Notice2024-26532
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Options on the iShares Ethereum Trust
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 14, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 220 (Thursday, November 14, 2024)</title>
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[Federal Register Volume 89, Number 220 (Thursday, November 14, 2024)]
[Notices]
[Pages 90205-90208]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-26532]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101571; File No. SR-ISE-2024-35]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change To List and Trade Options on the iShares Ethereum Trust
November 8, 2024.
I. Introduction
On July 22, 2024, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or
``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to allow the listing and trading of options on iShares Ethereum
Trust (``Trust'').\3\ The proposed rule change was published for
comment in the Federal Register on August 12, 2024.\4\ The Commission
has received no comments regarding the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Commission approved proposals by several exchanges to
list and trade shares of trusts that hold Ether, including the
Trust. See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024).
\4\ See Securities Exchange Act Release No. 100661 (Aug. 6,
2024), 89 FR 65690 (``Notice'').
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On September 30, 2024, pursuant to Section 19(b)(2) of the Exchange
Act,\5\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ This order institutes proceedings under
Section 19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposed rule change.
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\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 1001154 (Sept. 24,
2024) 89 FR 79664 (designating November 10, 2024, as the date by
which the Commission shall either approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change).
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
As described more fully in the Notice,\8\ the Exchange proposes to
amend Options 4, Section 3(h)(iv), to add the Trust to the list of
Exchange-Traded Fund Shares (``Exchange-Traded Funds Shares'' or
``ETFs'') that are appropriate for options trading.\9\ The Exchange
states that the investment objective of the Trust is to reflect
generally the performance of the price of ether before payment of the
Trust's expenses and liabilities. The Exchange states that shares of
the Trust are intended to constitute a simple means of making an
investment similar to an investment in ether through the public
securities market rather than by acquiring, holding, and trading ether
directly on a peer-to-peer or other basis or via a digital asset
platform.\10\ The Exchange further states that shares of the Trust have
been designed to remove the obstacles represented by the complexities
and operational burdens involved in a direct investment in ether, while
at the same time having an intrinsic value that reflects, at any given
time, the investment exposure to the ether owned by the Trust at such
time, less the Trust's expenses and liabilities.\11\ The Exchange
states that although shares in the Trust are not the exact equivalent
of a direct investment in ether, they provide investors with an
alternative method of achieving investment exposure to ether through
the public securities market, which may be more familiar to them.\12\
The Exchange states that offering options on the Trust will benefit
investors by providing them with an additional, relatively lower cost
investing tool to gain exposure to spot ether as well as a hedging
vehicle to meet their investment needs in connection with ether
products and positions.\13\ In addition, the Exchange states that,
similar to other commodity ETFs in which options may be listed on ISE
(e.g. SPDR[supreg] Gold Trust, the iShares COMEX Gold Trust, the
iShares Silver Trust, or the ETFS Gold Trust), the proposed ETF is a
trust that essentially offers the same objectives and benefits to
investors.\14\
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\8\ See supra note 4.
\9\ See Notice, 89 FR at 65691. The Exchange states that the
Trust is not an investment company registered under the Investment
Company Act of 1940, as amended. See id.
\10\ See id.
\11\ See id.
\12\ See id.
\13\ See id.
\14\ See id. at 65691-2 and ISE Options 4, Section 3(h)(iv).
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The Exchange states that options on the Trust will trade in the
same manner as options on other ETFs on the Exchange, and that Exchange
rules that currently apply to the listing and trading of all options on
ETFs on the Exchange, including, for example, rules that govern listing
criteria, expirations, exercise prices, minimum increments, position
and exercise limits, margin requirements, customer accounts and trading
halt procedures, will apply to the listing and trading of options on
the
[[Page 90206]]
Trust.\15\ The Exchange states that these rules apply to options on the
various commodities ETFs deemed appropriate for options trading on the
Exchange pursuant to Options 4, Section 3(h)(iv).\16\ In addition, the
Exchange states that its initial listing standards for ETFs on which
options may be listed and traded on the Exchange will apply to the
Trust.\17\ The Exchange states that the initial listing standard set
forth in Options 4, Section 3(a) provides that an underlying security
must meet the following criteria: (1) the security must be registered
and be an ``NMS stock'' as defined in Rule 600 of Regulation NMS under
the Exchange Act; and (2) the security must be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.\18\ The Exchange further states that, pursuant to ISE
Options 4, Section 3, ETFs on which options may be listed and traded
must satisfy the listing standards set forth in Options 4, Section
3(h).\19\
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\15\ See Notice at 65692.
\16\ See id.
\17\ See id.
\18\ See id.
\19\ Specifically, the Trust must meet either: (1) the criteria
and guidelines for underlying securities set forth in Options 4,
Section 3(h), or (2) it must be available for creation or redemption
each business day from or through the issuing trust, investment
company, commodity pool or other entity in cash or in kind at a
price related to net asset value, and the issuer is obligated to
issue Exchange-Traded Fund Shares in a specified aggregate number
even if some or all of the investment assets and/or cash required to
be deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investment assets
has undertaken to deliver them 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 of
the Exchange-Traded Fund Shares, all as described in the Exchange-
Traded Fund Shares' prospectus, or the Exchange-Traded Fund Shares
must be based on international or global indexes, or portfolios that
include non-U.S. securities, and meet other criteria See id.
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The Exchange states that options on the Trust will also be subject
to the Exchange's continued listing standards for options on in Options
4, Section 4(g).\20\ The Exchange states that options approved for
trading pursuant to Options 4, Section 3(h) will not be deemed to meet
the requirements for continued approval, and the Exchange shall not
open for trading any additional series of option contracts of the class
covering such ETFs, if the ETFs are delisted from trading as provided
Options 4, Section 4(b)(5), or the ETFs are halted or suspended from
trading on their primary market.\21\ In addition, the Exchange states
that it will consider the suspension of opening transactions in any
series of options of the class covering ETFs in any of the following
circumstances:
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\20\ See Notice at 65692.
\21\ See id.
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(1) in the case of options covering Exchange-Traded Fund Shares
approved pursuant to Options 4, Section 3(h)(A)(i), in accordance with
the terms of subparagraphs (b)(1), (2), (3) and (4) of Options 4,
Section 4;
(2) in the case of options covering Fund Shares approved pursuant
to Options 4, Section 3(h)(A)(ii), following the initial twelve-month
period beginning upon the commencement of trading, there were fewer
than 50 record and/or beneficial holders of such Exchange-Traded Fund
Shares for 30 or more consecutive trading days;
(3) the value of the index or portfolio of securities or non-U.S.
currency, portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts, options on physical commodities and/or Financial Instruments
and Money Market Instruments on which the Exchange-Traded Fund Shares
are based is no longer calculated or available; or
(4) such other event occurs or condition exists that in the opinion
of the Exchange makes further dealing in such options on the Exchange
inadvisable.\22\
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\22\ See id.
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The Exchange states that options on the Trust will be physically
settled contracts with American-style exercise.\23\ As described more
fully in the Notice, the Exchange's rules governing the opening of
options series and the strike prices for ETF options will apply to the
proposed Trust options.\24\
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\23\ See id.
\24\ See id. at 65692-3.
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The Exchange states that position and exercise limits for options
on ETFs, including options on the Trust, will be determined pursuant to
Options 9, Sections 13 and 15, respectively.\25\ Position and exercise
limits for ETF options vary according to the number of outstanding
shares and the trading volumes of the underlying ETF over the past six
months, where the largest in capitalization and the most frequently
traded ETFs have an option position and exercise limit of 250,000
contracts (with adjustments for splits, re-capitalizations, etc.) on
the same side of the market; and smaller capitalization ETFs have
position and exercise limits of 200,000, 75,000, 50,000 or 25,000
contracts (with adjustments for splits, re-capitalizations, etc.) on
the same side of the market.\26\ The Exchange states that margin
requirements in Options 6C, Section 3 will apply to the trading of the
Trust options.\27\
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\25\ See id. at 65693.
\26\ See id.
\27\ See id.
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The Exchange represents that the same surveillance procedures
applicable to other options on other ETFs currently listed and traded
on the Exchange will apply to options on the Trust.\28\ In addition,
the Exchange represents that it has the necessary systems capacity to
support the new option series.\29\ The Exchange states 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 Trust
options.\30\ The Exchange states that it would implement any new
surveillance procedures it deemed necessary to effectively monitor the
trading of options on the Trust. In addition, the Exchange states that
it may obtain trading information via the Intermarket Surveillance
Group (``ISG'') from other exchanges who are members or affiliates of
the ISG.\31\
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\28\ See id.
\29\ See id.
\30\ See id.
\31\ See id.
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The Exchange states that it has analyzed its capacity and
represents that it believes that the Exchange and the Options Price
Reporting Authority 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 the Trust up to the number
of expirations currently permissible under the Exchange's rules.\32\
Because the proposal is limited to one class, the Exchange states that
any additional traffic that may be generated from the introduction of
the Trust options will be manageable.\33\
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\32\ See id.
\33\ See id.
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The Exchange states that the proposal is consistent with Section
6(b) of the Act, in general,\34\ and furthers the objectives of Section
6(b)(5) of the Act,\35\ in particular.\36\ The Exchange states that the
proposal will remove impediments to and perfect the mechanism of a free
and open market and a national market system and, in general, protect
investors because offering options on the Trust will provide investors
with a greater opportunity to realize the benefits of utilizing options
on an ETF based on spot ether, including cost efficiencies
[[Page 90207]]
and increased hedging strategies.\37\ The Exchange states that offering
options on a competitively priced ETF based on spot ether will benefit
investors by providing them with an additional, relatively lower cost
risk management tool allowing them to manage, more easily, their
positions, and associated risks, in their portfolios in connection with
exposure to spot ether.\38\ The Exchange states that it currently lists
options on other commodity ETFs structured as a trust, which
essentially offer the same objectives and benefits to investors, and
for which the Exchange has not identified any issues with the continued
listing and trading of options on those ETFs.\39\ In addition, the
Exchange states that the proposed options on the Trust will comply with
current Exchange rules, as described above.\40\ The Exchange states
that the Commission has previously approved the listing and trading of
options on other commodity ETFs structured as a trust, such as the
SPDR[supreg] Gold Trust, the iShares COMEX Gold Trust, the iShares
Silver Trust, the ETFS Gold Trust, and the ETFS Silver Trust.\41\
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\34\ 15 U.S.C. 78f(b).
\35\ 15 U.S.C. 78f(b)(5).
\36\ See Notice, 89 FR at 65693.
\37\ See id.
\38\ See id.
\39\ See id.
\40\ See id.
\41\ See id. at 65694.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-ISE-
2024-35 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \42\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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\42\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\43\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act,\44\ which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and protect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\43\ Id.
\44\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
self-regulatory organization that proposed the rule change.'' \45\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\46\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\47\ The Commission is instituting
proceedings to allow for additional consideration and comment on the
issues raised herein, including as to whether the proposal is
consistent with the Act. In particular, the Commission asks commenters
to address whether the proposal includes sufficient data and analysis
to support a conclusion that the proposal is consistent with the
requirements of Section 6(b)(5) of the Act.
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\45\ 17 CFR 201.700(b)(3).
\46\ See id.
\47\ See id.
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, and
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\48\
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\48\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by December 5, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 19, 2024.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0173746d642c626e6c6c646f7572417264622f666e77"><span class="__cf_email__" data-cfemail="c6b4b3aaa3eba5a9ababa3a8b2b586b5a3a5e8a1a9b0">[email protected]</span></a>. Please include
file number SR-ISE-2024-35 on the subject line.
Paper Comments
<bullet> 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-ISE-2024-35. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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
[[Page 90208]]
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-ISE-2024-35 and should be submitted on or before
December 5, 2024. Rebuttal comments should be submitted by December 19,
2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
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\49\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-26532 Filed 11-13-24; 8:45 am]
BILLING CODE 8011-01-P
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