Notice2024-28102
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 402, Criteria for Underlying Securities 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”)
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
December 2, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 231 (Monday, December 2, 2024)</title>
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[Federal Register Volume 89, Number 231 (Monday, December 2, 2024)]
[Notices]
[Pages 95301-95308]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-28102]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101730; File No. SR-SAPPHIRE-2024-38]
Self-Regulatory Organizations; MIAX Sapphire, LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Exchange Rule 402, Criteria for Underlying Securities 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 25, 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, MIAX Sapphire, LLC (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 402, Criteria for
Underlying Securities. The text of the proposed rule change is
available on the Exchange's website at <a href="https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings">https://www.miaxglobal.com/markets/us-options/miax-sapphire/rule-filings</a>, at the Exchange'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,\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
[[Page 95302]]
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
Options and MIAX Pearl, 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).
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Current Exchange Rule 402(i)(4) provides that securities deemed
appropriate for options trading include shares or other securities
(``Exchange Traded Fund Shares'' or ``ETFs'') that represent certain
types of interests,\6\ including interests in certain specific trusts
that hold financial instruments, money market instruments, or precious
metals (which are deemed commodities).
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\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.
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The Bitcoin Funds are Bitcoin-backed commodity ETFs structured as
trusts. Similar to any ETFs currently deemed appropriate for options
trading under Exchange Rule 402(i), the investment objective of each
Bitcoin Fund is for its shares to reflect the performance of Bitcoin
(less the expenses of the trust's operations), offering investors an
opportunity to gain exposure to Bitcoin without the complexities of
Bitcoin delivery. As is the case for ETFs currently deemed appropriate
for options trading, a Bitcoin Fund's shares represent units of
fractional undivided beneficial interest in the trust, the assets of
which consist principally of Bitcoin and are designed to track Bitcoin
or the performance of the price of Bitcoin and offer access to the
Bitcoin market.\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).
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\7\ The trust may include minimal cash.
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The Exchange believes each Bitcoin Fund satisfies the Exchange's
initial listing standards for ETFs on which the Exchange may list
options. 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.
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\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.
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While not required by the Rules for purposes of options listings,
the Exchange believes each Bitcoin Fund satisfies the criteria and
guidelines set forth in Exchange Rule 402. Pursuant to Exchange Rule
402, a security (which includes ETFs) on which options may be listed
and traded on the Exchange must be duly registered (with the
Commission) and be an NMS stock (as defined in Rule 600 of Regulation
NMS under the Act, and be characterized by a substantial number of
outstanding shares that are widely held and actively traded.\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.
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\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'').
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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
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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
[[Page 95303]]
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.
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\11\ The Bitcoin Funds began trading on January 11, 2024.
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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 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).
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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
[[Page 95304]]
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).
Position and exercise limits for options on ETFs, including Bitcoin
Fund options, are determined pursuant to the Exchange's affiliate MIAX
Options Rules 307 and 309, respectively.
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. The Exchange
further notes that the Exchange's affiliate MIAX Options Rule 1502,
which governs margin requirements applicable to trading on the
Exchange, including options on ETFs, will also apply to the trading of
the Trust options. Notwithstanding the position limits in the
Exchange's affiliate MIAX Options Rule 307(d) and exercise limits in
the Exchange's affiliate MIAX Options Rule 309, the Exchange proposes
the position and exercise limits for the options on the Trust to be
25,000 contracts on the same side pursuant to proposed Supplementary
Material .01 to the Exchange's affiliate MIAX Options Rule 307 and
proposed Supplementary Material .01 to the Exchange's affiliate MIAX
Options 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 Bitcoin Fund options. 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.
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.\24\ The Exchange's staff will have access to
the surveillance programs conducted by its affiliate exchanges, MIAX
Options and MIAX Pearl 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 Options 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.\25\
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\24\ 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).
\25\ 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.
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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.\26\
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\26\ See Bitcoin ETP Order, 89 FR at 3010-11.
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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].'' \27\
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\27\ 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,\28\
[[Page 95305]]
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.
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\28\ 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'').
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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),\29\ 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.
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\29\ 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.
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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.\30\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \31\ 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) \32\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
\32\ Id.
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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,\33\
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.
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\33\ See Exchange Rule 402(i)(4).
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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
expirations, strike prices, minimum increments, position and exercise
limits (including as proposed in the filing submitted by Exchange's
affiliate, MIAX Options), and margin requirements, will govern the
listing and trading of options on the Bitcoin Funds.
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
[[Page 95306]]
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.\34\ The Exchange's staff will have
access to the surveillance programs conducted by its affiliate
exchanges, MIAX Options 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. 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 Options 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.\35\
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\34\ 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).
\35\ 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.
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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.\36\
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\36\ See Bitcoin ETP Order, 89 FR at 3010-11.
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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].'' \37\
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\37\ See Bitcoin ETP Order, 89 FR at 3010-11.
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In light of surveillance measures related to both options and
futures as well as the underlying Bitcoin Funds,\38\ 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.
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\38\ 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)).
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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,\39\ the iShares COMEX Gold Trust \40\ the
iShares Silver Trust,\41\ the ETFS Gold Trust,\42\ and the ETFS Silver
Trust.\43\
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\39\ 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).
\40\ 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).
\41\ Id.
\42\ 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).
\43\ 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.\44\
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\44\ 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
in the filing submitted by Exchange's affiliate, MIAX Options), and
margin requirements. Also, and as stated above, the Exchange already
lists options on other commodity ETFs structured as a trust.\45\
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.
---------------------------------------------------------------------------
\45\ See Exchange Rule 402(i)(4).
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The Exchange does not believe that the proposal to list to list and
trade options on the Trust 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
[[Page 95307]]
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 \46\ and Rule 19b-4(f)(6) thereunder.\47\
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 \48\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\49\
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\46\ 15 U.S.C. 78s(b)(3)(A)(iii).
\47\ 17 CFR 240.19b-4(f)(6).
\48\ 15 U.S.C. 78s(b)(3)(A)(iii).
\49\ 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) \50\ 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),\51\ 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
Fund and the ARK 21 Fund.\52\ 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.\53\
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\50\ 17 CFR 240.19b-4(f)(6).
\51\ 17 CFR 240.19b-4(f)(6)(iii).
\52\ 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).
\53\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the 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
<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#2d5f584148004e4240404843595e6d5e484e034a425b"><span class="__cf_email__" data-cfemail="582a2d343d753b3735353d362c2b182b3d3b763f372e">[email protected]</span></a>. Please include
file number SR-SAPPHIRE-2024-38 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-SAPPHIRE-2024-38. 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 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-SAPPHIRE-2024-38 and should
be submitted on or before December 23, 2024.
[[Page 95308]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\54\
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\54\ 17 CFR 200.30-3(a)(12), (59).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28102 Filed 11-29-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on December 2, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.