bitcoin futures contract.\39\ 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:
---------------------------------------------------------------------------

    \39\ 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.

------------------------------------------------------------------------
                                     August 28, 2024   Number of  option
           Bitcoin Fund              share price ($)       contracts
------------------------------------------------------------------------
Fidelity Fund.....................              51.47            114,532

[[Page 94825]]

 
ARK 21 Fund.......................              58.83            100,203
------------------------------------------------------------------------

    The approximate number of option contracts for each Bitcoin Fund 
that equate to the notional value of CME Bitcoin futures is 
significantly higher than the proposed limit of 25,000 options contract 
for each Bitcoin Fund option. The fact that many options ultimately 
expire out-of-the-money and thus are not exercised for shares of the 
underlying, while the delta of a Bitcoin Future is 1, further 
demonstrates how conservative the proposed limits of 25,000 options 
contracts are for the Bitcoin Fund options.
    The Exchange notes, unlike options contracts, CME position limits 
are calculated on a net futures-equivalent basis by contract and 
include contracts that aggregate into one or more base contracts 
according to an aggregation ratio(s).\40\ 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.\41\ If a position exceeds position limits because of an option 
assignment, CME permits market participants to liquidate the excess 
position within one business day without being considered in violation 
of its rules. Additionally, if at the close of trading, a position that 
includes options exceeds position limits for futures contracts, when 
evaluated using the delta factors as of that day's close of trading but 
does not exceed the limits when evaluated using the previous day's 
delta factors, then the position shall not constitute a position limit 
violation. Considering CME's position limits on futures for Bitcoin, 
the Exchange believes that that the proposed same side position limits 
are more than appropriate for the Bitcoin Fund options.
---------------------------------------------------------------------------

    \40\ See CME Rulebook Chapter 5, Position Limit, Position 
Accountability and Reportable Level Table in the Interpretations & 
Special Notices.
    \41\ Id.
---------------------------------------------------------------------------

    The Exchange believes the proposed position and exercise limits 
will have no material impact to the supply of Bitcoin. For example, 
consider again the proposed position limit of 25,000 option contracts 
for each Bitcoin Fund option. 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). As of August 7, 2024, the 
Bitcoin Funds had the number of shares outstanding set forth in the 
table below. The table below also sets forth the approximate number of 
market participants that could hold the maximum of 25,000 same side 
positions in each Bitcoin Fund that would equate to the number of 
shares outstanding of that Bitcoin Fund:

------------------------------------------------------------------------
                                                        Number of market
                                          Shares       participants with
           Bitcoin Fund                outstanding      25,000 same side
                                                           positions
------------------------------------------------------------------------
Fidelity Fund.....................        201,100,100                 80
ARK 21 Fund.......................         45,495,000                 18
------------------------------------------------------------------------

    This means if 80 market participants had 25,000 same side positions 
in Fidelity Fund options, 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 18 market 
participants had 25,000 same side positions in ARK 21 Fund options, 
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 either such event to 
occur; however, even if either such event did occur, the Exchange would 
not expect either 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.
    As of August 7, 2024, the global supply of Bitcoin was 
approximately 19,736,528.\42\ Based on the $47.88 price of a Fidelity 
Fund share on August 7, 2024, a market participant could have redeemed 
one Bitcoin for approximately 1,149 Fidelity Fund shares. Another 
22,677,270,672 Fidelity Fund shares could be created before the supply 
of Bitcoin was exhausted. As a result, 9,070 market participants would 
have to simultaneously exercise 25,000 same side positions in Fidelity 
Fund options to receive shares of the Fidelity Fund holding the entire 
global supply of Bitcoin. Similarly, based on the $54.68 price of an 
ARK 21 Fund share on August 7, 2024, a market participant could have 
redeemed one Bitcoin for approximately 1,006 ARK 21 Fund Shares. 
Another 19,855 ARK 21 Fund shares could be created before the supply of 
Bitcoin were exhausted. As a result, 7,941 market participants would 
have to simultaneously exercise 25,000 same side positions in ARK 21 
Fund options to receive shares of the ARK 21 Fund holding the entire 
global supply of Bitcoin. Unlike the Bitcoin Funds, the number of 
shares that corporations may issue is limited. However, like 
corporations, which authorize additional shares, repurchase shares, or 
split their shares, the Bitcoin Funds may create, redeem, or split 
shares in response to demand. While the supply of Bitcoin is limited to 
21,000,000, it is believed that it will take more than 100 years to 
fully mine the remaining Bitcoin.\43\ The supply of Bitcoin is larger 
than the available supply of most

[[Page 94826]]

securities.\44\ Given the significant unlikelihood of any of these 
events ever occurring, the Exchange does not believe options on the 
Bitcoin Funds should be subject to position and exercise limits even 
lower than those proposed (which are already equal to the lowest 
available limit for equity options in the industry) to protect the 
supply of Bitcoin.\45\
---------------------------------------------------------------------------

    \42\ See Blockchain.com [bond] Charts--Total Circulating Bitcoin 
(which also shows the price of one Bitcoin equal to $55,033.47).
    \43\ See Pre-Effective Amendment No. 5 to Form S-1 Registration 
Statement No. 333-254652, Fidelity Fund, filed January 9, 2024, at 
53--54; and Amendment No. 8 to Form S-1 Registration Statement No. 
333-257474, ARK 21 Fund, filed January 9, 2024, at 15.
    \44\ The market capitalization of Bitcoin would rank in the top 
10 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
    \45\ This would be even more unlikely with respect to the 
Bitcoin Funds for which the Exchange proposes lower position limits.
---------------------------------------------------------------------------

    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.\46\ 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.\47\ ``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.'' \48\ 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.'' 
\49\
---------------------------------------------------------------------------

    \46\ Prior to Bitcoin ETFs, 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.
    \47\ 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.
    \48\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
    \49\ 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 the limit 
would be reached around the year 2140.\50\ Each Registration Statement 
permits an unlimited number of shares of the applicable Bitcoin ETF 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.\51\ 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.
---------------------------------------------------------------------------

    \50\ See Pre-Effective Amendment No. 5 to Form S-1 Registration 
Statement No. 333-254652, Fidelity Fund, filed January 9, 2024, at 
53--54; and Amendment No. 8 to Form S-1 Registration Statement No. 
333-257474, ARK 21 Fund, filed January 9, 2024, at 15.
    \51\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------

    Based on the above information demonstrating, among other things, 
that each Bitcoin Fund is characterized by a substantial number of 
outstanding shares that are actively traded and widely held, the 
Exchange believes the proposed position and exercise limits are 
extremely conservative compared to those of ETF options with similar 
market characteristics. 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.\52\
---------------------------------------------------------------------------

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

    The Exchange represents that it has the necessary systems capacity 
to support the new Bitcoin Fund options. As discussed above, the 
Exchange believes that its existing surveillance and reporting 
safeguards are designed to deter and detect possible manipulative 
behavior which might arise from listing and trading Fund Share options, 
including Bitcoin Fund options.

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 Exchange Rules that currently apply to the listing and trading of 
all Fund Share 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 Fund Share.\53\ 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 Fund Share for the 
Exchange to continue listing options on them.
---------------------------------------------------------------------------

    \53\ See Rule 19.3(i)(4)
---------------------------------------------------------------------------

    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

[[Page 94827]]

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 a rule filing of another exchange to permit 
the listing and trading of options on the Bitcoin Funds.\54\ 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.
---------------------------------------------------------------------------

    \54\ See Securities Exchange Act Release No. 101387 (October 18, 
2024), 89 FR 8498 (October 24, 2024) (SR-CBOE-2024-035). The 
Exchange notes the Commission recently approved a rule filing of 
another exchange to permit the listing and trading of options on the 
iShares Bitcoin Trust. See Securities Exchange Act Release No. 
101128 (September 20, 2024), 89 FR 78942 (September 26, 2024) (SR-
ISE-2024-03).
---------------------------------------------------------------------------

    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 written 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 \55\ and Rule 19b-
4(f)(6) thereunder.\56\
---------------------------------------------------------------------------

    \55\ 15 U.S.C. 78s(b)(3)(A).
    \56\ 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.
---------------------------------------------------------------------------

    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) \57\ 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.\58\ 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.
---------------------------------------------------------------------------

    \57\ 17 CFR 240.19b-4(f)(6)(iii).
    \58\ See Securities Exchange Act Release No. 101387 (Oct. 18, 
2024), 89 FR 84948 (Oct. 24, 2024).
---------------------------------------------------------------------------

    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.\59\
---------------------------------------------------------------------------

    \59\ 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).
---------------------------------------------------------------------------

    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.

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-CboeBZX-2024-118 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-CboeBZX-2024-118. 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-CboeBZX-2024-118 and should 
be submitted on or before December 20, 2024.

[[Page 94828]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
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    \60\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27997 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P
```