```

[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94784-94794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27990]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101718; File No. SR-PEARL-2024-53]

Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 402, Criteria for Underlying Securities, Exchange To Allow the 
Exchange To List and Trade Options on the Grayscale Bitcoin Trust, the 
Grayscale Bitcoin Mini Trust, and the Bitwise Bitcoin ETF

November 22, 2024.
    Pursuant to the provisions of 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, MIAX PEARL, LLC (``MIAX 
Pearl'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a 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

    The Exchange is filing a proposal to amend Exchange Rule 402, 
Criteria for Underlying Securities.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-equities/pearl-equities/rule-filings, at MIAX Pearl's principal office, 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 \3\ proposes to amend Exchange Rule 402, Criteria for 
Underlying Securities, to allow the Exchange to list and trade options 
on the following exchange-traded products: the Grayscale Bitcoin Trust 
(BTC) (the ``Grayscale Fund'' or ``GBTC''), the Grayscale Bitcoin Mini 
Trust BTC (the ``Grayscale Mini Fund'' or ``BTC''), and the Bitwise 
Bitcoin ETF (the ``Bitwise Fund'' or ``BITB'' and, collectively, the 
``Bitcoin Funds'' or ``Funds'').\4\ As noted above, MIAX's rules 
governing position limits and exercise limits for options positions are 
incorporated by reference into the MIAX Pearl Rulebook and are 
therefore MIAX Pearl rules applicable to market participants on MIAX 
Pearl. MIAX is filing a substantively similar proposal to list and 
trade options on the Bitcoin Funds. That filing includes proposed 
change to Exchange Rules 307 (position limits) and 309 (exercise 
limits), which changes will be incorporated by reference into the MIAX 
Pearl Rulebook.
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    \3\ The Exchange notes that its affiliate options exchanges, 
Miami International Securities Exchange, LLC (``MIAX'') and MIAX 
Sapphire, LLC (``MIAX Sapphire''), plan to submit (or have already 
submitted) substantively identical proposals to list and trade 
options on the Bitcoin Funds. The Exchange notes that all the rules 
of Chapter III of MIAX, including Exchange Rules 307 and 309, are 
incorporated by reference to the MIAX Pearl and MIAX Sapphire 
Rulebooks. The Exchange also notes that all of the rules of Chapter 
III of MIAX, including Exchange Rules 307 and 309, and the rules of 
Chapter IV of MIAX, including Exchange Rule 402, are incorporated by 
reference into the Exchange's affiliate, MIAX Emerald, LLC (``MIAX 
Emerald'').
    \4\ On January 10, 2024, the Securities and Exchange Commission 
(``Commission'') approved proposals by NYSE Arca, Inc., The Nasdaq 
Stock Market LLC, and Cboe BZX Exchange, Inc. to list and trade the 
shares of 11 bitcoin-based commodity-based trust shares and trust 
units, including the iShares Bitcoin Trust. See Securities Exchange 
Act Release No. 99306 (Jan. 10, 2024), 89 FR 3008 (Jan. 17, 2024) 
(order approving File Nos. SR-NYSEARCA-2021-90; SR-NYSEARCA-2023-44; 
SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-
CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-
CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072) 
(``Bitcoin ETP Order'').
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    The Exchange notes that this is a competitive filing based on a 
similar proposal submitted by NYSE American LLC (``NYSE American''), 
which was approved by the Commission.\5\ The

[[Page 94785]]

Commission also recently approved a rule proposal by Nasdaq ISE, LLC 
(``ISE'') to allow the listing and trading of options on iShares 
Bitcoin Trust (or IBIT), which is a trust that holds bitcoin (referred 
to herein as the ``ISE IBIT Approval Order'').\6\ As discussed herein, 
the Exchange believes, like the recently-approved options on IBIT, 
options on the Bitcoin Funds would permit hedging, and allow for more 
liquidity, better price efficiency, and less volatility with respect to 
the underlying Funds. Further, permitting the listing of such options 
would enhance the transparency and efficiency of markets in these and 
correlated products.
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    \5\ See Securities Exchange Act Release No. 101386 (October 18, 
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (Self-
Regulatory Organizations; NYSE American LLC; Notice of Filing of 
Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 3, To Permit the 
Listing and Trading of Options on Bitcoin Exchange-Traded Funds).
    \6\ See Securities Exchange Act Release No. 101128 (September 
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice 
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 
4, and 5, to Permit the Listing and Trading of Options on the 
iShares Bitcoin Trust (``IBIT'') (``ISE IBIT Approval Order'').
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    Current Exchange Rule 402(i)(4) provides that securities deemed 
appropriate for options trading include shares or other securities 
(``Exchange Traded Fund Shares'' or ``ETFs'') that represent certain 
types of interests,\7\ including interests in certain specific trusts 
that hold financial instruments, money market instruments, or precious 
metals (which are deemed commodities).
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    \7\ See Exchange Rule 402(i), which permits options trading on 
ETFS that: (1) represent interests in registered investment 
companies (or series thereof) organized as open-end management 
investment companies, unit investment trusts or similar entities 
that hold portfolios of securities and/or financial instruments 
(``Funds''), including, but not limited to, stock index futures 
contracts, options on futures, options on securities and indices, 
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'') comprising or 
otherwise based on or representing investments in broad-based 
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) represent interests in a trust or similar 
entity that holds a specified non-U.S. currency or currencies 
deposited with the trust which when aggregated in some specified 
minimum number may be surrendered to the trust or similar entity 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''); (3) 
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 contracts and/or options on 
physical commodities and/or non-U.S. currency (``Commodity Pool 
ETFs''); (4) are issued by the are issued by the SPDR[supreg] Gold 
Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, the 
ETFS Silver Trust, the Aberdeen Standard Physical Gold Trust, the 
ETFS Palladium Trust, the ETFS Platinum Trust, or the Sprott 
Physical Gold Trust; or (5) represent an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management company or similar entity, that invests in a portfolio of 
securities selected by the Investment Company's investment adviser 
consistent with the Investment Company's investment objectives and 
policies, which is issued in a specified aggregate minimum number in 
return for a deposit of a specified portfolio of securities and/or a 
cash amount with a value equal to the next determined net asset 
value (``NAV''), and when aggregated in the same specified minimum 
number, may be redeemed at a holder's request, which holder will be 
paid a specified portfolio of securities and/or cash with a value 
equal to the next determined NAV (``Managed Fund Share''); provided 
that all of the conditions listed in subparagraphs (5)(i) and 5(ii) 
are met.
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    The Bitcoin Funds are Bitcoin-backed commodity ETFs structured as 
trusts. Similar to any ETFs currently deemed appropriate for options 
trading under Exchange Rule 402(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 ETFs 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 primary substantive 
difference between Bitcoin Funds and ETFs currently deemed appropriate 
for options trading are that ETFs 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).
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    \8\ The trust may include minimal cash.
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    The Exchange believes each Bitcoin Fund satisfies the Exchange's 
initial listing standards for ETFs on which the Exchange may list 
options.\9\ Specifically, each Bitcoin Fund satisfies the initial 
listing standards set forth in Exchange Rule 402(i)(5)(i), as is the 
case for other ETFs on which the Exchange lists options (including 
trusts that hold commodities). Exchange Rule 402(i)(5)(i) requires that 
the ETFs must either (1) meet the criteria and standards set forth in 
Exchange Rule 402(a) or 402(b),\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 Exchange Rule 
402(i)(5)(i)(B), as each is subject to this creation and redemption 
process.
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    \9\ Subparagraphs (a) and (b) of Exchange Rule 402 provide for 
guidelines to be used by the Exchange when evaluating potential 
underlying securities for Exchange option transactions.
    \10\ See Exchange Rule 402(a)-(b).
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    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 Exchange Rule 402. Pursuant to Exchange Rule 
402, a security (which includes ETFs) on which options may be listed 
and traded on the Exchange must be duly registered (with the 
Commission) and be an NMS stock (as defined in Rule 600 of Regulation 
NMS under the Act, and be characterized by a substantial number of 
outstanding shares that are widely held and actively traded.\11\ Each 
Bitcoin Fund is an NMS Stock as defined in Rule 600 of Regulation NMS 
under the Act.\12\ The Exchange believes each Bitcoin Fund is 
characterized by a substantial number of outstanding shares that are 
widely held and actively traded.
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    \11\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Exchange Rule 
402(b), subject to exceptions.
    \12\ An ``NMS stock'' means any NMS security other than an 
option, and an ``NMS security'' means any security or class of 
securities for which transaction reports are collected, processed, 
and made available pursuant to an effective transaction reporting 
plan (or an effective national market system plan for reporting 
transaction in listed options). See 17 CFR 242.600(b)(64) 
(definition of ``NMS security'') and (65) (definition of ``NMS 
stock'').
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    Pursuant to the data presented in the NYSE American filing \13\, as 
of August 30, 2024, the Bitcoin Funds had the following number of 
shares outstanding (and corresponding market capitalization):
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    \13\ See supra note 5.

[[Page 94786]]

------------------------------------------------------------------------
                                           Shares       Market value (8/
             Bitcoin Fund                outstanding        30/2024)
------------------------------------------------------------------------
GBTC.................................     284,570,100    $13,443,091,524
BTC..................................     366,950,100      1,930,157,526
BITB.................................      68,690,000      2,221,640,670
------------------------------------------------------------------------

    As shown above, 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 Exchange Rule 402(b)(1). The Exchange believes 
this demonstrates that each Bitcoin Fund is characterized by a 
substantial number of outstanding shares.
    Further, according to the NYSE American filing \14\, the below 
table contains information regarding the number of beneficial holders 
of the Bitcoin Funds as of August 14, 2024:
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    \14\ See supra note 5.

------------------------------------------------------------------------
                                                              Beneficial
                        Bitcoin Fund                         holders (8/
                                                                14/24)
------------------------------------------------------------------------
GBTC.......................................................      464,364
BTC........................................................       13,403
BITB.......................................................       75,437
------------------------------------------------------------------------

    As this table shows, each Bitcoin Fund has significantly more than 
2,000 beneficial holders (approximately 232, 7, and 38 time 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 Exchange Rule 402(b)(2). Therefore, the Exchange 
believes the shares of each Bitcoin Fund are widely held.
    In addition, the Exchange believes the shares of each Bitcoin Fund 
are actively traded. Further, according to the NYSE American filing 
\15\, as of September 30, 2024, the total trading volume (by shares and 
notional) for these funds since they began trading \16\ and the average 
daily volume (``ADV'') over the 30-day period of September 1 through 
September 30, 2024, was as follows:\17\
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    \15\ See supra note 5.
    \16\ As noted by NYSE American, GBTC and BITB began trading on 
January 11th and BTC began trading on July 31st. Thus, the 
measurement period for the trading volume (shares/notional) is 
January 11 through September 20, 2024, for GBTC and BITB (i.e., nine 
months) and July 31 through September 20, 2024, for BTC (i.e., two 
months). See supra note 5.
    \17\ See FactSet, 9/30/2024, available at https://www.factset.com/data-attribution.

----------------------------------------------------------------------------------------------------------------
                                                             Trading volume    Trading volume
                       Bitcoin Fund                             (shares)        (notional $)      ADV (shares)
----------------------------------------------------------------------------------------------------------------
GBTC......................................................     1,803,567,700    93,472,544,497         3,266,138
BTC.......................................................       335,492,930     1,792,866,521         6,838,546
BITB......................................................       434,815,840    14,433,361,384         1,949,835
----------------------------------------------------------------------------------------------------------------

    As demonstrated above, even though these Bitcoin Funds have been 
trading for less than one year, the trading volume for each is 
substantially higher than 2,400,000 shares (between roughly 165 and 700 
times that amount), which is the minimum 12-month volume the Exchange 
generally requires for a security in order to list options on that 
security as set forth in Exchange Rule 402(b). The Exchange believes 
this data demonstrates each Bitcoin Fund is characterized by a 
substantial number of outstanding shares that are actively traded.
    In addition to satisfying the Exchange's initial listing standards, 
options on the Bitcoin Funds will be subject to the Exchange's 
continued listing standards as set forth in Exchange Rule 403(g).\18\ 
Pursuant to Exchange Rule 403(g), the Exchange will not open for 
trading any additional series of option contracts covering a fund 
traded on the Exchange if such fund ceases to be an ``NMS stock'' as 
provided for Exchange Rule 402(b) or the fund is halted from trading on 
its primary market.\19\ Additionally, options on funds traded on the 
Exchange may be subject to the suspension of opening transactions as 
follows: (1) the fund no longer meets the terms of Exchange Rule 
403(b); (2) following the initial twelve-month period beginning upon 
the commencement of trading of the fund, there are fewer than 50 record 
and/or beneficial holders of the fund for 30 or more consecutive 
trading days; (3) the value of the underlying commodity is no longer 
calculated or available; or (4) such other event occurs or condition 
exists that in the opinion of the Exchange makes further dealing on the 
Exchange inadvisable.
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    \18\ The Exchange proposes to amend Exchange Rule 402(i)(4) to 
include the Bitcoin Funds in the list of ETPs deemed ``Exchange-
Traded Fund Shares''--of ETFs--for purposes of the continued listing 
standards set forth in Exchange Rule 403(g). See proposed Exchange 
Rule 402(i)(4). For avoidance of doubt, the Exchange refers 
``funds'' rather than ``ETFs'' to make clear that the Bitcoin Funds 
are subject to these continued listing standards.
    \19\ See Exchange Rule 403(g).
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    Options on each Bitcoin Fund will be physically settled contracts 
with American-style exercise.\20\ Consistent with Exchange Rule 404, 
which governs the opening of options series on a specific underlying 
security (including ETFs and ETPs), the Exchange will open at least one 
expiration month for options on each Bitcoin Fund \21\ at the 
commencement of trading on the Exchange and may also list series of 
options on Bitcoin Funds for trading on a weekly,\22\ monthly,\23\ or 
quarterly \24\ basis. The Exchange may also list long-term equity 
option series (``LEAPS'') that expire from twelve to thirty-nine months 
from the time they are listed.\25\
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    \20\ See Exchange Rule 401 (Rights and Obligations of Holders 
and Writers), which provides that the rights and obligations of 
holders and writers of option contracts of any class of options 
dealt in on the Exchange shall be as set forth in the Rules of the 
Options Clearing Corporation (``OCC''). See also OCC Rules, Chapter 
VIII, which governs exercise and assignment, and Chapter IX, which 
governs the discharge of delivery and payment obligations arising 
out of the exercise of physically settled stock option contracts. 
OCC Rules can be located at: https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf.
    \21\ See Exchange Rule 404. The monthly expirations are subject 
to certain listing criteria for underlying securities described 
within Exchange Rule 402. 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 Exchange Rule 404(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. 
Pursuant to Exchange Rule 404(e), new series of options on an 
individual stock may be added until the beginning of the month in 
which the options contract will expire. Due to unusual market 
conditions, the Exchange, in its discretion, may add a new series of 
options on an individual stock until the close of trading on the 
business day prior to expiration.
    \22\ See Exchange Rule 404, Interpretation and Policy .02.
    \23\ See Exchange Rule 404, Interpretation and Policy .13.
    \24\ See Exchange Rule 404, Interpretation and Policy .03.
    \25\ See Exchange Rule 406.

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[[Page 94787]]

    Pursuant to Exchange Rule 404(g), which governs strike prices of 
series of options on ETFs, the interval between strike prices of 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.\26\ Additionally, the Exchange may list series of options 
pursuant to the $1 Strike Price Interval Program,\27\ the $0.50 Strike 
Program,\28\ and the $2.50 Strike Price Program.\29\ Pursuant to 
Exchange Rule 510, 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.\30\ 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 Exchange Rules 404 and 510, as 
applicable. Further, the Exchange notes that MIAX Chapter XV Rules 
(Margin), which governs margin requirements applicable to the trading 
of all options on the Exchange as that chapter of rules is incorporated 
by reference into the MIAX Pearl Rulebook, including options on ETFs 
and ETPs, will also apply to the trading of Bitcoin Fund options.
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    \26\ The Exchange notes that for options listed pursuant to the 
Short Term Option Series Program, the Monthly Options Series 
Program, and the Quarterly Options Series Program, Exchange Rules 
404, Interpretation and Policies .02, .03, and .13, specifically set 
forth intervals between strike prices on Short Term Option Series, 
Quarterly Options Series, and Monthly Options Series, respectively.
    \27\ See Exchange Rule 404, Interpretation and Policy .01.
    \28\ See Exchange Rule 404, Interpretation and Policy .04.
    \29\ See Exchange Rule 404(f).
    \30\ See Exchange Rule 510(a). If options on a Bitcoin Fund are 
eligible to participate in the Penny Interval Program, the minimum 
increment of $0.01 below $3.00 and $0.50 above $3.00 would apply. 
See Exchange Rule 510(a)(3). See also Exchange Rule 510(c) (which 
describes the requirements for the Penny Interval Program).
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Position and Exercise Limits
    As mentioned above, the rules for position and exercise limits for 
options, including options on Bitcoin Funds, are determined pursuant to 
MIAX Rules 307 and 309, respectively, as incorporated by reference into 
the MIAX Pearl Rulebook. Position and exercise limits for options vary 
according to the number of outstanding shares and the trading volumes 
of the underlying security over the past six months, where the largest 
in capitalization and the most frequently traded funds have an option 
position and exercise limit of 250,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market; and 
smaller capitalization funds have position and exercise limits of 
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for 
splits, re-capitalizations, etc.) on the same side of the market.\31\
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    \31\ See MIAX Rule 307. For an option to be eligible for the 
50,000-contract limit, the security underlying the option must have 
most recent six-month trading volume of at least 20,000,000 shares, 
or most recent six-month trading volume of at least 15,000,000 
shares and at least 40,000,000 shares currently outstanding. For an 
option to be eligible for the 75,000-contract limit, the underlying 
security must have most recent six-month trading volume of at least 
40,000,000 shares, or most recent six-month trading volume of at 
least 30,000,000 shares and at least 120,000,000 shares currently 
outstanding. For an option to be eligible for the 200,000-contract 
limit, the underlying security must have most recent six-month 
trading volume of at least 80,000,000 shares, or most recent six-
month trading volume of at least 60,000,000 shares and at least 
240,000,000 shares currently outstanding. For an option to be 
eligible for the 250,000-contract limit, the security underlying the 
option must have most recent six-month trading volume of at least 
100,000,000 shares, or most recent six-month trading volume of at 
least 75,000,000 shares and at least 300,000,000 shares currently 
outstanding. The 25,000-contract limit applies to options on 
underlying securities that do not qualify for a higher contract 
limit. See MIAX Rule 307. In addition, Interpretation and Policy .01 
to MIAX Rule 307 establishes higher position limits for options on 
certain ETFs.
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    Position limits are designed to limit the number of options 
contracts traded on the Exchange in an underlying security that an 
investor, acting alone or in concert with others directly or 
indirectly, may control. The purpose of position limits, which are set 
forth in MIAX Rule 307, is to address potential manipulative schemes 
and adverse market impacts surrounding the use of options, such as 
disrupting the market in the security underlying the options. As such, 
position limits must balance concerns regarding mitigating potential 
manipulation and the cost of inhibiting potential hedging activity that 
investors may use for legitimate economic purposes. To achieve this 
balance, the Exchange proposes to set the position and exercise limits 
for the options on the Bitcoin Funds at 25,000 contracts, a limit which 
has already been approved for IBIT at a competing exchange, an ETP that 
(like the Bitcoin Funds) holds bitcoin.\32\ Capping the position limit 
at 25,000 contracts, the lowest limit available in options, would 
address concerns related to manipulation and protection of investors as 
this number is conservative for the Bitcoin Funds and therefore 
appropriate given their liquidity. While the Exchange believes that the 
proposed 25,000-contract position limit is conservative for options on 
the Bitcoin Funds, it nonetheless believes that, for the reasons set 
forth below, evidence exists to support a much higher position 
limit.\33\
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    \32\ See Securities Exchange Act Release No. 101128 (September 
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice 
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1, 
4, and 5, to Permit the Listing and Trading of Options on the 
iShares Bitcoin Trust (``IBIT'') (``ISE IBIT Approval Order'').
    \33\ The Exchange may file a subsequent rule change to amend the 
position and exercise limit for options on any or all the Bitcoin 
Funds based on additional data regarding trading activity, to 
continue to balance any concerns regarding manipulation. A higher 
position limit would allow institutional investors to utilize 
options on the Bitcoin Funds for prudent risk management purposes.
---------------------------------------------------------------------------

    As shown in the table below, provided in the NYSE American filing 
\34\, GBTC, BITB and BTC would easily qualify for the 250,000-contract 
position limit available to other ETFs and ETPs pursuant to the 
criterion in MIAX Rule 307, which requires that, for the most recent 
six-month period, trading volume for the underlying security be at 
least 100,000,000 shares.\35\ As noted in the NYSE American filing, BTC 
began trading on July 31, 2024, and therefore had only two months of 
trading data available at the time of the NYSE American filing, as 
shown below.\36\
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    \34\ See supra note 5.
    \35\ Per MIAX Rule 307, to qualify for the 250,000-contract 
position limit for options, the underlying security must (i) have 
trading volume of at least 100,000,000 shares during the most recent 
six-month trading period; or (ii) have trading volume of at least 
75,000,000 shares during the most recent six-month trading period 
and have at least 300,000,000 shares currently outstanding.
    \36\ See supra note 5. See FactSet, 9/30/2024, https://www.factset.com/data-attribution. For avoidance of doubt, the 
Exchange notes that this chart depicts the most recent six months 
(at the time the NYSE American filing was filed) of trading data by 
shares for GBTC and BITB whereas the earlier chart (that depicts 
volume by notional and shares) covered the first nine months of 
trading. For BTC, both charts depict the same two-month trading 
volume by shares.

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

    Thus, based on the most-recent trading volume, each Bitcoin Fund 
exceeded the requisite minimum of 100,000,000 shares necessary to 
qualify for the 250,000-contract position and exercise limits. By 
comparison, other options symbols with six-month trading volume less 
than GBTC, BITB, and BTC are eligible for position and exercise limits 
of at least 250,000.\37\
---------------------------------------------------------------------------

    \37\ 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).

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

[[Page 94788]]

    With respect to the outstanding shares of each Bitcoin Fund, if a 
market participant held the maximum number of contracts possible 
pursuant to the proposed position and exercise limits (25,000 
contracts), the equivalent shares represented by the proposed position/
exercise limit (2,500,000 shares) would represent the following 
approximate percentage of current outstanding shares, according to the 
data presented in the NYSE American filing: \38\
---------------------------------------------------------------------------

    \38\ See supra note 5.

----------------------------------------------------------------------------------------------------------------
                                                       Proposed position/      Outstanding       Percentage of
                    Bitcoin fund                       exercise limits in     shares (8/30/       outstanding
                                                        equivalent shares         2024)            shares (%)
----------------------------------------------------------------------------------------------------------------
GBTC................................................             2,500,000        284,570,100                0.9
BTC.................................................             2,500,000        366,950,100                0.7
BITB................................................             2,500,000         68,690,000                3.6
----------------------------------------------------------------------------------------------------------------

    As this table demonstrates, if a market participant held the 
maximum permissible options positions in one of the Bitcoin Fund 
options and exercised all of them at the same time, that market 
participant would control a small percentage of the outstanding shares 
of the underlying Bitcoin Fund. For example, as noted above, a position 
limit of 25,000 same side contracts effectively restricts a market 
participant from holding positions that could result in the receipt of 
no more than 2,500,000 shares of the applicable Bitcoin Fund (if that 
market participant exercised all its options). Based on data presented 
in the NYSE American filing regarding the number of shares outstanding 
for each Bitcoin Fund as of August 30, 2024, the table below sets forth 
the approximate number of market participants that could hold the 
maximum of 25,000 same side positions in each Bitcoin Fund that would 
equate to the number of shares outstanding of that Bitcoin Fund: \39\
---------------------------------------------------------------------------

    \39\ See supra note 5.

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

    This means if 114 market participants had 25,000 same side 
positions in options on GBTC, each of them would have to simultaneously 
exercise all of those options to create a scenario that may put the 
underlying security under stress. Similarly, this means if 147 market 
participants had 25,000 same side positions in options on BTC, each of 
them would have to simultaneously exercise all of those options to 
create a scenario that may put the underlying security under stress. 
Finally, this means if 27 market participants had 25,000 same side 
positions in options on BITB, each of them would have to simultaneously 
exercise all of those options to create a scenario that may put the 
underlying security under stress. The Exchange believes it is highly 
unlikely for this to occur; however, even if such event did occur, the 
Exchange would not expect any of the Bitcoin Fund to be under stress 
because such an event would merely induce the creation of more shares 
through the trust's creation and redemption process.
    Further, given that the issuer of each Bitcoin Fund may create and 
redeem shares that represent an interest in Bitcoin, the Exchange 
believes it is relevant to compare the size of a position limit to the 
market capitalization of the Bitcoin market. As of August 30, 2024, the 
global supply of Bitcoin was 19,747,066, and the price of one Bitcoin 
was approximately $59,108.23, which equates to a market capitalization 
of approximately $1.167 trillion.\40\ Consider the proposed position 
and exercise limit of 25,000 option contracts for each Bitcoin Fund 
option. A position and exercise limit of 25,000 same side contracts 
effectively restricts a market participant from holding positions that 
could result in the receipt of no more than 2,500,000 shares of GBTC, 
BTC, or BITB, as applicable (if that market participant exercised all 
its options). The following table from the NYSE American filing shows 
the share price of each Bitcoin Fund on August 30, 2024, the value of 
2,500,000 shares of the Bitcoin Fund at that price, and the approximate 
percentage of that value of the size of the Bitcoin market: \41\
---------------------------------------------------------------------------

    \40\ See https://www.blockchain.com/explorer/charts/total-bitcoins.
    \41\ See supra note 5.

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

    Therefore, if a market participant with the maximum 25,000 same 
side contracts in options on GBTC, BTC, or BITB exercised all positions 
at one time, such an event would have no practical impact on the 
Bitcoin market. As described in the NYSE American filing, the below 
chart shows the market capitalization of each Bitcoin Fund relative to 
the market capitalization of the entire bitcoin market, as of August 
30, 2024.\42\
---------------------------------------------------------------------------

    \42\ See supra note 5.
    \43\ See id.

[[Page 94789]]

----------------------------------------------------------------------------------------------------------------
                                                            Bitcoin/shares   Market value (8/30/    % of Total
                                                              outstanding           2024)         bitcoin market
----------------------------------------------------------------------------------------------------------------
Total Bitcoin Market \43\.................................      19,747,066    $1,167,214,096,788          100.00
                                                           -----------------------------------------------------
GBTC......................................................     284,570,100       $13,443,091,524            1.15
BTC.......................................................     366,950,100         1,930,157,526            0.17
BITB......................................................      68,690,000         2,221,640,670            0.19
----------------------------------------------------------------------------------------------------------------

    As shown above, the Bitcoin Funds collectively represent 
approximately 1.51% of the global supply of Bitcoin (19,747, 066). 
Based on the $46.75 price of a GBTC share on August 30, 2024, a market 
participant could have redeemed one Bitcoin for approximately 1,264 
GBTC shares. Another 24,967,146,455 GBTC shares could be created before 
the supply of Bitcoin was exhausted. As a result, 9,987 market 
participants would have to simultaneously exercise 25,000 same side 
positions in GBTC options to receive shares of the GBTC holding the 
entire global supply of Bitcoin. Similarly, based on the $5.20 price of 
a BTC share on August 30, 2024, a market participant could have 
redeemed one Bitcoin for approximately 11,367 BTC shares. Another 
224,464,249,382 BTC shares could be created before the supply of 
Bitcoin was exhausted. As a result, 89,786 market participants would 
have to simultaneously exercise 25,000 same side positions in BTC 
options to receive shares of BTC holding the entire global supply of 
Bitcoin. Similarly, based on the $31.95 price of a BITB share on August 
30, 2024, a market participant could have redeemed one Bitcoin for 
approximately 1,850 BITB shares. Another 36,532,522,591 BITB shares 
could be created before the supply of Bitcoin was exhausted. As a 
result, 14,613 market participants would have to simultaneously 
exercise 25,000 same side positions in BITB options to receive shares 
of BITB holding the entire global supply of Bitcoin. Unlike the Bitcoin 
Funds, the number of shares that corporations may issue is limited. 
However, like corporations, which authorize additional shares, 
repurchase shares, or split their shares, the Bitcoin Funds may create, 
redeem, or split shares in response to demand. While the supply of 
Bitcoin is limited to 21,000,000, it is believed that it will take more 
than 100 years to fully mine the remaining Bitcoin.\44\ The supply of 
Bitcoin is larger than the available supply of most securities.\45\ 
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.
---------------------------------------------------------------------------

    \44\ See https://www.blockchain.com/explorer/assets/btc (citing 
21 million as the ``total supply'' of bitcoin).
    \45\ The market capitalization of Bitcoin would rank in the top 
10 among securities. See https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.
---------------------------------------------------------------------------

    The Exchange also believes the proposed limits are appropriate 
given position limits for Bitcoin futures. For example, the Chicago 
Mercantile Exchange (``CME'') imposes a position limit of 2,000 futures 
(for the initial spot month) on its Bitcoin futures contract.\46\ 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: \47\
---------------------------------------------------------------------------

    \46\ 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.
    \47\ See supra note 5.

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

    The approximate number of option contracts for each Bitcoin Fund 
that equate to the notional value of CME Bitcoin futures is 
significantly higher than the proposed limit of 25,000 options contract 
for each Bitcoin Fund option. The fact that many options ultimately 
expire out-of-the-money and thus are not exercised for shares of the 
underlying, while the delta of a Bitcoin Future is 1, further 
demonstrates how conservative the proposed limits of 25,000 options 
contracts are for the Bitcoin Fund options.
    The Exchange notes, unlike options contracts, CME position limits 
are calculated on a net futures-equivalent basis by contract and 
include contracts that aggregate into one or more base contracts 
according to an aggregation ratio(s).\48\ 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.\49\ 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.
---------------------------------------------------------------------------

    \48\ See CME Rulebook Chapter 5, Position Limit, Position 
Accountability and Reportable Level Table in the Interpretations & 
Special Notices.
    \49\ Id.
---------------------------------------------------------------------------

    The Exchange believes the available supply of Bitcoin is not 
relevant to the determination of position and exercise limits for 
options overlying the Bitcoin Funds.\50\ Position and exercise limits 
are

[[Page 94790]]

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.\51\ ``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.'' \52\ 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.'' 
\53\
---------------------------------------------------------------------------

    \50\ 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 the position limits in Exchange Rule 
307 are the same as when the Commission approved this filing. 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.
    \51\ 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.
    \52\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
    \53\ 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.\54\ 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.\55\ 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.
---------------------------------------------------------------------------

    \54\ See, e.g., GBTC Form S-1 Registration Statement, at p. 17, 
https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm; BTC Form S-1 Registration Statement, at p. 21, 
https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm; and BITB Amendment No 2. to S-1, at p. 47, https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm (``Bitcoin Funds Reg. Stmts.'').
    \55\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange believes the proposal to list 
options on the Bitcoin Funds with positions and exercise limits of 
25,000 on the same side, the lowest position limit available in the 
options industry, is conservative and appropriate given the market 
capitalization, average daily volume, and high number of outstanding 
shares for each of the Bitcoin Funds. The proposed position and 
exercise limits reasonably and appropriately balance the liquidity 
provisioning in the market against the prevention of manipulation. The 
Exchange believes these proposed limits are effectively designed to 
prevent an individual customer or entity from establishing options 
positions that could be used to manipulate the market of the underlying 
Bitcoin Funds as well as the Bitcoin market.\56\
---------------------------------------------------------------------------

    \56\ See Securities Exchange Act Release No. 39489 (December 24, 
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------

    As described herein, options on the Bitcoin Funds will trade in the 
same manner as any other ETF or ETP options on the Exchange. The 
Exchange Rules that currently apply to the listing and trading of 
options on the Exchange, including, for example, Rules that govern 
listing criteria, expiration and exercise prices, minimum increments, 
margin requirements, customer accounts and trading halt procedures will 
apply to the listing and trading of Bitcoin Funds on the Exchange in 
the same manner as they apply to all other ETFs and ETPs that are 
listed and traded on the Exchange, including the precious metal-backed 
commodity ETPs already deemed appropriate for options trading on the 
Exchange pursuant to Exchange Rule 404. Further, as described above, 
Exchange Rules regarding position and exercise limits will likewise 
apply to options on the Bitcoin Funds except that, as proposed, the 
position and exercise limits will be set at 25,000 on the same side.
* * * * *
    The Exchange notes that options on Bitcoin Funds would not be 
available for trading until The Options Clearing Corporation (``OCC'') 
represents to the Exchange that it is fully able to clear and settle 
such options. The Exchange has also analyzed its capacity and 
represents that it and The Options Price Reporting Authority (``OPRA'') 
have the necessary systems capacity to handle the additional traffic 
associated with the listing of options on Bitcoin Funds. The Exchange 
believes any additional traffic that would be generated from the 
trading of options on Bitcoin Funds would be manageable. The Exchange 
represents that Exchange Members \57\ will not have a capacity issue as 
a result of this proposed rule change.
---------------------------------------------------------------------------

    \57\ See Exchange Rule 100.
---------------------------------------------------------------------------

    The Exchange represents that the same surveillance procedures \58\ 
applicable to all other options currently listed and traded on the 
Exchange will apply to options on Bitcoin Funds, and that it has the 
necessary systems capacity to support the new option series. The 
Exchange's existing surveillance and reporting safeguards are designed 
to deter and detect possible manipulative behavior which might arise 
from listing and trading options on ETFs and ETPs, such as (existing) 
precious metal-commodity backed ETP options as well as the proposed 
options on Bitcoin Funds. The Exchange believes that its surveillance 
procedures are adequate to properly monitor the trading of options on 
Bitcoin Funds in all trading sessions and to deter and detect 
violations of Exchange rules. The Exchange's staff will have access to 
the surveillance programs conducted by its affiliate exchanges, MIAX 
and MIAX Sapphire, with respect to trading in the shares of the 
underlying trust for each Fund when conducting surveillances for market 
abuse or manipulation in the options on the 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 surveillance data from MIAX and MIAX Sapphire, the Exchange 
will be able to obtain information regarding trading in the shares of 
the underlying Bitcoin Funds

[[Page 94791]]

from NYSE American and other markets through ISG. In addition, the 
Exchange has a Regulatory Services Agreement with the Financial 
Industry Regulatory Authority (``FINRA''). Pursuant to a multi-party 
17d-2 joint plan, all options exchanges allocate regulatory 
responsibilities to FINRA to conduct certain options-related market 
surveillances.\59\ Further, the Exchange will implement any new 
surveillance procedures it deems necessary to effectively monitor the 
trading of options on the Bitcoin Funds.
---------------------------------------------------------------------------

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

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

Each Exchange has a comprehensive surveillance-sharing agreement with 
the CME via their common membership in the Intermarket Surveillance 
Group. This facilitates the sharing of information that is available to 
the CME through its surveillance of its markets, including its 
surveillance of the CME bitcoin futures market.\60\
---------------------------------------------------------------------------

    \60\ See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008, 3009 (January 17, 2024) (File Nos. SR-NYSEArca-
2021-90; SR-NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ2023-
016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; 
SR-CboeBZX2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; and 
SR-CboeBZX-2023-072) (Order Granting Accelerated Approval of 
Proposed Rule Changes, as Modified by Amendments Thereto, to List 
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust 
Units).

    The Exchange states that, given the consistently high correlation 
between the CME bitcoin futures market and the spot bitcoin market, as 
confirmed by the Commission through robust correlation analysis, the 
Commission was able to conclude that such surveillance sharing 
agreements could reasonably be ``expected to assist in surveilling for 
fraudulent and manipulative acts and practices in the specific context 
of the [Bitcoin ETPs].'' \61\
---------------------------------------------------------------------------

    \61\ See Bitcoin ETP Order, 89 FR at 3010-11.
---------------------------------------------------------------------------

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

    \62\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf; Amendment No. 2 
to Proposed Rule Change to List and Trade Shares of the Bitwise 
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 2024, available at 
https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf; and Notice of Filing of Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Shares of the 
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E, 
Commodity-Based Trust Shares, Securities Exchange Act Release No. 
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
---------------------------------------------------------------------------

    Finally, quotation and last sale information for ETFs is available 
via the Consolidated Tape Association (``CTA'') high speed line. 
Quotation and last sale information for such securities is also 
available from the exchange on which such securities are listed. 
Quotation and last sale information for options on Bitcoin Funds will 
be available via OPRA and major market data vendors.
    The Exchange believes that offering options on Bitcoin Funds will 
benefit investors by providing them with an additional, relatively 
lower cost investing tool to gain exposure to the price of Bitcoin and 
hedging vehicle to meet their investment needs in connection with 
Bitcoin-related products and positions. The Exchange expects investors 
will transact in options on Bitcoin Funds in the unregulated over-the-
counter (``OTC'') options market,\63\ but may prefer to trade such 
options in a listed environment to receive the benefits of trading 
listed options, including (1) enhanced efficiency in initiating and 
closing out position; (2) increased market transparency; and (3) 
heightened contra-party creditworthiness due to the role of OCC as 
issuer and guarantor of all listed options. The Exchange believes that 
listing Bitcoin Fund options may cause investors to bring this 
liquidity to the Exchange, would increase market transparency and 
enhance the process of price discovery conducted on the Exchange 
through increased order flow. The Exchange notes that the ETPs that 
hold precious metal commodities on which the Exchange may already list 
and trade options are trusts structured in substantially the same 
manner as Bitcoin Funds and essentially offer the same objectives and 
benefits to investors, just with respect to different assets. The 
Exchange notes that it has not identified any issues with the continued 
listing and trading of options on any ETFs or ETPs that hold 
commodities (i.e., precious metals) that it currently lists and trades 
on the Exchange.
---------------------------------------------------------------------------

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

    Finally, the Exchange notes that applicable Exchange rules will 
require that customers receive appropriate disclosure before trading 
options in Bitcoin Funds.\64\ Further, brokers opening accounts and 
recommending options transactions must comply with relevant customer 
suitability standards.\65\
---------------------------------------------------------------------------

    \64\ See MIAX Rules 1307(b) and (e), which are incorporated by 
reference into the MIAX Pearl Rulebook.
    \65\ See MIAX Rule 1309, which is incorporated by reference into 
the MIAX Pearl Rulebook.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposed rule change is consistent 
with Section 6(b) of the Act \66\ in general and furthers the 
objectives of Section 6(b)(5) of the Act \67\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78f(b).
    \67\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposal to list and 
trade options on Bitcoin Funds will remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, in general, protect investors because offering options on Bitcoin 
Funds will provide investors with an opportunity to realize the 
benefits of utilizing options on a Bitcoin Fund, including cost 
efficiencies and increased hedging strategies.
    The Exchange believes that offering Bitcoin Fund options will 
benefit investors by providing them with a relatively lower-cost risk 
management tool, which will allow them to manage their positions and 
associated risk in their portfolios more easily in

[[Page 94792]]

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 ETPs,\68\ which, as described above, are trusts 
structured in substantially the same manner as Bitcoin Funds and 
essentially offer the same objectives and benefits to investors, just 
with respect to a different commodity (i.e., Bitcoin rather than 
precious metals) and for which the Exchange has not identified any 
issues with the continued listing and trading of commodity-backed ETP 
options it currently lists for trading.
---------------------------------------------------------------------------

    \68\ See Exchange Rule 402(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 Bitcoin 
Funds satisfy the initial listing standards and continued listing 
standards currently in the Exchange Rules applicable to options on all 
ETFs and ETPs, including ETPs that hold other commodities already 
deemed appropriate for options trading on the Exchange. Additionally, 
as demonstrated above and in the NYSE American filing,\69\ each Bitcoin 
Fund is characterized by a substantial number of shares that are widely 
held and actively traded. Bitcoin Fund options will trade in the same 
manner as any other ETF or ETP options--the same Exchange Rules that 
currently govern the listing and trading of options, including 
permissible expirations, strike prices, minimum increments, and margin 
requirements, will govern the listing and trading of options on Bitcoin 
Funds in the same manner.
---------------------------------------------------------------------------

    \69\ See supra note 5.
---------------------------------------------------------------------------

    The proposed position and exercise limit for options on the Bitcoin 
Funds is 25,000 contracts. These position and exercise limits are the 
lowest position and exercise limits available in the options industry, 
are extremely conservative and more than appropriate given the Bitcoin 
Funds' market capitalization, average daily volume, number of 
beneficial holders, and high number of outstanding shares.\70\ The 
proposed position and exercise limits are consistent with the Act as 
they addresses concerns related to manipulation and protection of 
investors because the position and exercise limits are extremely 
conservative and more than appropriate given the Bitcoin Funds are 
actively traded.
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    \70\ The Exchange notes that IBIT--which has been approved for 
options trading--represents a larger percentage of the bitcoin 
market than all three Bitcoin Funds. See ISE IBIT Approval Order, 
supra note 6. As noted herein, the Bitcoin Funds collectively 
represent approximately 1.51% of the bitcoin market. By comparison, 
IBIT options have an approved position limit of 25,000 contracts per 
side, which represents 4% of total underlying spot BTC liquidity, 
and IBIT is the most liquid spot Bitcoin ETF. See id.
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    The Exchange represents that it has the necessary systems capacity 
to support the new Bitcoin Fund options. The Exchange believes that its 
existing surveillance and reporting safeguards are designed to deter 
and detect possible manipulative behavior which might arise from 
listing and trading options, including Bitcoin Fund options. The 
Exchange's existing surveillance and reporting safeguards are designed 
to deter and detect possible manipulative behavior which might arise 
from listing and trading options on ETFs and ETPs, such as (existing) 
precious metal-commodity backed ETP options as well as the proposed 
options on Bitcoin Funds. The Exchange believes that its surveillance 
procedures are adequate to properly monitor the trading of options on 
Bitcoin Funds in all trading sessions and to deter and detect 
violations of Exchange rules. Specifically, the Exchange's market 
surveillance staff will have access to the surveillances conducted by 
its affiliates, MIAX and MIAX Sapphire, with respect to the Bitcoin 
Funds and would review activity in the underlying Funds when conducting 
surveillances for market abuse or manipulation in the options on the 
Trust. Additionally, the Exchange is a member of the ISG under the 
Intermarket Surveillance Group Agreement. ISG members work together to 
coordinate surveillance and investigative information sharing in the 
stock, options, and futures markets. In addition, the Exchange has a 
Regulatory Services Agreement with the FINRA and, as noted herein, 
pursuant to a multi-party 17d-2 joint plan, all options exchanges 
allocate regulatory responsibilities to FINRA to conduct certain 
options-related market surveillances. Further, the Exchange will 
implement any new surveillance procedures it deems necessary to 
effectively monitor the trading of options on the Bitcoin Funds.
    The underlying shares of spot bitcoin ETPs, including the Bitcoin 
Funds, are also subject to safeguards related to addressing market 
abuse and manipulation. As the Commission stated in its order approving 
proposals of several exchanges to list and trade shares of spot 
bitcoin-based ETPs, ``[e]ach Exchange has a comprehensive surveillance-
sharing agreement with the CME via their common membership in the 
Intermarket Surveillance Group. This facilitates the sharing of 
information that is available to the CME through its surveillance of 
its markets, including its surveillance of the CME bitcoin futures 
market.\71\ 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].'' \72\ In light of surveillance 
measures related to both options and futures as well as the underlying 
Bitcoin Funds,\73\ 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

[[Page 94793]]

surveillance procedures it deems necessary to effectively monitor the 
trading of options on Bitcoin ETPs.
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    \71\ See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008, 3009 (January 17, 2024) (File Nos. SR-NYSEArca-
2021-90; SR-NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ-2023-
016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; 
SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; and 
SR-CboeBZX-2023-072) (Order Granting Accelerated Approval of 
Proposed Rule Changes, as Modified by Amendments Thereto, to List 
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust 
Units).
    \72\ See Bitcoin ETP Order, 89 FR at 3010-11.
    \73\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf; Amendment No. 2 
to Proposed Rule Change to List and Trade Shares of the Bitwise 
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 2024, available at 
https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf; and Notice of Filing of Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Shares of the 
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E, 
Commodity-Based Trust Shares, Securities Exchange Act Release No. 
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
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    Finally, the Exchange notes that this proposal will remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, protect investors because 
applicable Exchange rules will require that customers receive 
appropriate disclosure before trading options in Bitcoin Funds \74\ and 
will require that brokers opening accounts and recommending options 
transactions comply with relevant customer suitability standards.\75\
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    \74\ See MIAX Rules 1307(b) and (e).
    \75\ See MIAX Rule 1309.
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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.
    Intramarket Competition: The Exchange does not believe that the 
proposed rule change will impose any burden on intramarket competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act as Bitcoin Funds would need to satisfy the initial listing 
standards set forth in the Exchange Rules in the same manner as any 
other ETF before the Exchange could list options on them. Additionally, 
Bitcoin Fund options will be equally available to all market 
participants who wish to trade such options. The Exchange Rules 
currently applicable to the listing and trading of options on ETFs on 
the Exchange will apply in the same manner to the listing and trading 
of all options on Bitcoin Funds. Also, and as stated above, the 
Exchange already lists options on other commodity-based ETPs.\76\
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    \76\ See Exchange Rule 402(i).
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    Intermarket Competition: The Exchange does not believe that the 
proposal to list and trade options on Bitcoin Funds will impose any 
burden on intermarket competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the extent that the 
advent of Bitcoin Fund options trading on the Exchange may make the 
Exchange a more attractive marketplace to market participants at other 
exchanges, such market participants are free to elect to become market 
participants on the Exchange. As noted herein, this is a competitive 
filing as the Commission recently approved the listing and trading of 
options on the Bitcoin Funds,\77\ as well as another ETP that, like the 
Bitcoin Funds, holds bitcoin.\78\ Additionally, other options exchanges 
are free to amend their listing rules, as applicable, to permit them to 
list and trade options on Bitcoin Funds. The Exchange notes that 
listing and trading Bitcoin Fund options on the Exchange will subject 
such options to transparent exchange-based rules as well as price 
discovery and liquidity, as opposed to alternatively trading such 
options in the OTC market.
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    \77\ See supra note 5.
    \78\ See ISE IBIT Approval Order, supra note 6.
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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

    Written comments were neither solicited nor received.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \79\ and Rule 19b-4(f)(6) thereunder.\80\ 
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)(iii) of the Act \81\ and subparagraph (f)(6) of 
Rule 19b-4 thereunder.\82\
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    \79\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \80\ 17 CFR 240.19b-4(f)(6).
    \81\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \82\ 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 under Rule 19b-4(f)(6) \83\ under the 
Act does not normally become operative prior to 30 days after the date 
of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\84\ the 
Commission may 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 Grayscale 
Fund, the Grayscale Mini Fund, and the Bitwise Fund.\85\ 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 Bitcoin Fund 
options. 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 as operative upon filing.\86\
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    \83\ 17 CFR 240.19b-4(f)(6).
    \84\ 17 CFR 240.19b-4(f)(6)(iii).
    \85\ See Securities Exchange Act Release No. 101386 (October 18, 
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (Notice 
of Filing of Amendment No. 3 and Order Granting Accelerated Approval 
of a Proposed Rule Change, as Modified by Amendment No. 3, To Permit 
the Listing and Trading of Options on Bitcoin Exchange-Traded 
Funds).
    \86\ 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 the 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. If the Commission 
takes such action, the

[[Page 94794]]

Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

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-PEARL-2024-53 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-PEARL-2024-53. 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-PEARL-2024-53 and should be 
submitted on or before December 20, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
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    \87\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27990 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P
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