```

[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94828-94838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27989]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101717; File No. SR-MIAX-2024-43]

Self-Regulatory Organizations; MIAX Exchange LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Exchange Rule 402, Criteria for Underlying Securities, Exchange Rule 
307, Position Limits, and Exchange Rule 309, Exercise Limits To Allow 
the Exchange To List and Trade Options on the Fidelity Wise Origin 
Bitcoin Fund (the ``Fidelity Fund'') and the ARK 21Shares Bitcoin ETF 
(the ``ARK 21 Fund'')

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, Miami International Securities Exchange, LLC 
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Exchange Rule 402, Criteria for 
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange 
Rule 309, Exercise Limits.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings, at MIAX'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 proposes to amend Exchange Rule 402, Criteria for 
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange 
Rule 309, Exercise Limits,\3\ to allow the Exchange to list and trade 
options on Fidelity Wise Origin Bitcoin Fund (the ``Fidelity Fund'') 
and the ARK 21Shares Bitcoin ETF (the ``ARK 21 Fund'' and, with the 
Fidelity Fund, the ``Bitcoin Funds''), designating the Bitcoin Funds as 
appropriate for options trading on the Exchange.\4\ This is a 
competitive filing based on a similar proposal submitted by Cboe 
Exchange, Inc. (``Cboe'') and approved by the Securities and Exchange 
Commission (``Commission'').\5\
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    \3\ The Exchange notes that its affiliate exchanges, MIAX Pearl 
and MIAX Sapphire, submitted substantively identical proposals. The 
Exchange notes that all the rules of Chapter III of the MIAX Options 
Exchange, including Rules 307 and 309, are incorporated by reference 
to MIAX Pearl and MIAX Sapphire. The Exchange also notes that all of 
the rules of Chapter III of the MIAX Options Exchange, including 
Rules 307 and 309, and the rules of Chapter IV of the MIAX Options 
Exchange, including Rule 402, are incorporated by reference to MIAX 
Emerald.
    \4\ On January 10, 2024, the Commission approved proposals by 
NYSE Arca, Inc., The Nasdaq Stock Market LLC, and Cboe BZX Exchange, 
Inc. to list and trade the shares of 11 bitcoin-based commodity-
based trust shares and trust units, including the 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'').
    \5\ See Securities Exchange Act Release No. 101387 (October 18, 
2024), 89 FR 84948 (October 24, 2024) (SR-CBOE-2024-35)(Self-
Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of 
Amendment Nos. 2 and 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, to 
Permit the Listing and Trading of Options on Bitcoin Exchange Traded 
Funds).
---------------------------------------------------------------------------

    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,\6\ including interests in certain specific trusts 
that hold financial instruments, money market instruments, or precious 
metals (which are deemed commodities).
---------------------------------------------------------------------------

    \6\ 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, the Sprott Physical 
Gold Trust, or the iShares Bitcoin 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 (5)(i) and 5(ii) are met.
---------------------------------------------------------------------------

    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

[[Page 94829]]

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.\7\ 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).
---------------------------------------------------------------------------

    \7\ The trust may include minimal cash.
---------------------------------------------------------------------------

    The Exchange believes each Bitcoin Fund satisfies the Exchange's 
initial listing standards for ETFs on which the Exchange may list 
options. 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),\8\ 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 ETFs in a specified aggregate number even if some or 
all of the investment assets required to be deposited have not been 
received by the issuer, subject to the condition that the person 
obligated to deposit the investments has undertaken to deliver the 
investment assets as soon as possible and such undertaking is secured 
by the delivery and maintenance of collateral consisting of cash or 
cash equivalents satisfactory to the issuer, as provided in the 
respective prospectus. Each Bitcoin Fund satisfies Exchange Rule 
402(i)(5(i)(B), as each is subject to this creation and redemption 
process.
---------------------------------------------------------------------------

    \8\ 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.
---------------------------------------------------------------------------

    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.\9\ Each 
Bitcoin Fund is an NMS Stock as defined in Rule 600 of Regulation NMS 
under the Act.\10\ The Exchange believes each Bitcoin Fund is 
characterized by a substantial number of outstanding shares that are 
widely held and actively traded.
---------------------------------------------------------------------------

    \9\ The criteria and guidelines for a security to be considered 
widely held and actively traded are set forth in Exchange Rule 
403(b).
    \10\ 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'').
---------------------------------------------------------------------------

    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 
Exchange Rule 402(b)(1). 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:

------------------------------------------------------------------------
                                            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 Exchange Rule 402(b)(2). Therefore, the Exchange 
believes the shares of each Bitcoin Fund are widely held.
    As demonstrated above, despite the fact that the Bitcoin Funds had 
been trading for approximately seven months \11\ 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 Exchange Rule 402(b)(4). 
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.
---------------------------------------------------------------------------

    \11\ The Bitcoin Funds began trading on January 11, 2024.
---------------------------------------------------------------------------

    Options on the Bitcoin Funds will also be subject to the Exchange's 
continued listing standards set forth in Exchange Rule 403(g), for ETFs 
deemed appropriate for options trading pursuant to Exchange Rule 
402(i). Specifically, Exchange Rule 403(g) provides that ETFs that were 
initially approved for options trading pursuant to Exchange Rule 402(i) 
shall be deemed not to meet the requirements for continued approval, 
and the Exchange shall not open for trading any additional series of 
option contracts of the class covering that such ETFs, if the ETFs are 
delisted from trading pursuant to Exchange Rule 403(b)(4), are halted 
or suspended from trading in their primary market. Additionally, 
options on ETFs may be subject to the suspension of opening 
transactions in any of the following circumstances: (1) in the case of 
options covering ETFs approved for trading

[[Page 94830]]

under Exchange Rule 402(i)(5)(i)(A), in accordance with the terms of 
paragraphs (b)(1), (2), and (3) of Exchange Rule 403; (2) in the case 
of options covering ETFs approved for trading under Exchange Rule 
402(i)(5)(i)(B), following the initial twelve-month period beginning 
upon the commencement of trading in the ETFs on a national securities 
exchange and are defined as an NMS stock, there are fewer than 50 
record and/or beneficial holders of such ETFs for 30 or more 
consecutive trading days; (3) the value of the index or portfolio of 
securities, non-U.S. currency, or portfolio of commodities including 
commodity futures contracts, options on commodity futures contracts, 
swaps, forward contracts and/or options on physical commodities and/or 
financial instruments and money market instruments on which the ETFs 
are based is no longer calculated or available; or (4) such other event 
shall occur or condition exist that in the opinion of the Exchange 
makes further dealing in such options on the Exchange inadvisable.
    Options on each Bitcoin Fund would be physically settled contracts 
with American-style exercise.\12\ Consistent with current Exchange Rule 
404, which governs the opening of options series on a specific 
underlying security (including ETFs), the Exchange will open at least 
one expiration month for options on each Bitcoin Fund \13\ at the 
commencement of trading on the Exchange and may also list series of 
options on a Bitcoin Fund for trading on a weekly,\14\ monthly,\15\ or 
quarterly \16\ 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.\17\
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    \12\ See Exchange Rule 401, which provides that the rights and 
obligations of holders and writers are set forth in the Rules of the 
Options Clearing Corporation (``OCC''); 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).
    \13\ See Exchange Rule 404(b). The monthly expirations are 
subject to certain listing criteria for underlying securities 
described within Exchange Rule 404 and its Interpretations and 
Policies. 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.
    \14\ See Exchange Rule 404, Interpretations and Policies .02.
    \15\ See Exchange Rule 404, Interpretations and Policies .13.
    \16\ See Exchange Rule 404, Interpretations and Policies .03.
    \17\ See Exchange Rule 404(d).
---------------------------------------------------------------------------

    Pursuant to Exchange Rule 404, Interpretation and Policy .06, which 
governs strike prices of series of options on ETFs, the interval 
between strike prices of series of options on ETFs approved for options 
trading pursuant to Exchange Rule 402(i) shall be fixed at a price per 
share which is reasonably close to the price per share at which the 
underlying security is traded in the primary market at or about the 
same time such series of options is first open for trading on the 
Exchange, or at such intervals as may have been established on another 
options exchange prior to the initiation of trading on the Exchange. 
With respect to the Short Term Options Series or Weekly Program, during 
the month prior to expiration of an option class that is selected for 
the Short Term Option Series Program, the strike price intervals for 
the related non-Short Term Option (``Related non-Short Term Option'') 
shall be the same as the strike price intervals for the Short Term 
Option.\18\ Specifically, the Exchange may open for trading Short Term 
Option Series at strike price intervals of (i) $0.50 or greater where 
the strike price is less than $100, and $1 or greater where the strike 
price is between $100 and $150 for all option classes that participate 
in the Short Term Options Series Program; (ii) $0.50 for option classes 
that trade in one dollar increments and are in the Short Term Option 
Series Program; or (iii) $2.50 or greater where the strike price is 
above $150.\19\ Additionally, the Exchange may list series of options 
pursuant to the $1 Strike Price Interval Program,\20\ the $0.50 Strike 
Program,\21\ and the $2.50 Strike Price Program.\22\ Pursuant to 
Exchange Rule 510, where the price of a series of options for a Bitcoin 
Fund 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 \23\ 
consistent with the minimum increments for options on other ETFs listed 
on the Exchange. Any and all new series of a Bitcoin Fund options that 
the Exchange lists will be consistent and comply with the expirations, 
strike prices, and minimum increments set forth in Rules 404 and 510, 
as applicable.
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    \18\ See Exchange Rule 404, Interpretations and Policies .02(e).
    \19\ Id.
    \20\ See Exchange Rule 404, Interpretation and Policy .01.
    \21\ See Exchange Rule 404, Interpretation and Policy .04.
    \22\ See Exchange Rule 404(f).
    \23\ See Exchange Rule 510.
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    Bitcoin Fund options will trade in the same manner as any other ETF 
options on the Exchange. The Exchange Rules that currently apply to the 
listing and trading of all ETFs options on the Exchange, including, for 
example, Exchange Rules that govern listing criteria, expiration and 
exercise prices, minimum increments, position and exercise limits, 
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 
ETFs that are listed and traded on the Exchange, including the 
precious-metal backed commodity ETFs already deemed appropriate for 
options trading on the Exchange pursuant to current Exchange Rule 
402(i)(4).
    The Exchange also proposes to amend Rules 307 and 309. 
Specifically, the Exchange proposes to amend Supplementary Material .01 
to Exchange Rule 307 to provide a position limit of 25,000 same side 
option contracts for each Bitcoin Fund option. Additionally, pursuant 
to the proposed change to Supplementary Material .01 to Exchange Rule 
309, the exercise limits for options on each Bitcoin Fund will be 
equivalent to this proposed position limit.
    The Exchange determined 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):

[[Page 94831]]

----------------------------------------------------------------------------------------------------------------
                                                                                                     Market
                Underlying Bitcoin Fund                    Six-month ADV       Outstanding       capitalization
                                                              (shares)            shares              ($)
----------------------------------------------------------------------------------------------------------------
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:

------------------------------------------------------------------------
                                           Average limit
                                           of other ETF   Proposed limit
         Underlying Bitcoin Fund              options       (contracts)
                                            (contracts)
------------------------------------------------------------------------
Fidelity Fund...........................    \24\ 188,110          25,000
ARK 21 Fund.............................    \25\ 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 
402(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 402(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 402(b)(3).
---------------------------------------------------------------------------

    \24\ 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 was lower than the Fidelity Fund three-month ADV of 
5,665,027 shares.
    \25\ 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.
---------------------------------------------------------------------------

    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:

----------------------------------------------------------------------------------------------------------------
                                                                 Proposed
                                                            position/exercise                      Percentage of
                  Underlying Bitcoin Fund                       limit (in         Outstanding       outstanding
                                                                equivalent           shares         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.
    Rule 309 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.

------------------------------------------------------------------------
                                            Minimum        Percentage of
     Position/Exercise Limit (in          Outstanding       Outstanding
          equivalent shares)                 Shares         Shares (%)
------------------------------------------------------------------------
2,500,000............................     \26\ 6,300,000            40.0
5,000,000............................         40,000,000            12.5

[[Page 94832]]

 
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.\27\
---------------------------------------------------------------------------

    \26\ This 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 404, 
Interpretation and Policy .01. 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.
    \27\ 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 Rule 307. 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.
    The Exchange further notes that Exchange Rule 1502, which governs 
margin requirements applicable to trading on the Exchange, including 
options on ETFs, will also apply to the trading of the Bitcoin Fund 
options. Notwithstanding the position limits in Exchange Rule 307(d) 
and exercise limits in Exchange Rule 309, the Exchange proposes the 
position and exercise limits for the options on the Bitcoin Fund to be 
25,000 contracts on the same side pursuant to proposed Supplementary 
Material .01 to Exchange Rule 307 and proposed Supplementary Material 
.01 to Exchange Rule 309.
    The Exchange represents that the same surveillance procedures 
applicable to all other options on other ETFs currently listed and 
traded on the Exchange will apply to options on the Bitcoin Funds. Also 
the Exchange represents that it has the necessary systems capacity to 
support the new option series. The Exchange believes that its existing 
surveillance and reporting safeguards are designed to deter and detect 
possible manipulative behavior which might potentially arise from 
listing and trading options on ETFs, including the proposed Bitcoin 
Funds options.
    Today, the Exchange has an adequate surveillance program in place 
for options. The Exchange intends to apply those same program 
procedures to Bitcoin Fund options that it applies to the Exchange's 
other options products.\28\ The Exchange's staff will have access to 
the surveillance programs conducted by its affiliate exchanges, MIAX 
Pearl and MIAX Sapphire with respect to trading in the shares of 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 surveillance data from MIAX Pearl and MIAX Sapphire, the 
Exchange will be able to obtain information regarding trading in the 
shares of the underlying Bitcoin Funds from Cboe 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 surveillance that are common to rules of all 
options exchanges.\29\
---------------------------------------------------------------------------

    \28\ 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).
    \29\ 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 
(``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 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.\30\
---------------------------------------------------------------------------

    \30\ See Bitcoin ETP Order, 89 FR at 3010-11.
---------------------------------------------------------------------------

    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

[[Page 94833]]

manipulative acts and practices in the specific context of the 
[Bitcoin ETPs].'' \31\
---------------------------------------------------------------------------

    \31\ 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,\32\ 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 represents that it will implement any new 
surveillance procedures it deems necessary to effectively monitor the 
trading of options on Bitcoin Funds.
---------------------------------------------------------------------------

    \32\ 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 (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'').
---------------------------------------------------------------------------

    The Exchange has also analyzed its capacity and represents that it 
believes the Exchange and Options Price Reporting Authority or ``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 one class, the Exchange believes any additional traffic 
that may be generated from the introduction of Bitcoin Funds 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 ETPs in the unregulated over-the-
counter (``OTC'') options market (if the Commission approves Bitcoin 
ETPs for exchange-trading),\33\ 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 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 ETFs 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 ETFs options, including ETFs that hold commodities 
(i.e., precious metals) that it currently lists and trades on the 
Exchange.
---------------------------------------------------------------------------

    \33\ 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.
---------------------------------------------------------------------------

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.\34\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \35\ 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) \36\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78f(b)(5).
    \36\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposal to list and 
trade options on the Bitcoin Funds will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and, in general, protect investors because offering options on 
the Bitcoin Funds will provide investors with a greater opportunity to 
realize the benefits of utilizing options on an ETF based on a Bitcoin 
Fund, including cost efficiencies and increased hedging strategies. The 
Exchange believes that offering Bitcoin Funds options will benefit 
investors by providing them with an additional, relatively lower-cost 
risk management tool, allowing them to manage, more easily, their 
positions and associated risks in their portfolios in connection with 
exposure to 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 option 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 ETFs,\37\ 
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 ETF options it currently lists for trading.
---------------------------------------------------------------------------

    \37\ 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 must satisfy the initial listing standards and continued 
listing standards currently in the Exchange Rules, applicable to 
options on all ETFs, including ETFs that hold other commodities already 
deemed appropriate for options trading on the Exchange. Additionally, 
as demonstrated above, each Bitcoin Fund is characterized by a 
substantial number of shares that are widely held and actively traded. 
Bitcoin Fund options will trade in the same manner as any other ETF 
options--the same Exchange Rules that including permissible

[[Page 94834]]

expirations, strike prices, minimum increments, position and exercise 
limits (as proposed herein), and margin requirements, will govern the 
listing and trading of options on the Bitcoin Funds.
    The 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 for options on each of the Bitcoin Funds is 25,000 contracts. 
These position and exercise limits are the lowest position and exercise 
limits available in the options industry, are extremely conservative 
and more than appropriate given each of the Bitcoin Funds market 
capitalization, average daily volume, and high number of 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.
    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 [verbar] Charts--Total Circulating 
Bitcoin.

----------------------------------------------------------------------------------------------------------------
                                                                                    Value of
                                                                 August 27,     2,500,000 shares   Percentage of
                   Underlying 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,       Number of
         Underlying Bitcoin Fund            2024 share        option
                                             price ($)       contracts
------------------------------------------------------------------------
Fidelity Fund...........................           51.47         114,532
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

[[Page 94835]]

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
       Underlying Bitcoin Fund            outstanding       with 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 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 [verbar] 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

[[Page 94836]]

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\ 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 Cboe 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 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 ETF options, 
including Bitcoin Fund options.
    Today, the Exchange has an adequate surveillance program in place 
for options. The Exchange intends to apply those same program 
procedures to options on the Bitcoin Fund that it applies to the 
Exchange's other options products.\53\ The Exchange's staff will have 
access to the surveillance programs conducted by its affiliate 
exchanges, MIAX Pearl and MIAX Sapphire with respect to the underlying 
Bitcoin Funds when conducting surveillances for market abuse or 
manipulation in the options on the Bitcoin Funds. The Exchange will 
review activity in the underlying Bitcoin Fund when conducting 
surveillances for market abuse or manipulation in the options on the 
Bitcoin Funds. 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 to obtaining 
surveillance data from MIAX Pearl and MIAX Sapphire, the Exchange will 
be able to obtain information from Cboe and other markets through ISG. 
In addition, the Exchange has a Regulatory Services Agreement with 
FINRA. Pursuant to a multi-party 17d-2 joint plan, all options 
exchanges allocate regulatory responsibilities to FINRA to conduct 
certain options-related market surveillance that are common to rules of 
all options exchanges.\54\
---------------------------------------------------------------------------

    \53\ 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).
    \54\ 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 
(``common members''). Specifically, Section 17(d)(1) allows the 
Commission to relieve an SRO of its responsibilities to: (i) receive 
regulatory reports from such members; (ii) examine such members for 
compliance with the Act and the rules and regulations thereunder, 
and the rules of the SRO; or (iii) carry out other specified 
regulatory responsibilities with respect to such members.
---------------------------------------------------------------------------

    The underlying shares of spot bitcoin ETPs, including the Bitcoin 
Funds, are also subject to safeguards related to addressing market 
abuse and manipulation. As the Commission stated in 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.\55\
---------------------------------------------------------------------------

    \55\ See Bitcoin ETP Order, 89 FR at 3010-11.
---------------------------------------------------------------------------

    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].'' \56\
---------------------------------------------------------------------------

    \56\ 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,\57\ 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 represents that it will implement any new 
surveillance procedures it deems necessary to effectively monitor the 
trading of options on the Bitcoin Funds. Finally, the Commission has 
previously approved the listing and trading of options on other 
commodity ETFs structured as a trust, such as SPDR[supreg] Gold 
Trust,\58\ the iShares COMEX Gold

[[Page 94837]]

Trust \59\ the iShares Silver Trust,\60\ the ETFS Gold Trust,\61\ and 
the ETFS Silver Trust.\62\
---------------------------------------------------------------------------

    \57\ See Securities Exchange Act Release No. 99295 (January 8, 
2024), 89 FR 2321, 2334-35 (January 12, 2024) (SR-NASDAQ-2023-016) 
(Notice of Filing of Amendment No. 1 to a Proposed Rule Change To 
List and Trade Shares of the iShares Bitcoin Trust Under Nasdaq Rule 
5711(d)).
    \58\ See Securities Exchange Act Release No. 57897 (May 30, 
2008), 73 FR 32061 (June 5, 2008) (SR-Amex-2008-15; SR-CBOE-2005-11; 
SR-ISE-2008-12; SR-NYSEArca-2008-52; and SRPhlx-2008-17) (Order 
Granting Approval of a Proposed Rule Change, as Modified, and Notice 
of Filing and Order Granting Accelerated Approval of Proposed Rule 
Changes, as Modified, Relating to Listing and Trading Options on the 
SPDR Gold Trust).
    \59\ See Securities Exchange Act Release No. 59055 (December 4, 
2008), 73 FR 75148 (December 10, 2008) (SR-Amex-2008-68; SR-BSE-
2008-51; SR-CBOE-2008-72; SR-ISE-2008-58; SRNYSEArca-2008-66; and 
SR-Phlx-2008-58) (Notice of Filing and Order Granting Accelerated 
Approval of Proposed Rule Changes Relating to the Listing and 
Trading Options on Shares of the iShares COMEX Gold Trust and the 
iShares Silver Trust).
    \60\ Id.
    \61\ See Securities Exchange Act Release No. 61483 (February 3, 
2010), 75 FR 6753 (February 10, 2010) (SR-CBOE-2010-007; SR-ISE-
2009-106; SR-NYSEAmex-2009-86; and SR-NYSEArca-2009-110) (Order 
Granting Approval of Proposed Rule Changes and Notice of Filing and 
Order Granting Accelerated Approval of a Proposed Rule Change 
Relating to Listing and Trading Options on the ETFS Gold Trust and 
the ETFS Silver Trust).
    \62\ Id.
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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. In this regard and as 
indicated above, the Exchange notes that the rule change is being 
proposed as a competitive response to filings submitted by Cboe.\63\
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    \63\ See supra note 5.
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    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 options on the 
Bitcoin Funds 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. Further, options on the Bitcoin Funds will be subject 
to Exchange Rules that currently govern the listing and trading of 
options on ETFs, including permissible expirations, strike prices, 
minimum increments, position and exercise limits (including as proposed 
to modify herein), and margin requirements. Also, and as stated above, 
the Exchange already lists options on other commodity ETFs structured 
as a trust.\64\ 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 ETF for the Exchange to continue listing 
options on them.
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    \64\ See Exchange Rule 402(i)(4).
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    The Exchange does not believe that the proposal to list to list and 
trade Bitcoin Funds options 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. Additionally, other options exchanges are free to amend their 
listing rules, as applicable, to permit them to list and trade options 
on the 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.
    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 \65\ and Rule 19b-4(f)(6) thereunder.\66\ 
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 \67\ and subparagraph (f)(6) of 
Rule 19b-4 thereunder.\68\
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    \65\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \66\ 17 CFR 240.19b-4(f)(6).
    \67\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \68\ 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) \69\ 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),\70\ 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 Fidelity 
Wise Origin Bitcoin Fund the ARK 21Shares Bitcoin ETF.\71\ 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 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.\72\
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    \69\ 17 CFR 240.19b-4(f)(6).
    \70\ 17 CFR 240.19b-4(f)(6)(iii).
    \71\ See Securities Exchange Act Release No. 101387 (October 18, 
2024), 89 FR 84948 (October 24, 2024) (SR-Cboe-2024-035) (Notice of 
Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2 
and 3, To Permit the Listing and Trading of Options on Bitcoin 
Exchange-Traded Funds).
    \72\ 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

[[Page 94838]]

public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the 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-MIAX-2024-43 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-MIAX-2024-43. 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-MIAX-2024-43 and should be 
submitted on or before December 20, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\73\
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    \73\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-27989 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P
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