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[Federal Register Volume 90, Number 8 (Tuesday, January 14, 2025)]
[Notices]
[Pages 3266-3270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-00531]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102132; File No. SR-Phlx-2024-72]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
of Proposed Rule Change To Permit FLEX Trading in the iShares Bitcoin 
Trust ETF

January 7, 2025.
    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 December 26, 2024, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
a proposed rule change as described in Items I, II, and III 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 proposes to amend Options 8, Section 34, FLEX Trading, 
to permit FLEX Trading in the iShares Bitcoin Trust ETF.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the 
principal office of the Exchange, 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 Options 8, Section 34, FLEX Trading, 
to permit iShares Bitcoin Trust ETF (``IBIT'') options to trade as both 
cash-settled and physically settled FLEX Equity Options as described 
herein.
    IBIT is an Exchange-Traded Fund (``ETF'') that holds bitcoin and is 
listed on The Nasdaq Stock Market LLC (``Nasdaq'').\3\ On September 20, 
2024, Nasdaq ISE, LLC (``ISE'') received approval to list options on 
IBIT.\4\ The

[[Page 3267]]

position and exercise limits for IBIT options are 25,000 contracts as 
stated in Options 9, Sections 13 and 15, the lowest limit available in 
options.\5\ Today, pursuant to Options 3A, Section 3(a), IBIT options 
are not approved for FLEX trading.\6\ Today, FLEX Equity Options are 
physically delivered and have no position limits pursuant to Options 8, 
Section 34(e)(2).\7\ Therefore, the 25,000 contract position limit in 
Options 9, Section 13 and exercise limit in Options 9, Section 15 for 
IBIT options currently applies to non-FLEX IBIT options.
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    \3\ Nasdaq received approval to list and trade Bitcoin-Based 
Commodity-Based Trust Shares in IBIT pursuant to Rule 5711(d) of 
Nasdaq. See Securities Exchange Act Release No. 99306 (January 10, 
2024), 89 FR 3008 (January 17, 2024) (SR-NASDAQ-2023-016) (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).
    \4\ 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 Approval Order''). The Nasdaq Stock 
Market LLC (``Nasdaq''), Nasdaq Phlx LLC (``Phlx''), Nasdaq BX, Inc. 
(``BX''), GEMX Options 4, Section 3, and MRX Options 4, Section 3 
incorporate ISE Options 4, Section 3 by reference. Phlx Options 4 
rules are incorporated by reference to ISE Options 4 rules. ISE 
began trading IBIT options on November 19, 2024.
    \5\ Options on Fidelity Wise Origin Bitcoin Fund, ARK 21Shares 
Bitcoin ETF, Grayscale Bitcoin Trust (BTC), Grayscale Bitcoin Mini 
Trust BTC, and Bitwise Bitcoin ETF are also subject to a 25,000 
contract position and exercise limit.
    \6\ Options 8, Section 34(a) also does not permit FLEX trading 
on options on Fidelity Wise Origin Bitcoin Fund, ARK 21Shares 
Bitcoin ETF, Grayscale Bitcoin Trust (BTC), Grayscale Bitcoin Mini 
Trust BTC, and Bitwise Bitcoin ETF.
    \7\ Pursuant to Options 8, Section 32(g), a FLEX Option is as 
described in Options 8, Section 34. FLEX Options are not eligible 
for entry by a member for execution through FBMS. Phlx offers FLEX 
Options which are customized equity, index or currency options that 
allow investors to tailor contract terms for exchange-listed equity 
and index options on its trading floor. See Options 8, Section 34.
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    At this time, the Exchange proposes to permit IBIT options to 
transact as FLEX Equity Options subject to a position and exercise 
limits of 25,000 contracts which would be aggregated with non-FLEX IBIT 
options position and exercise limits in Options 9, Sections 13 and 15.
    Per the Commission, ``rules regarding position and exercise limits 
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 positions.'' \8\ For 
this reason, the Commission requires that ``position and exercise 
limits must be sufficient to prevent investors from disrupting the 
market for the underlying security by acquiring and exercising a number 
of options contracts disproportionate to the deliverable supply and 
average trading volume of the underlying security.'' \9\ Based on its 
review of the data and analysis provided by ISE, the Commission 
concluded that the 25,000 contract position limit for non-FLEX IBIT 
options satisfied these objectives.\10\
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    \8\ See supra note 4, IBIT Approval Order, 89 FR 78946.
    \9\ See id.
    \10\ See id.
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    As proposed, the Exchange will aggregate position (and exercise) 
limits for all IBIT options, thus limiting positions for options on all 
IBIT options--FLEX and non-FLEX--to 25,000 contracts. This proposed 
aggregated limit effectively restricts a market participant from 
holding positions that could result in the receipt of more than 
2,500,000 shares, aggregated for FLEX IBIT and non-FLEX IBIT (if that 
market participant exercised all its IBIT options). The Exchange 
believes that capping the aggregated position limit at 25,000 
contracts, the lowest limit available in options, would be sufficient 
to address concerns related to manipulation and the protection of 
investors. The Exchange notes that this number is conservative for IBIT 
and therefore appropriate given its liquidity.
    While ISE proposed an aggregated 25,000 contract position limit for 
IBIT options in its rule proposal for IBIT options, it nonetheless 
believed that evidence existed to support a much higher position limit. 
Specifically, the Commission has considered and reviewed ISE's analysis 
that the exercisable risk associated with a position limit of 25,000 
contracts represented only 0.4% of the outstanding shares of IBIT.\11\ 
The Commission also has considered and reviewed the ISE's statement 
that with a position limit of 25,000 contracts on the same side of the 
market and 611,040,00 shares of IBIT outstanding, 244 market 
participants would have to simultaneously exercise their positions to 
place IBIT under stress.\12\ Based on the Commission's review of this 
information and analysis, the Commission concluded that the proposed 
position and exercise limits were designed to prevent investors from 
disrupting the market for the underlying security by acquiring and 
exercising a number of options contracts disproportionate to the 
deliverable supply and average trading volume of the underlying 
security, and 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.\13\ IBIT 
currently qualifies for a 250,000 contract position limit pursuant to 
the criteria in Options 9, Section 13(g), which requires that, for the 
most recent six-month period, trading volume for the underlying 
security be at least 100,000,000 shares.\14\ As of November 26, 2024, 
the market capitalization for IBIT was $46,783,480,800 \15\ with an 
ADV, for the preceding three months prior to November 26, 2024, of 
39,421,877 shares. At a price of $94,830,\16\ that equates to a market 
capitalization of greater than $1.876 trillion US.
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    \11\ See id.
    \12\ See id.
    \13\ See id.
    \14\ Options 9, Section 13(g), Equity Option Position Limits, 
provides at subparagraph (i) that the position limit shall be 
250,000 contracts for options: (a) on an underlying stock or 
Exchange-Traded Fund Share which had trading volume of at least 
100,000,000 shares during the most recent six-month trading period; 
or (b) on an underlying stock or Exchange-Traded Fund Share which 
had trading volume of at least 75,000,000 shares during the most 
recent six-month trading period and has at least 300,000,000 shares 
currently outstanding.
    \15\ The market capitalization was determined by multiplying a 
settlement price of ($54.02) by the number of shares outstanding 
(866,040,000). This figure was acquired as of November 26, 2024. See 
https://www.ishares.com/us/products/333011/ishares-bitcoin-trust-etf.
    \16\ This is the approximate price of bitcoin from 4:00pm ET on 
November 25, 2024.
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    Despite the addition of FLEX trading in IBIT options, the Exchange 
would continue to limit the number of IBIT 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 and 
thereby mitigate potential manipulation. The Exchange believes that it 
is consistent with the Act to permit FLEX trading in IBIT given FLEX 
trading is permitted today in other ETFs overlying a commodity such as 
SPDR Gold Shares (``GLD''), iShares Silver Trust (``SLV''), and 
ProShares Bitcoin ETF (``BITO'').\17\ Additionally, FLEX trading is 
permitted today in Cboe Bitcoin U.S. ETF Index Options (CBTX) and the 
Cboe Mini Bitcoin U.S. ETF Index Options (MBTX),\18\ which is comprised 
of multiple bitcoin ETFS of which IBIT is the highest weighted ETF in 
the index composition at 20%.\19\ CBTX (and MBTX) are permitted to 
trade as FLEX Index Options with a

[[Page 3268]]

24,000 contract position limit \20\ which limits are aggregated between 
FLEX and non-FLEX index options in CBTX and MBTX pursuant to Cboe Rule 
8.35(a).\21\
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    \17\ GLD, SLV and BITO each hold one asset in trust similar to 
IBIT.
    \18\ MBTX is based on 1/10th the value of the Cboe Bitcoin U.S. 
ETF Index.
    \19\ See https://www.cboe.com/tradable_products/bitcoin-etf-index-options?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch. Cboe's website provides a product comparison chart 
indicating that CBTX and MBTX are permitted to trade FLEX as 
compared to spot bitcoin ETF options. See https://cdn.cboe.com/resources/membership/Cboe_Bitcoin_US_ETF_Options_Comparative_Overview.pdf?_gl=1*1xmm04c*_up*MQ..*_ga*MTc0MjU1NzU1Ni4xNzM0NTU2NTky*_ga_5Q99WB9X71*MTczNDU1NjU5MC4xLjAuMTczNDU1NjU5MC4wLjAuMA.
    \20\ See Cboe Rule 8.32(a). See also Cboe Rule 8.35(a)(7) that 
states that for purposes of determining compliance with the position 
limits under this Rule 8.35, if a FLEX Index Option has a multiplier 
of one, 100 contracts for that class equal one contract for a FLEX 
Index Option with a multiplier of 100 with the same underlying 
index. The Exchange notes that given the multiplier and notional 
value of CBTX, the index has a position and exercise limit that 
equates to 1,000,000 contracts of in kind exposure to IBIT, which is 
more than 40 times greater than the exposure for options on IBIT at 
the current 25,000 contract position and exercise limit.
    \21\ Cboe Rule 8.35(a)(3) provides that in no event shall the 
position limits for an industry-based FLEX Index Option class exceed 
one times the applicable number of Non-FLEX Index Option contracts 
(whether long or short) of the put class and the call class on the 
same side of the market, as determined on the basis of the position 
limits established pursuant to Rule 8.32 provided, however, the 
position limits for an industry-based FLEX Index Option class shall 
not exceed four times the applicable position limits established 
pursuant to Rule 8.32, instead of one times as provided above, for: 
(1) the Dow Jones Transportation Average or the DowJones Utility 
Average; or (2) an underlying industry-based index that is not a 
``narrow-based security index,'' as defined under Section 
3(a)(55)(B) of the Exchange Act. See also Cboe Rule 8.35(a)(4) that 
provides that in no event shall the position limits for a micro 
narrow-based FLEX Index Option class exceed one times the applicable 
number of Non-FLEX Index Option contracts (whether long or short) of 
the class on the same side of the market, as determined on the basis 
of the position limits established pursuant to Rule 8.33.
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    Further, the Exchange believes that the share creation and 
redemption process unique to ETFs would mitigate any potential risk of 
manipulation in FLEX trading in IBIT options. The creation and 
redemption process is designed to ensure that an ETF's price closely 
tracks the value of its underlying asset(s). For example, if a market 
participant exercised a long call position for 25,000 contracts and 
purchased 2,500,000 shares of IBIT and this purchase resulted in the 
value of IBIT shares to trade at a premium to the value of the 
(underlying) bitcoin held by IBIT, the Exchange believes that other 
market participants would attempt to arbitrage this price difference by 
selling short IBIT shares while concurrently purchasing bitcoin. Those 
market participants (arbitrageurs) would then deliver cash to IBIT and 
receive shares of IBIT, which would be used to close out any previously 
established short position in IBIT. Thus, this creation and redemptions 
process would significantly reduce the potential risk of price 
dislocation between the value of IBIT shares and the value of bitcoin 
holdings. The Exchange understands that FLEX Options on ETFs are 
currently traded in the over-the-counter (``OTC'') market by a variety 
of market participants, e.g., hedge funds, proprietary trading firms, 
and pension funds. The Exchange believes there is room for significant 
growth if a comparable FLEX product were introduced for trading on a 
regulated market. The Exchange expects that users of these OTC products 
would be among the primary users of FLEX IBIT options. The Exchange 
also believes that the trading of FLEX IBIT options would allow these 
same market participants to better manage the risk associated with the 
volatility of IBIT (the underlying ETF) positions given the enhanced 
liquidity that an exchange-traded product would bring. Additionally, 
the Exchange believes that FLEX IBIT options traded on the Exchange 
would have three important advantages over the contracts that are 
traded in the OTC market. First, as a result of greater fungibility, 
exchange-traded contracts should develop more liquidity because each 
FLEX contract can be closed with a liquidating transaction as compared 
to OTC FLEX contracts which must be held until expiration. Second, 
counterparty credit risk would be mitigated by the fact that the 
exchange-traded contracts are issued and guaranteed by The Options 
Clearing Corporation (``OCC''). Finally, the price discovery and 
dissemination provided by the Exchange and its member organizations 
would lead to more transparent markets. The Exchange believes that its 
ability to offer FLEX IBIT options would aid it in competing with the 
OTC market and at the same time expand the universe of products 
available to interested market participants. The Exchange believes that 
an exchange-traded alternative may provide a useful risk management and 
trading vehicle for market participants and their customers. 
Additionally, FLEX options serve two primary client types in the 
capital markets: (1) ETF and structured return issuers who seek 
European-style \22\ options with bespoke strike and expirations, such 
that they can tailor their returns more precisely than they could with 
standard American-style options; \23\ and (2) with respect to stock 
lending, certain investors (e.g. banks and hedge funds) may seek to 
align their contract durations for calls and puts, and thereby prefer 
European-style exercise, which can be exercised only on its expiration 
date, as compared to American-style, which can be exercised on any 
business day prior to its expiration date and on its expiration date.
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    \22\ The term ``European-style option'' means an options 
contract that, subject to the provisions of Options 6B, Section 1 
(relating to the cutoff time for exercise instructions) and to the 
Rules of the Clearing Corporation, can be exercised only on its 
expiration date. See Options 1, Section 1(a)(15).
    \23\ The term ``American-style option'' means an options 
contract that, subject to the provisions of Options 6B, Section 1 
(relating to the cutoff time for exercise instructions) and to the 
Rules of the Clearing Corporation, can be exercised on any business 
day prior to its expiration date and on its expiration date. Today, 
non-FLEX equity options settle American-style. See Options 1, 
Section 1(a)(3).
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    The Exchange has analyzed its capacity and represents that it and 
The Options Price Reporting Authority (``OPRA'') have the necessary 
systems capacity to handle the additional traffic associated with the 
listing of FLEX IBIT options. The Exchange believes any additional 
traffic that would be generated from the trading of FLEX IBIT options 
would be manageable. The Exchange believes member organizations will 
not have a capacity issue as a result of this proposed rule change. The 
Exchange also represents that it does not believe this proposed rule 
change will cause fragmentation of liquidity. The Exchange will monitor 
the trading volume associated with the additional options series listed 
as a result of this proposed rule change and the effect (if any) of 
these additional series on market fragmentation and on the capacity of 
the Exchange's automated systems. The Exchange represents that the same 
surveillance procedures applicable to the Exchange's other options 
products listed and traded on the Exchange, including non-FLEX IBIT 
options, will apply to FLEX IBIT options, and that it has the necessary 
systems capacity to support such options. FLEX options products (and 
their respective symbols) are integrated into the Exchange's existing 
surveillance system architecture and are thus subject to the relevant 
surveillance processes.\24\ The Exchange's market surveillance staff 
(including staff of the Financial Industry Regulatory Authority 
(``FINRA'') who perform surveillance and investigative work on behalf 
of the Exchange pursuant a regulatory services agreement) conducts 
surveillances with respect to IBIT (the underlying ETF) and, as 
appropriate, would review activity in IBIT when conducting 
surveillances for market abuse or manipulation in IBIT options.\25\ The 
Exchange does not believe that allowing FLEX IBIT options would render 
the marketplace for non-FLEX IBIT options, or equity options in 
general, more susceptible to manipulative practices.
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    \24\ Phlx FLEX trading occurs on Phlx's trading floor, in an 
open outcry environment. Surveillance staff monitors FLEX trading in 
open outcry.
    \25\ See IBIT Approval Order, 89 FR 78947.

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[[Page 3269]]

    The Exchange represents that its existing trading surveillances are 
adequate to monitor the trading in IBIT (as well as FLEX IBIT) on the 
Exchange. 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. For surveillance purposes, the Exchange would therefore have 
access to information regarding trading activity in the pertinent 
underlying securities. In addition, and as referenced above, the 
Exchange has a regulatory services agreement with FINRA, pursuant to 
which FINRA conducts certain surveillances on behalf of the Exchange. 
Further, pursuant to a multi-party 17d-2 joint plan, all options 
exchanges allocate regulatory responsibilities to FINRA to conduct 
certain options-related market surveillances.\26\ The Exchange will 
implement any additional surveillance procedures it deems necessary to 
effectively monitor the trading of IBIT options.
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    \26\ 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.
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    The proposed rule change is designed to allow investors seeking to 
trade options on IBIT to utilize FLEX IBIT options. The Exchange 
believes that offering innovative products flows to the benefit of the 
investing public. A robust and competitive market requires that 
exchanges respond to member's evolving needs by constantly improving 
their offerings. Such efforts would be stymied if exchanges were 
prohibited from offering innovative products such as the proposed FLEX 
IBIT options. The Exchange believes that introducing FLEX IBIT options 
would further broaden the base of investors that use FLEX Options (and 
options on IBIT in general) to manage their trading and investment 
risk, including investors that currently trade in the OTC market for 
customized options. The proposed rule change is also designed to 
encourage market makers to shift liquidity from the OTC market on the 
Exchange, which, it believes, will enhance the process of price 
discovery conducted on the Exchange through increased order flow.
    Finally, as discussed herein, the Exchange does not believe that 
this proposed rule change raises any unique regulatory concerns because 
the proposal to aggregate FLEX and non-FLEX IBIT options at the (most 
conservative) 25,000 contract position limit, which currently applies 
solely to non-FLEX IBIT options, should provide an adequate safeguard.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\27\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\28\ in particular, in that it is 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) \29\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. Specifically, the Exchange believes that 
introducing FLEX IBIT options will increase order flow to the Exchange, 
increase the variety of options products available for trading, and 
provide a valuable tool for investors to manage risk. The proposed rule 
change is designed to allow investors seeking to trade options on IBIT 
to utilize FLEX IBIT options.
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    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
    \29\ 15 U.S.C. 78(f)(b)(5).
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    The Exchange believes that the proposal to permit FLEX IBIT options 
would remove impediments to and perfect the mechanism of a free and 
open market. The Exchange believes that offering FLEX IBIT options will 
benefit investors by providing them with an additional, relatively 
lower cost investing tool to gain exposure to the price of bitcoin and 
provide a hedging vehicle to meet their investment needs in connection 
with a bitcoin-related product. Moreover, the proposal would broaden 
the base of investors that use FLEX Options to manage their trading and 
investment risk, including investors that currently trade in the OTC 
market for customized options. By trading a product in an exchange-
traded environment (that is currently being used in the OTC market), 
the Exchange would be able to compete more effectively with the OTC 
market. The Exchange believes the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that it would 
lead to the migration of options currently trading in the OTC market to 
trading to the Exchange. Also, any migration to the Exchange from the 
OTC market would result in increased market transparency and enhance 
the process of price discovery conducted on the Exchange through 
increased order flow. The Exchange also believes that offering FLEX 
IBIT options may open up the market for options on IBIT to more retail 
investors. Additionally, offering FLEX would serve two primary client 
types in the capital markets by permitting ETF and structured return 
issuers to more precisely tailor their settlement style and allow other 
investors to align their contract durations for calls and puts, as well 
as settlement-style.
    Additionally, the Exchange believes the proposed rule change is 
designed to remove impediments to and to perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest in that it should create 
greater trading and hedging opportunities and flexibility. The proposed 
rule change should also result in enhanced efficiency in initiating and 
closing out positions and heightened contra-party creditworthiness due 
to the role of OCC as issuer and guarantor of FLEX IBIT options. 
Further, the proposed rule change would result in increased competition 
by permitting the Exchange to offer products that are currently used in 
the OTC market.
    The Exchange does not believe that this proposed rule change raises 
any unique regulatory concerns because the proposal to aggregate FLEX 
and non-FLEX IBIT options at the (most conservative) 25,000 contract 
limit should provide an adequate safeguard. The purpose of position 
limits 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. The Exchange believes the 
proposal will benefit investors and public interest because the 
aggregated position limit for all options on IBIT (FLEX and non-FLEX) 
at 25,000 contracts, the lowest limit available in options, would 
address

[[Page 3270]]

concerns related to manipulation and protection of investors as this 
number is conservative for IBIT and therefore appropriate given its 
liquidity.
    The Exchange believes that offering innovative products flows to 
the benefit of the investing public. A robust and competitive market 
requires that exchanges respond to evolving needs in the market by 
constantly improving their offerings. Such efforts would be stymied if 
exchanges were prohibited from offering innovative products such as the 
proposed FLEX IBIT options. The Exchange does not believe that allowing 
FLEX IBIT options would render the marketplace for equity options more 
susceptible to manipulative practices.
    Finally, the Exchange represents that it has an adequate 
surveillance program in place to detect manipulative trading in FLEX 
IBIT options. Regarding the proposed FLEX IBIT options, the Exchange 
would use the same surveillance procedures currently utilized for FLEX 
Options listed on the Exchange (as well as for non-FLEX IBIT options). 
For surveillance purposes, the Exchange would have access to 
information regarding trading activity in IBIT (the underlying 
ETF).\30\ In light of surveillance measures related to both options and 
IBIT (the underlying ETF), 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 FLEX IBIT options.
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    \30\ See IBIT Approval Order, 89 FR 78947.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange does not believe that its proposed rule change will 
impose any burden on intra-market competition as all market 
participants would have the option of utilizing the FLEX IBIT options. 
The proposed rule change is designed to allow investors seeking option 
exposure to bitcoin to trade FLEX IBIT options. Moreover, the Exchange 
believes that the proposal to permit FLEX IBIT options would broaden 
the base of investors that use FLEX Options to manage their trading and 
investment risk, including investors that currently trade in the OTC 
market for customized options.
    The Exchange does not believe that its proposed rule change will 
impose any burden on intermarket competition as all market participants 
would have the option of utilizing the FLEX IBIT options. The Exchange 
notes that it operates in a highly competitive market in which market 
participants can readily direct order flow to competing venues. The 
proposed rule change would support that intermarket competition by 
allowing the Exchange to offer additional functionality to member 
organizations. The Exchange believes that the proposed FLEX IBIT 
options will increase the variety of options products available for 
trading in general and bitcoin-related products in particular and, as 
such, will provide a valuable tool for investors to manage risk.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-Phlx-2024-72 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-Phlx-2024-72. 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-Phlx-2024-72 and should be 
submitted on or before February 4, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-00531 Filed 1-13-25; 8:45 am]
BILLING CODE 8011-01-P
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