Notice2024-28115
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 Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, and the Bitwise Bitcoin ETF
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 95328-95338]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-28115]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101745; File No. SR-SAPPHIRE-2024-37]
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 Grayscale Bitcoin Trust, the Grayscale Bitcoin
Mini Trust, and the Bitwise Bitcoin ETF
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 \3\ proposes to amend Exchange Rule 402, Criteria for
Underlying Securities, to allow the Exchange to list and trade options
on the following exchange-traded products: the Grayscale Bitcoin Trust
(BTC) (the ``Grayscale Fund'' or ``GBTC''), the Grayscale Bitcoin Mini
Trust BTC (the ``Grayscale Mini Fund'' or ``BTC''), and the Bitwise
Bitcoin ETF (the ``Bitwise Fund'' or ``BITB'' and, collectively, the
``Bitcoin Funds'' or ``Funds'').\4\ As noted above, MIAX's rules
governing position limits and exercise limits for options positions are
incorporated by reference into the MIAX Sapphire Rulebook and are
therefore MIAX Sapphire rules applicable to market participants on MIAX
Sapphire. MIAX is filing a substantively similar proposal to list and
trade options on the Bitcoin Funds. That filing includes proposed
change to Exchange Rules 307 (position limits) and 309 (exercise
limits), which changes will be incorporated by reference into the MIAX
Sapphire Rulebook.
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\3\ The Exchange notes that its affiliate options exchanges,
Miami International Securities Exchange, LLC (``MIAX'') and MIAX
PEARL, LLC (``MIAX Pearl''), plan to submit (or have already
submitted) substantively identical proposals to list and trade
options on the Bitcoin Funds. The Exchange notes that all the rules
of Chapter III of MIAX, including Exchange Rules 307 and 309, are
incorporated by reference to the MIAX Pearl and MIAX Sapphire
Rulebooks. The Exchange also notes that all of the rules of Chapter
III of MIAX, including Exchange Rules 307 and 309, and the rules of
Chapter IV of MIAX, including Exchange Rule 402, are incorporated by
reference into the Exchange's affiliate, MIAX Emerald, LLC (``MIAX
Emerald'').
\4\ On January 10, 2024, the Securities and Exchange Commission
(``Commission'') approved proposals by NYSE Arca, Inc., The Nasdaq
Stock Market LLC, and Cboe BZX Exchange, Inc. to list and trade the
shares of 11 bitcoin-based commodity-based trust shares and trust
units, including the iShares Bitcoin Trust. See Securities Exchange
Act Release No. 99306 (Jan. 10, 2024), 89 FR 3008 (Jan. 17, 2024)
(order approving File Nos. SR-NYSEARCA-2021-90; SR-NYSEARCA-2023-44;
SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-
CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-
CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072)
(``Bitcoin ETP Order'').
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The Exchange notes that this is a competitive filing based on a
similar proposal submitted by NYSE American LLC (``NYSE American''),
which was approved by the Commission.\5\ The Commission also recently
approved a rule proposal by Nasdaq ISE, LLC (``ISE'') to allow the
listing and trading of options on iShares Bitcoin Trust (or IBIT),
which is a trust that holds bitcoin (referred to herein as the ``ISE
IBIT Approval Order'').\6\ As discussed herein, the Exchange believes,
like the recently-approved options on IBIT, options on the Bitcoin
Funds would permit hedging, and allow for more liquidity, better price
efficiency, and less volatility with respect to the underlying Funds.
Further, permitting the listing of such options would enhance the
transparency and efficiency of markets in these and correlated
products.
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\5\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (Self-
Regulatory Organizations; NYSE American LLC; Notice of Filing of
Amendment No. 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 3, To Permit the
Listing and Trading of Options on Bitcoin Exchange-Traded Funds).
\6\ See Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1,
4, and 5, to Permit the Listing and Trading of Options on the
iShares Bitcoin Trust (``IBIT'') (``ISE IBIT Approval Order'').
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Current Exchange Rule 402(i)(4) provides that securities deemed
appropriate for options trading include shares or other securities
(``Exchange Traded Fund Shares'' or ``ETFs'') that represent certain
types of interests,\7\
[[Page 95329]]
including interests in certain specific trusts that hold financial
instruments, money market instruments, or precious metals (which are
deemed commodities).
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\7\ See Exchange Rule 402(i), which permits options trading on
ETFS that: (1) represent interests in registered investment
companies (or series thereof) organized as open-end management
investment companies, unit investment trusts or similar entities
that hold portfolios of securities and/or financial instruments
(``Funds''), including, but not limited to, stock index futures
contracts, options on futures, options on securities and indices,
equity caps, collars and floors, swap agreements, forward contracts,
repurchase agreements and reverse repurchase agreements (the
``Financial Instruments''), and money market instruments, including,
but not limited to, U.S. government securities and repurchase
agreements (the ``Money Market Instruments'') comprising or
otherwise based on or representing investments in broad-based
indexes or portfolios of securities and/or Financial Instruments and
Money Market Instruments (or that hold securities in one or more
other registered investment companies that themselves hold such
portfolios of securities and/or Financial Instruments and Money
Market Instruments); (2) represent interests in a trust or similar
entity that holds a specified non-U.S. currency or currencies
deposited with the trust which when aggregated in some specified
minimum number may be surrendered to the trust or similar entity by
the beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''); (3)
represent commodity pool interests principally engaged, directly or
indirectly, in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on commodity
futures contracts, swaps, forward contracts and/or options on
physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs''); (4) are issued by the are issued by the SPDR[supreg] Gold
Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, the
ETFS Silver Trust, the Aberdeen Standard Physical Gold Trust, the
ETFS Palladium Trust, the ETFS Platinum Trust, or the Sprott
Physical Gold Trust; or (5) represent an interest in a registered
investment company (``Investment Company'') organized as an open-end
management company or similar entity, that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies, which is issued in a specified aggregate minimum number in
return for a deposit of a specified portfolio of securities and/or a
cash amount with a value equal to the next determined net asset
value (``NAV''), and when aggregated in the same specified minimum
number, may be redeemed at a holder's request, which holder will be
paid a specified portfolio of securities and/or cash with a value
equal to the next determined NAV (``Managed Fund Share''); provided
that all of the conditions listed in subparagraphs (5)(i) and 5(ii)
are met.
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The Bitcoin Funds are Bitcoin-backed commodity ETFs structured as
trusts. Similar to any ETFs currently deemed appropriate for options
trading under Exchange Rule 402(i), the investment objective of each
Bitcoin Fund is for its shares to reflect the performance of Bitcoin
(less the expenses of the trust's operations), offering investors an
opportunity to gain exposure to Bitcoin without the complexities of
Bitcoin delivery. As is the case for ETFs currently deemed appropriate
for options trading, a Bitcoin Fund's shares represent units of
fractional undivided beneficial interest in the trust, the assets of
which consist principally of Bitcoin and are designed to track Bitcoin
or the performance of the price of Bitcoin and offer access to the
Bitcoin market.\8\ The Bitcoin Funds provide investors with cost-
efficient alternatives that allow a level of participation in the
Bitcoin market through the securities market. The primary substantive
difference between Bitcoin Funds and ETFs currently deemed appropriate
for options trading are that ETFs may hold securities, certain
financial instruments, and specified precious metals (which are deemed
commodities), while Bitcoin Funds hold Bitcoin (which is also deemed a
commodity).
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\8\ The trust may include minimal cash.
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The Exchange believes each Bitcoin Fund satisfies the Exchange's
initial listing standards for ETFs on which the Exchange may list
options.\9\ Specifically, each Bitcoin Fund satisfies the initial
listing standards set forth in Exchange Rule 402(i)(5)(i), as is the
case for other ETFs on which the Exchange lists options (including
trusts that hold commodities). Exchange Rule 402(i)(5)(i) requires that
the ETFs must either (1) meet the criteria and standards set forth in
Exchange Rule 402(a) or 402(b),\10\ or (2) be available for creation or
redemption each business day from or through the issuer in cash or in
kind at a price related to net asset value, and the issuer must be
obligated to issue units in a specified aggregate number even if some
or all of the investment assets required to be deposited have not been
received by the issuer, subject to the condition that the person
obligated to deposit the investments has undertaken to deliver the
investment assets as soon as possible and such undertaking is secured
by the delivery and maintenance of collateral consisting of cash or
cash equivalents satisfactory to the issuer, as provided in the
respective prospectus. Each Bitcoin Fund satisfies Exchange Rule
402(i)(5)(i)(B), as each is subject to this creation and redemption
process.
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\9\ Subparagraphs (a) and (b) of Exchange Rule 402 provide for
guidelines to be used by the Exchange when evaluating potential
underlying securities for Exchange option transactions.
\10\ See Exchange Rule 402(a)-(b).
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While not required by the Rules for purposes of options listings,
the Exchange believes each Bitcoin Fund satisfies the criteria and
guidelines set forth in Exchange Rule 402. Pursuant to Exchange Rule
402, a security (which includes ETFs) on which options may be listed
and traded on the Exchange must be duly registered (with the
Commission) and be an NMS stock (as defined in Rule 600 of Regulation
NMS under the Act, and be characterized by a substantial number of
outstanding shares that are widely held and actively traded.\11\ Each
Bitcoin Fund is an NMS Stock as defined in Rule 600 of Regulation NMS
under the Act.\12\ The Exchange believes each Bitcoin Fund is
characterized by a substantial number of outstanding shares that are
widely held and actively traded.
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\11\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Exchange Rule
402(b), subject to exceptions.
\12\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
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Pursuant to the data presented in the NYSE American filing,\13\ as
of August 30, 2024, the Bitcoin Funds had the following number of
shares outstanding (and corresponding market capitalization):
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\13\ See supra note 5.
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Shares Market value (8/
Bitcoin fund outstanding 30/2024)
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GBTC................................. 284,570,100 $13,443,091,524
BTC.................................. 366,950,100 1,930,157,526
BITB................................. 68,690,000 2,221,640,670
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As shown above, each Bitcoin Fund had significantly more than
7,000,000 shares outstanding (approximately 29 and 6.5 times that
amount, respectively), which is the minimum number of shares of a
corporate stock that the Exchange generally requires to list options on
that stock pursuant to Exchange Rule 402(b)(1). The Exchange believes
this demonstrates that each Bitcoin Fund is characterized by a
substantial number of outstanding shares.
Further, according to the NYSE American filing,\14\ the below table
[[Page 95330]]
contains information regarding the number of beneficial holders of the
Bitcoin Funds as of August 14, 2024:
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\14\ See supra note 5.
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Beneficial
Bitcoin fund holders (8/14/
24)
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GBTC.................................................... 464,364
BTC..................................................... 13,403
BITB.................................................... 75,437
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As this table shows, each Bitcoin Fund has significantly more than
2,000 beneficial holders (approximately 232, 7, and 38 time more,
respectively), which is the minimum number of holders the Exchange
generally requires for corporate stock in order to list options on that
stock pursuant to Exchange Rule 402(b)(2). Therefore, the Exchange
believes the shares of each Bitcoin Fund are widely held.
In addition, the Exchange believes the shares of each Bitcoin Fund
are actively traded. Further, according to the NYSE American
filing,\15\ as of September 30, 2024, the total trading volume (by
shares and notional) for these funds since they began trading \16\ and
the average daily volume (``ADV'') over the 30-day period of September
1 through September 30, 2024, was as follows: \17\
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\15\ See supra note 5.
\16\ As noted by NYSE American, GBTC and BITB began trading on
January 11th and BTC began trading on July 31st. Thus, the
measurement period for the trading volume (shares/notional) is
January 11 through September 20, 2024, for GBTC and BITB (i.e., nine
months) and July 31 through September 20, 2024, for BTC (i.e., two
months). See supra note 5.
\17\ See FactSet, 9/30/2024, available at <a href="https://www.factset.com/data-attribution">https://www.factset.com/data-attribution</a>.
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Trading volume Trading volume
Bitcoin fund (shares) (notional $) ADV (shares)
----------------------------------------------------------------------------------------------------------------
GBTC....................................................... 1,803,567,700 93,472,544,497 3,266,138
BTC........................................................ 335,492,930 1,792,866,521 6,838,546
BITB....................................................... 434,815,840 14,433,361,384 1,949,835
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As demonstrated above, even though these Bitcoin Funds have been
trading for less than one year, the trading volume for each is
substantially higher than 2,400,000 shares (between roughly 165 and 700
times that amount), which is the minimum 12-month volume the Exchange
generally requires for a security in order to list options on that
security as set forth in Exchange Rule 402(b). The Exchange believes
this data demonstrates each Bitcoin Fund is characterized by a
substantial number of outstanding shares that are actively traded.
In addition to satisfying the Exchange's initial listing standards,
options on the Bitcoin Funds will be subject to the Exchange's
continued listing standards as set forth in Exchange Rule 403(g).\18\
Pursuant to Exchange Rule 403(g), the Exchange will not open for
trading any additional series of option contracts covering a fund
traded on the Exchange if such fund ceases to be an ``NMS stock'' as
provided for Exchange Rule 402(b) or the fund is halted from trading on
its primary market.\19\ Additionally, options on funds traded on the
Exchange may be subject to the suspension of opening transactions as
follows: (1) the fund no longer meets the terms of Exchange Rule
403(b); (2) following the initial twelve-month period beginning upon
the commencement of trading of the fund, there are fewer than 50 record
and/or beneficial holders of the fund for 30 or more consecutive
trading days; (3) the value of the underlying commodity is no longer
calculated or available; or (4) such other event occurs or condition
exists that in the opinion of the Exchange makes further dealing on the
Exchange inadvisable.
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\18\ The Exchange proposes to amend Exchange Rule 402(i)(4) to
include the Bitcoin Funds in the list of ETPs deemed ``Exchange-
Traded Fund Shares''--of ETFs--for purposes of the continued listing
standards set forth in Exchange Rule 403(g). See proposed Exchange
Rule 402(i)(4). For avoidance of doubt, the Exchange refers
``funds'' rather than ``ETFs'' to make clear that the Bitcoin Funds
are subject to these continued listing standards.
\19\ See Exchange Rule 403(g).
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Options on each Bitcoin Fund will be physically settled contracts
with American-style exercise.\20\ Consistent with Exchange Rule 404,
which governs the opening of options series on a specific underlying
security (including ETFs and ETPs), the Exchange will open at least one
expiration month for options on each Bitcoin Fund \21\ at the
commencement of trading on the Exchange and may also list series of
options on Bitcoin Funds for trading on a weekly,\22\ monthly,\23\ or
quarterly \24\ basis. The Exchange may also list long-term equity
option series (``LEAPS'') that expire from twelve to thirty-nine months
from the time they are listed.\25\
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\20\ See Exchange Rule 401 (Rights and Obligations of Holders
and Writers), which provides that the rights and obligations of
holders and writers of option contracts of any class of options
dealt in on the Exchange shall be as set forth in the Rules of the
Options Clearing Corporation (``OCC''). See also OCC Rules, Chapter
VIII, which governs exercise and assignment, and Chapter IX, which
governs the discharge of delivery and payment obligations arising
out of the exercise of physically settled stock option contracts.
OCC Rules can be located at: <a href="https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf">https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf</a>.
\21\ See Exchange Rule 404. The monthly expirations are subject
to certain listing criteria for underlying securities described
within Exchange Rule 402. Monthly listings expire the third Friday
of the month. The term ``expiration date'' (unless separately
defined elsewhere in the OCC By-Laws), when used in respect of an
option contract (subject to certain exceptions), means the third
Friday of the expiration month of such option contract, or if such
Friday is a day on which the exchange on which such option is listed
is not open for business, the preceding day on which such exchange
is open for business. See OCC By-Laws Article I, Section 1. Pursuant
to Exchange Rule 404(c), additional series of options of the same
class may be opened for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand or when the market price of the underlying stock moves more
than five strike prices from the initial exercise price or prices.
Pursuant to Exchange Rule 404(e), new series of options on an
individual stock may be added until the beginning of the month in
which the options contract will expire. Due to unusual market
conditions, the Exchange, in its discretion, may add a new series of
options on an individual stock until the close of trading on the
business day prior to expiration.
\22\ See Exchange Rule 404, Interpretation and Policy .02.
\23\ See Exchange Rule 404, Interpretation and Policy .13.
\24\ See Exchange Rule 404, Interpretation and Policy .03.
\25\ See Exchange Rule 406.
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[[Page 95331]]
Pursuant to Exchange Rule 404(g), which governs strike prices of
series of options on ETFs, the interval between strike prices of series
of options on Bitcoin Funds will be $1 or greater when the strike price
is $200 or less and $5 or greater where the strike price is over
$200.\26\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\27\ the $0.50 Strike
Program,\28\ and the $2.50 Strike Price Program.\29\ Pursuant to
Exchange Rule 510, where the price of a series of a Bitcoin Fund option
is less than $3.00, the minimum increment will be $0.05, and where the
price is $3.00 or higher, the minimum increment will be $0.10.\30\ Any
and all new series of Bitcoin Fund options that the Exchange lists will
be consistent and comply with the expirations, strike prices, and
minimum increments set forth in Exchange Rules 404 and 510, as
applicable. Further, the Exchange notes that MIAX Chapter XV Rules
(Margin), which governs margin requirements applicable to the trading
of all options on the Exchange as that chapter of rules is incorporated
by reference into the MIAX Sapphire Rulebook, including options on ETFs
and ETPs, will also apply to the trading of Bitcoin Fund options.
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\26\ The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Monthly Options Series
Program, and the Quarterly Options Series Program, Exchange Rules
404, Interpretation and Policies .02, .03, and .13, specifically set
forth intervals between strike prices on Short Term Option Series,
Quarterly Options Series, and Monthly Options Series, respectively.
\27\ See Exchange Rule 404, Interpretation and Policy .01.
\28\ See Exchange Rule 404, Interpretation and Policy .04.
\29\ See Exchange Rule 404(f).
\30\ See Exchange Rule 510(a). If options on a Bitcoin Fund are
eligible to participate in the Penny Interval Program, the minimum
increment of $0.01 below $3.00 and $0.50 above $3.00 would apply.
See Exchange Rule 510(a)(3). See also Exchange Rule 510(c) (which
describes the requirements for the Penny Interval Program).
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Position and Exercise Limits
As mentioned above, the rules for position and exercise limits for
options, including options on Bitcoin Funds, are determined pursuant to
MIAX Rules 307 and 309, respectively, as incorporated by reference into
the MIAX Sapphire Rulebook. Position and exercise limits for options
vary according to the number of outstanding shares and the trading
volumes of the underlying security over the past six months, where the
largest in capitalization and the most frequently traded funds have an
option position and exercise limit of 250,000 contracts (with
adjustments for splits, re-capitalizations, etc.) on the same side of
the market; and smaller capitalization funds have position and exercise
limits of 200,000, 75,000, 50,000 or 25,000 contracts (with adjustments
for splits, re-capitalizations, etc.) on the same side of the
market.\31\
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\31\ See MIAX Rule 307. For an option to be eligible for the
50,000-contract limit, the security underlying the option must have
most recent six-month trading volume of at least 20,000,000 shares,
or most recent six-month trading volume of at least 15,000,000
shares and at least 40,000,000 shares currently outstanding. For an
option to be eligible for the 75,000-contract limit, the underlying
security must have most recent six-month trading volume of at least
40,000,000 shares, or most recent six-month trading volume of at
least 30,000,000 shares and at least 120,000,000 shares currently
outstanding. For an option to be eligible for the 200,000-contract
limit, the underlying security must have most recent six-month
trading volume of at least 80,000,000 shares, or most recent six-
month trading volume of at least 60,000,000 shares and at least
240,000,000 shares currently outstanding. For an option to be
eligible for the 250,000-contract limit, the security underlying the
option must have most recent six-month trading volume of at least
100,000,000 shares, or most recent six-month trading volume of at
least 75,000,000 shares and at least 300,000,000 shares currently
outstanding. The 25,000-contract limit applies to options on
underlying securities that do not qualify for a higher contract
limit. See MIAX Rule 307. In addition, Interpretation and Policy .01
to MIAX Rule 307 establishes higher position limits for options on
certain ETFs.
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Position limits are designed to limit the number of options
contracts traded on the Exchange in an underlying security that an
investor, acting alone or in concert with others directly or
indirectly, may control. The purpose of position limits, which are set
forth in MIAX Rule 307, is to address potential manipulative schemes
and adverse market impacts surrounding the use of options, such as
disrupting the market in the security underlying the options. As such,
position limits must balance concerns regarding mitigating potential
manipulation and the cost of inhibiting potential hedging activity that
investors may use for legitimate economic purposes. To achieve this
balance, the Exchange proposes to set the position and exercise limits
for the options on the Bitcoin Funds at 25,000 contracts, a limit which
has already been approved for IBIT at a competing exchange, an ETP that
(like the Bitcoin Funds) holds bitcoin.\32\ Capping the position limit
at 25,000 contracts, the lowest limit available in options, would
address concerns related to manipulation and protection of investors as
this number is conservative for the Bitcoin Funds and therefore
appropriate given their liquidity. While the Exchange believes that the
proposed 25,000-contract position limit is conservative for options on
the Bitcoin Funds, it nonetheless believes that, for the reasons set
forth below, evidence exists to support a much higher position
limit.\33\
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\32\ See Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1,
4, and 5, to Permit the Listing and Trading of Options on the
iShares Bitcoin Trust (``IBIT'') (``ISE IBIT Approval Order'').
\33\ The Exchange may file a subsequent rule change to amend the
position and exercise limit for options on any or all the Bitcoin
Funds based on additional data regarding trading activity, to
continue to balance any concerns regarding manipulation. A higher
position limit would allow institutional investors to utilize
options on the Bitcoin Funds for prudent risk management purposes.
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As shown in the table below, provided in the NYSE American
filing,\34\ GBTC, BITB and BTC would easily qualify for the 250,000-
contract position limit available to other ETFs and ETPs pursuant to
the criterion in MIAX Rule 307, which requires that, for the most
recent six-month period, trading volume for the underlying security be
at least 100,000,000 shares.\35\ As noted in the NYSE American filing,
BTC began trading on July 31, 2024, and therefore had only two months
of trading data available at the time of the NYSE American filing, as
shown below.\36\
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\34\ See supra note 5.
\35\ Per MIAX Rule 307, to qualify for the 250,000-contract
position limit for options, the underlying security must (i) have
trading volume of at least 100,000,000 shares during the most recent
six-month trading period; or (ii) have trading volume of at least
75,000,000 shares during the most recent six-month trading period
and have at least 300,000,000 shares currently outstanding.
\36\ See supra note 5. See FactSet, 9/30/2024, <a href="https://www.factset.com/data-attribution">https://www.factset.com/data-attribution</a>. For avoidance of doubt, the
Exchange notes that this chart depicts the most recent six months
(at the time the NYSE American filing was filed) of trading data by
shares for GBTC and BITB whereas the earlier chart (that depicts
volume by notional and shares) covered the first nine months of
trading. For BTC, both charts depict the same two-month trading
volume by shares.
------------------------------------------------------------------------
Bitcoin fund Total volume (9/30/2024)
------------------------------------------------------------------------
GBTC................................... 723,758,100 (6-months).
BTC.................................... 335,492,930 (2-months).
BITB................................... 263,965,870 (6-months).
------------------------------------------------------------------------
Thus, based on the most-recent trading volume, each Bitcoin Fund
exceeded the requisite minimum of 100,000,000 shares necessary to
qualify for the 250,000-contract position and exercise limits. By
comparison, other options symbols with six-month trading volume less
than GBTC, BITB, and BTC are eligible for position and exercise limits
of at least 250,000.\37\
---------------------------------------------------------------------------
\37\ See <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search">https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search</a> (including the following
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR,
SGOL).
---------------------------------------------------------------------------
[[Page 95332]]
With respect to the outstanding shares of each Bitcoin Fund, if a
market participant held the maximum number of contracts possible
pursuant to the proposed position and exercise limits (25,000
contracts), the equivalent shares represented by the proposed position/
exercise limit (2,500,000 shares) would represent the following
approximate percentage of current outstanding shares, according to the
data presented in the NYSE American filing: \38\
---------------------------------------------------------------------------
\38\ See supra note 5.
----------------------------------------------------------------------------------------------------------------
Proposed position/ Outstanding Percentage of
Bitcoin Fund exercise limits in shares (8/30/ outstanding
equivalent shares 24) shares
----------------------------------------------------------------------------------------------------------------
GBTC...................................................... 2,500,000 284,570,100 0.9
BTC....................................................... 2,500,000 366,950,100 0.7
BITB...................................................... 2,500,000 68,690,000 3.6
----------------------------------------------------------------------------------------------------------------
As this table demonstrates, if a market participant held the
maximum permissible options positions in one of the Bitcoin Fund
options and exercised all of them at the same time, that market
participant would control a small percentage of the outstanding shares
of the underlying Bitcoin Fund. For example, as noted above, a position
limit of 25,000 same side contracts effectively restricts a market
participant from holding positions that could result in the receipt of
no more than 2,500,000 shares of the applicable Bitcoin Fund (if that
market participant exercised all its options). Based on data presented
in the NYSE American filing regarding the number of shares outstanding
for each Bitcoin Fund as of August 30, 2024, the table below sets forth
the approximate number of market participants that could hold the
maximum of 25,000 same side positions in each Bitcoin Fund that would
equate to the number of shares outstanding of that Bitcoin Fund: \39\
---------------------------------------------------------------------------
\39\ See supra note 5.
------------------------------------------------------------------------
Number of market
Shares participants with
Bitcoin Fund outstanding 25,000 same side
positions
------------------------------------------------------------------------
GBTC............................... 284,570,100 114
BTC................................ 366,950,100 147
BITB............................... 68,690,000 27
------------------------------------------------------------------------
This means if 114 market participants had 25,000 same side
positions in options on GBTC, each of them would have to simultaneously
exercise all of those options to create a scenario that may put the
underlying security under stress. Similarly, this means if 147 market
participants had 25,000 same side positions in options on BTC, each of
them would have to simultaneously exercise all of those options to
create a scenario that may put the underlying security under stress.
Finally, this means if 27 market participants had 25,000 same side
positions in options on BITB, each of them would have to simultaneously
exercise all of those options to create a scenario that may put the
underlying security under stress. The Exchange believes it is highly
unlikely for this to occur; however, even if such event did occur, the
Exchange would not expect any of the Bitcoin Fund to be under stress
because such an event would merely induce the creation of more shares
through the trust's creation and redemption process.
Further, given that the issuer of each Bitcoin Fund may create and
redeem shares that represent an interest in Bitcoin, the Exchange
believes it is relevant to compare the size of a position limit to the
market capitalization of the Bitcoin market. As of August 30, 2024, the
global supply of Bitcoin was 19,747,066, and the price of one Bitcoin
was approximately $59,108.23, which equates to a market capitalization
of approximately $1.167 trillion.\40\ Consider the proposed position
and exercise limit of 25,000 option contracts for each Bitcoin Fund
option. A position and exercise limit of 25,000 same side contracts
effectively restricts a market participant from holding positions that
could result in the receipt of no more than 2,500,000 shares of GBTC,
BTC, or BITB, as applicable (if that market participant exercised all
its options). The following table from the NYSE American filing shows
the share price of each Bitcoin Fund on August 30, 2024, the value of
2,500,000 shares of the Bitcoin Fund at that price, and the approximate
percentage of that value of the size of the Bitcoin market: \41\
---------------------------------------------------------------------------
\40\ See <a href="https://www.blockchain.com/explorer/charts/total-bitcoins">https://www.blockchain.com/explorer/charts/total-bitcoins</a>.
\41\ See supra note 5.
----------------------------------------------------------------------------------------------------------------
Value of
Aug. 30th 2,500,000
Bitcoin Fund share price shares of Percentage of
($) Bitcoin Funds Bitcoin market
($)
----------------------------------------------------------------------------------------------------------------
GBTC............................................................ 46.75 116,875,000 0.010
BTC............................................................. 5.20 13,000,000 0.001
BITB............................................................ 31.95 79,875,000 0.007
----------------------------------------------------------------------------------------------------------------
Therefore, if a market participant with the maximum 25,000 same
side contracts in options on GBTC, BTC, or BITB exercised all positions
at one time, such an event would have no practical impact on the
Bitcoin market. As
[[Page 95333]]
described in the NYSE American filing, the below chart shows the market
capitalization of each Bitcoin Fund relative to the market
capitalization of the entire bitcoin market, as of August 30, 2024.\42\
---------------------------------------------------------------------------
\42\ See supra note 5.
----------------------------------------------------------------------------------------------------------------
Percentage of
Bitcoin/shares Market value (8/30/ Total bitcoin
outstanding 2024) market
----------------------------------------------------------------------------------------------------------------
Total Bitcoin Market................................ $19,747,066 $1,167,214,096,788 100.00
GBTC................................................ 284,570,100 13,443,091,524 1.15
BTC................................................. 366,950,100 1,930,157,526 0.17
BITB................................................ 68,690,000 2,221,640,670 0.19
----------------------------------------------------------------------------------------------------------------
As shown above, the Bitcoin Funds collectively represent
approximately 1.51% of the global supply of Bitcoin (19,747,066). Based
on the $46.75 price of a GBTC share on August 30, 2024, a market
participant could have redeemed one Bitcoin for approximately 1,264
GBTC shares. Another 24,967,146,455 GBTC shares could be created before
the supply of Bitcoin was exhausted. As a result, 9,987 market
participants would have to simultaneously exercise 25,000 same side
positions in GBTC options to receive shares of the GBTC holding the
entire global supply of Bitcoin. Similarly, based on the $5.20 price of
a BTC share on August 30, 2024, a market participant could have
redeemed one Bitcoin for approximately 11,367 BTC shares. Another
224,464,249,382 BTC shares could be created before the supply of
Bitcoin was exhausted. As a result, 89,786 market participants would
have to simultaneously exercise 25,000 same side positions in BTC
options to receive shares of BTC holding the entire global supply of
Bitcoin. Similarly, based on the $31.95 price of a BITB share on August
30, 2024, a market participant could have redeemed one Bitcoin for
approximately 1,850 BITB shares. Another 36,532,522,591 BITB shares
could be created before the supply of Bitcoin was exhausted. As a
result, 14,613 market participants would have to simultaneously
exercise 25,000 same side positions in BITB options to receive shares
of BITB holding the entire global supply of Bitcoin. Unlike the Bitcoin
Funds, the number of shares that corporations may issue is limited.
However, like corporations, which authorize additional shares,
repurchase shares, or split their shares, the Bitcoin Funds may create,
redeem, or split shares in response to demand. While the supply of
Bitcoin is limited to 21,000,000, it is believed that it will take more
than 100 years to fully mine the remaining Bitcoin.\43\ The supply of
Bitcoin is larger than the available supply of most securities.\44\
Given the significant unlikelihood of any of these events ever
occurring, the Exchange does not believe options on the Bitcoin Funds
should be subject to position and exercise limits even lower than those
proposed (which are already equal to the lowest available limit for
equity options in the industry) to protect the supply of Bitcoin.
---------------------------------------------------------------------------
\43\ See <a href="https://www.blockchain.com/explorer/assets/btc">https://www.blockchain.com/explorer/assets/btc</a> (citing
21 million as the ``total supply'' of bitcoin).
\44\ The market capitalization of Bitcoin would rank in the top
10 among securities. See <a href="https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/">https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/</a>.
---------------------------------------------------------------------------
The Exchange also believes the proposed limits are appropriate
given position limits for Bitcoin futures. For example, the Chicago
Mercantile Exchange (``CME'') imposes a position limit of 2,000 futures
(for the initial spot month) on its Bitcoin futures contract.\45\ On
August 28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. A
position of 2,000 CME Bitcoin futures, therefore, would have a notional
value of $589,500,000. The following table shows the share price of
each Bitcoin Fund on August 28, 2024, and the approximate number of
option contracts that equates to that notional value: \46\
---------------------------------------------------------------------------
\45\ See CME Rulebook Chapter 350 (description of CME Bitcoin
Futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME Bitcoin futures contract is valued at five Bitcoins as
defined by the CME CF Bitcoin Reference Rate (``BRR''). See CME Rule
35001.
\46\ See supra note 5.
------------------------------------------------------------------------
Aug. 28th Number of option
Bitcoin Fund share price contracts
------------------------------------------------------------------------
GBTC................................ 46.94 125,585
BTC................................. 5.23 1,127,151
BITB................................ 32.08 183,759
------------------------------------------------------------------------
The approximate number of option contracts for each Bitcoin Fund
that equate to the notional value of CME Bitcoin futures is
significantly higher than the proposed limit of 25,000 options contract
for each Bitcoin Fund option. The fact that many options ultimately
expire out-of-the-money and thus are not exercised for shares of the
underlying, while the delta of a Bitcoin Future is 1, further
demonstrates how conservative the proposed limits of 25,000 options
contracts are for the Bitcoin Fund options.
The Exchange notes, unlike options contracts, CME position limits
are calculated on a net futures-equivalent basis by contract and
include contracts that aggregate into one or more base contracts
according to an aggregation ratio(s).\47\ Therefore, if a portfolio
includes positions in options on futures, CME would aggregate those
positions into the underlying futures contracts in accordance with a
table published by CME on a delta equivalent value for the relevant
spot month, subsequent spot month, single month and all month position
limits.\48\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position
[[Page 95334]]
shall not constitute a position limit violation. Considering CME's
position limits on futures for Bitcoin, the Exchange believes that that
the proposed same side position limits are more than appropriate for
the Bitcoin Fund options.
---------------------------------------------------------------------------
\47\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\48\ Id.
---------------------------------------------------------------------------
The Exchange believes the available supply of Bitcoin is not
relevant to the determination of position and exercise limits for
options overlying the Bitcoin Funds.\49\ Position and exercise limits
are not a tool that should be used to address a potential limited
supply of the underlying of an underlying. Position and exercise limits
do not limit the total number of options that may be held, but rather
they limit the number of positions a single customer may hold or
exercise at one time.\50\ ``Since the inception of standardized options
trading, the options exchanges have had rules imposing limits on the
aggregate number of options contracts that a member or customer could
hold or exercise.'' \51\ Position and exercise limit rules are intended
``to prevent the establishment of options positions that can be used or
might create incentives to manipulate or disrupt the underlying market
so as to benefit the options position. In particular, position and
exercise limits are designed to minimize the potential for mini-
manipulations and for corners or squeezes of the underlying market. In
addition, such limits serve to reduce the possibility for disruption of
the options market itself, especially in illiquid options classes.''
\52\
---------------------------------------------------------------------------
\49\ The Exchange is unaware of any proposed rule change related
to position and exercise limits for any equity option (including
commodity ETF options) for which the Commission required
consideration of whether the available supply of an underlying
(whether it be a corporate stock or an ETF) or the contents of an
ETF (commodity or otherwise) should be considered when an exchange
proposed to establish those limits. See, e.g., Securities Exchange
Act Release No. 57894 May 30, 2008), 73 FR 32061 (June 5, 2008) (SR-
CBOE-2005-11) (approval order in which the Commission stated that
the ``listing and trading of Gold Trust Options will be subject to
the exchanges' rules pertaining to position and exercise limits and
margin''). The Exchange notes the position limits in Exchange Rule
307 are the same as when the Commission approved this filing. For
reference, the current position and exercise limits for options on
SPDR Gold Shares ETF (``GLD'') and options on iShares Silver Trust
(``SLV'') are 250,000 contracts, or 10 times that proposed position
and exercise limit for the Bitcoin Fund options.
\50\ For example, suppose an option has a position limit of
25,000 option contracts and there are a total of 10 investors
trading that option. If all 10 investors max out their positions,
that would result in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide to begin trading
that option and also max out their positions. This would result in
500,000 option contracts outstanding at that time. An increase in
the number of investors could cause an increase in outstanding
options even if position limits remain unchanged.
\51\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\52\ Id.
---------------------------------------------------------------------------
The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each Bitcoin Fund, each of which
described the supply of Bitcoin as being limited to 21,000,000 (of
which approximately 90% had already been mined), and that the limit
would be reached around the year 2140.\53\ Each Registration Statement
permits an unlimited number of shares of the applicable Bitcoin Fund to
be created. Further, the Commission approved proposed rule changes that
permitted the listing and trading of shares of each Bitcoin Fund, which
approval did not comment on the sufficient supply of Bitcoin or address
whether there was a risk that permitting an unlimited number of shares
for a Bitcoin Fund would impact the supply of Bitcoin.\54\ Therefore,
the Exchange believes the Commission had ample time and opportunity to
consider whether the supply of Bitcoin was sufficient to permit the
creation of unlimited Bitcoin Fund shares, and does not believe
considering this supply with respect to the establishment of position
and exercise limits is appropriate given its lack of relevance to the
purpose of position and exercise limits. However, given the significant
size of the Bitcoin supply, the proposed positions limits are more than
sufficient to protect investors and the market.
---------------------------------------------------------------------------
\53\ See, e.g., GBTC Form S-1 Registration Statement, at p. 17,
<a href="https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm">https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm</a>; BTC Form S-1 Registration Statement, at p. 21,
<a href="https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm">https://www.sec.gov/Archives/edgar/data/2015034/000119312524065444/d785023ds1.htm</a>; and BITB Amendment No 2. to S-1, at p. 47, <a href="https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm">https://www.sec.gov/Archives/edgar/data/1763415/000199937123000735/bitwise-s1a_120423.htm</a> (``Bitcoin Funds Reg. Stmts.'').
\54\ See Bitcoin ETP Approval Order.
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes the proposal to list
options on the Bitcoin Funds with positions and exercise limits of
25,000 on the same side, the lowest position limit available in the
options industry, is conservative and appropriate given the market
capitalization, average daily volume, and high number of outstanding
shares for each of the Bitcoin Funds. The proposed position and
exercise limits reasonably and appropriately balance the liquidity
provisioning in the market against the prevention of manipulation. The
Exchange believes these proposed limits are effectively designed to
prevent an individual customer or entity from establishing options
positions that could be used to manipulate the market of the underlying
Bitcoin Funds as well as the Bitcoin market.\55\
---------------------------------------------------------------------------
\55\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------
As described herein, options on the Bitcoin Funds will trade in the
same manner as any other ETF or ETP options on the Exchange. The
Exchange Rules that currently apply to the listing and trading of
options on the Exchange, including, for example, Rules that govern
listing criteria, expiration and exercise prices, minimum increments,
margin requirements, customer accounts and trading halt procedures will
apply to the listing and trading of Bitcoin Funds on the Exchange in
the same manner as they apply to all other ETFs and ETPs that are
listed and traded on the Exchange, including the precious metal-backed
commodity ETPs already deemed appropriate for options trading on the
Exchange pursuant to Exchange Rule 404. Further, as described above,
Exchange Rules regarding position and exercise limits will likewise
apply to options on the Bitcoin Funds except that, as proposed, the
position and exercise limits will be set at 25,000 on the same side.
* * * * *
The Exchange notes that options on Bitcoin Funds would not be
available for trading until The Options Clearing Corporation (``OCC'')
represents to the Exchange that it is fully able to clear and settle
such options. The Exchange has also analyzed its capacity and
represents that it and The Options Price Reporting Authority (``OPRA'')
have the necessary systems capacity to handle the additional traffic
associated with the listing of options on Bitcoin Funds. The Exchange
believes any additional traffic that would be generated from the
trading of options on Bitcoin Funds would be manageable. The Exchange
represents that Exchange Members \56\ will not have a capacity issue as
a result of this proposed rule change.
---------------------------------------------------------------------------
\56\ See Exchange Rule 100.
---------------------------------------------------------------------------
The Exchange represents that the same surveillance procedures \57\
applicable to all other options currently listed and traded on the
Exchange will apply to options on Bitcoin Funds, and that it has the
necessary systems capacity to support the new option series. The
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
[[Page 95335]]
precious metal-commodity backed ETP options as well as the proposed
options on Bitcoin Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Bitcoin Funds in all trading sessions and to deter and detect
violations of Exchange rules. The Exchange's staff will have access to
the surveillance programs conducted by its affiliate exchanges, MIAX
and MIAX Pearl, with respect to trading in the shares of the underlying
trust for each Fund when conducting surveillances for market abuse or
manipulation in the options on the Funds. Additionally, the Exchange is
a member of the Intermarket Surveillance Group (``ISG'') under the
Intermarket Surveillance Group Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition to obtaining
surveillance data from MIAX and MIAX Pearl, the Exchange will be able
to obtain information regarding trading in the shares of the underlying
Bitcoin Funds from NYSE American and other markets through ISG. In
addition, the Exchange has a Regulatory Services Agreement with the
Financial Industry Regulatory Authority (``FINRA''). Pursuant to a
multi-party 17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillances.\58\ Further, the Exchange will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on the Bitcoin Funds.
---------------------------------------------------------------------------
\57\ 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).
\58\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot bitcoin ETPs, including the Bitcoin
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in its order approving
proposals of several exchanges to list and trade shares of spot
bitcoin-based exchange-traded products (``Bitcoin ETP Order''):
Each Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that
is available to the CME through its surveillance of its markets,
including its surveillance of the CME bitcoin futures market.\59\
---------------------------------------------------------------------------
\59\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008, 3009 (January 17, 2024) (File Nos. SR-NYSEArca-
2021-90; SR-NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ2023-
016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038;
SR-CboeBZX2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; and
SR-CboeBZX-2023-072) (Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, to List
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust
Units).
The Exchange states that, given the consistently high correlation
between the CME bitcoin futures market and the spot bitcoin market, as
confirmed by the Commission through robust correlation analysis, the
Commission was able to conclude that such surveillance sharing
agreements could reasonably be ``expected to assist in surveilling for
fraudulent and manipulative acts and practices in the specific context
of the [Bitcoin ETPs].'' \60\
---------------------------------------------------------------------------
\60\ 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,\61\ 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.
---------------------------------------------------------------------------
\61\ See Amendment No. 2 to Proposed Rule Change to List and
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90),
filed Jan. 5, 2024, available at <a href="https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf">https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf</a>; Amendment No. 2
to Proposed Rule Change to List and Trade Shares of the Bitwise
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) (SR-NYSEARCA-2023- 44), filed Jan. 5, 2024, available at
<a href="https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf">https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf</a>; and Notice of Filing of Proposed Rule Change, as
Modified by Amendment No. 1, To List and Trade Shares of the
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E,
Commodity-Based Trust Shares, Securities Exchange Act Release No.
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
---------------------------------------------------------------------------
Finally, quotation and last sale information for ETFs is available
via the Consolidated Tape Association (``CTA'') high speed line.
Quotation and last sale information for such securities is also
available from the exchange on which such securities are listed.
Quotation and last sale information for options on Bitcoin Funds will
be available via OPRA and major market data vendors.
The Exchange believes that offering options on Bitcoin Funds will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Bitcoin and
hedging vehicle to meet their investment needs in connection with
Bitcoin-related products and positions. The Exchange expects investors
will transact in options on Bitcoin Funds in the unregulated over-the-
counter (``OTC'') options market,\62\ but may prefer to trade such
options in a listed environment to receive the benefits of trading
listed options, including (1) enhanced efficiency in initiating and
closing out position; (2) increased market transparency; and (3)
heightened contra-party creditworthiness due to the role of OCC as
issuer and guarantor of all listed options. The Exchange believes that
listing Bitcoin Fund options may cause investors to bring this
liquidity to the Exchange, would increase market transparency and
enhance the process of price discovery conducted on the Exchange
through increased order flow. The Exchange notes that the ETPs that
hold precious metal commodities on which the Exchange may already list
and trade options are trusts structured in substantially the same
manner as Bitcoin Funds and essentially offer the same objectives and
benefits to investors, just with respect to different assets. The
Exchange notes that it has not identified any issues with the continued
listing and trading of options on any ETFs or ETPs that hold
commodities (i.e., precious metals) that it currently lists and trades
on the Exchange.
---------------------------------------------------------------------------
\62\ The Exchange understands from customers that investors have
historically transacted in options on ETFs in the OTC options market
if such options were not available for trading in a listed
environment.
---------------------------------------------------------------------------
Finally, the Exchange notes that applicable Exchange rules will
require that customers receive appropriate disclosure before trading
options in Bitcoin Funds.\63\ Further, brokers opening accounts and
recommending options transactions must comply with relevant customer
suitability standards.\64\
---------------------------------------------------------------------------
\63\ See MIAX Rules 1307(b) and (e), which are incorporated by
reference into the MIAX Sapphire Rulebook.
\64\ See MIAX Rule 1309, which is incorporated by reference into
the MIAX Sapphire Rulebook.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposed rule change is consistent
with Section 6(b) of the Act \65\ in general and furthers the
objectives of Section 6(b)(5)
[[Page 95336]]
of the Act \66\ in particular, in that it is designed to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanisms of a free and open market and a national market system,
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\65\ 15 U.S.C. 78f(b).
\66\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on Bitcoin Funds will remove impediments to and perfect
the mechanism of a free and open market and a national market system
and, in general, protect investors because offering options on Bitcoin
Funds will provide investors with an opportunity to realize the
benefits of utilizing options on a Bitcoin Fund, including cost
efficiencies and increased hedging strategies.
The Exchange believes that offering Bitcoin Fund options will
benefit investors by providing them with a relatively lower-cost risk
management tool, which will allow them to manage their positions and
associated risk in their portfolios more easily in connection with
exposure to the price of Bitcoin and with Bitcoin-related products and
positions. Additionally, the Exchange's offering of Bitcoin Fund
options will provide investors with the ability to transact in such
options in a listed market environment as opposed to in the unregulated
OTC options market, which would increase market transparency and
enhance the process of price discovery conducted on the Exchange
through increased order flow to the benefit of all investors. The
Exchange also notes that it already lists options on other commodity-
based ETPs,\67\ which, as described above, are trusts structured in
substantially the same manner as Bitcoin Funds and essentially offer
the same objectives and benefits to investors, just with respect to a
different commodity (i.e., Bitcoin rather than precious metals) and for
which the Exchange has not identified any issues with the continued
listing and trading of commodity-backed ETP options it currently lists
for trading.
---------------------------------------------------------------------------
\67\ See Exchange Rule 402(i)(4).
---------------------------------------------------------------------------
The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules previously filed with the Commission. Options on Bitcoin
Funds satisfy the initial listing standards and continued listing
standards currently in the Exchange Rules applicable to options on all
ETFs and ETPs, including ETPs that hold other commodities already
deemed appropriate for options trading on the Exchange. Additionally,
as demonstrated above and in the NYSE American filing,\68\ each Bitcoin
Fund is characterized by a substantial number of shares that are widely
held and actively traded. Bitcoin Fund options will trade in the same
manner as any other ETF or ETP options--the same Exchange Rules that
currently govern the listing and trading of options, including
permissible expirations, strike prices, minimum increments, and margin
requirements, will govern the listing and trading of options on Bitcoin
Funds in the same manner.
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\68\ See supra note 5.
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The proposed position and exercise limit for options on the Bitcoin
Funds is 25,000 contracts. These position and exercise limits are the
lowest position and exercise limits available in the options industry,
are extremely conservative and more than appropriate given the Bitcoin
Funds' market capitalization, average daily volume, number of
beneficial holders, and high number of outstanding shares.\69\ The
proposed position and exercise limits are consistent with the Act as
they addresses concerns related to manipulation and protection of
investors because the position and exercise limits are extremely
conservative and more than appropriate given the Bitcoin Funds are
actively traded.
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\69\ The Exchange notes that IBIT--which has been approved for
options trading--represents a larger percentage of the bitcoin
market than all three Bitcoin Funds. See ISE IBIT Approval Order,
supra note 6. As noted herein, the Bitcoin Funds collectively
represent approximately 1.51% of the bitcoin market. By comparison,
IBIT options have an approved position limit of 25,000 contracts per
side, which represents 4% of total underlying spot BTC liquidity,
and IBIT is the most liquid spot Bitcoin ETF. See id.
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The Exchange represents that it has the necessary systems capacity
to support the new Bitcoin Fund options. The Exchange believes that its
existing surveillance and reporting safeguards are designed to deter
and detect possible manipulative behavior which might arise from
listing and trading options, including Bitcoin Fund options. The
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal-commodity backed ETP options as well as the proposed
options on Bitcoin Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Bitcoin Funds in all trading sessions and to deter and detect
violations of Exchange rules. Specifically, the Exchange's market
surveillance staff will have access to the surveillances conducted by
its affiliates, MIAX and MIAX Pearl, with respect to the Bitcoin Funds
and would review activity in the underlying Funds when conducting
surveillances for market abuse or manipulation in the options on the
Trust. Additionally, the Exchange is a member of the ISG under the
Intermarket Surveillance Group Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition, the Exchange has a
Regulatory Services Agreement with the FINRA and, as noted herein,
pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate regulatory responsibilities to FINRA to conduct certain
options-related market surveillances. Further, the Exchange will
implement any new surveillance procedures it deems necessary to
effectively monitor the trading of options on the Bitcoin Funds.
The underlying shares of spot bitcoin ETPs, including the Bitcoin
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in its order approving
proposals of several exchanges to list and trade shares of spot
bitcoin-based ETPs, ``[e]ach Exchange has a comprehensive surveillance-
sharing agreement with the CME via their common membership in the
Intermarket Surveillance Group. This facilitates the sharing of
information that is available to the CME through its surveillance of
its markets, including its surveillance of the CME bitcoin futures
market.\70\ 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
[[Page 95337]]
[Bitcoin ETPs].'' \71\ In light of surveillance measures related to
both options and futures as well as the underlying Bitcoin Funds,\72\
the Exchange believes that existing surveillance procedures are
designed to deter and detect possible manipulative behavior which might
potentially arise from listing and trading the proposed options on the
Bitcoin Funds. Further, the Exchange will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on Bitcoin ETPs.
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\70\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008, 3009 (January 17, 2024) (File Nos. SR-NYSEArca-
2021-90; SR-NYSEArca-2023-44; SR-NYSEArca-2023-58; SR-NASDAQ2023-
016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038;
SR-CboeBZX2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; and
SR-CboeBZX-2023-072) (Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, to List
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust
Units).
\71\ See Bitcoin ETP Order, 89 FR at 3010-11.
\72\ See Amendment No. 2 to Proposed Rule Change to List and
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90),
filed Jan. 5, 2024, available at <a href="https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf">https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf</a>; Amendment No. 2
to Proposed Rule Change to List and Trade Shares of the Bitwise
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 2024, available at
<a href="https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf">https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf</a>; and Notice of Filing of Proposed Rule Change, as
Modified by Amendment No. 1, To List and Trade Shares of the
Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E,
Commodity-Based Trust Shares, Securities Exchange Act Release No.
100290 (June 6, 2024), 89 FR 49931 (June 12, 2024) (SR-NYSEARCA-
2024-45).
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Finally, the Exchange notes that this proposal will remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, protect investors because
applicable Exchange rules will require that customers receive
appropriate disclosure before trading options in Bitcoin Funds \73\ and
will require that brokers opening accounts and recommending options
transactions comply with relevant customer suitability standards.\74\
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\73\ See MIAX Rules 1307(b) and (e).
\74\ See MIAX Rule 1309.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intramarket Competition: The Exchange does not believe that the
proposed rule change will impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act as Bitcoin Funds would need to satisfy the initial listing
standards set forth in the Exchange Rules in the same manner as any
other ETF before the Exchange could list options on them. Additionally,
Bitcoin Fund options will be equally available to all market
participants who wish to trade such options. The Exchange Rules
currently applicable to the listing and trading of options on ETFs on
the Exchange will apply in the same manner to the listing and trading
of all options on Bitcoin Funds. Also, and as stated above, the
Exchange already lists options on other commodity-based ETPs.\75\
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\75\ See Exchange Rule 402(i).
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Intermarket Competition: The Exchange does not believe that the
proposal to list and trade options on Bitcoin Funds will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the extent that the
advent of Bitcoin Fund options trading on the Exchange may make the
Exchange a more attractive marketplace to market participants at other
exchanges, such market participants are free to elect to become market
participants on the Exchange. As noted herein, this is a competitive
filing as the Commission recently approved the listing and trading of
options on the Bitcoin Funds,\76\ as well as another ETP that, like the
Bitcoin Funds, holds bitcoin.\77\ Additionally, other options exchanges
are free to amend their listing rules, as applicable, to permit them to
list and trade options on Bitcoin Funds. The Exchange notes that
listing and trading Bitcoin Fund options on the Exchange will subject
such options to transparent exchange-based rules as well as price
discovery and liquidity, as opposed to alternatively trading such
options in the OTC market. 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.
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\76\ See supra note 5.
\77\ See ISE IBIT Approval Order, supra note 6.
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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 \78\ and Rule 19b-4(f)(6) thereunder.\79\
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 \80\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\81\
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\78\ 15 U.S.C. 78s(b)(3)(A)(iii).
\79\ 17 CFR 240.19b-4(f)(6).
\80\ 15 U.S.C. 78s(b)(3)(A)(iii).
\81\ 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) \82\ 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),\83\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative immediately upon filing. The
Commission previously approved the listing of options on the Grayscale
Bitcoin Trust, the Grayscale Bitcoin Mini Trust, and the Bitwise
Bitcoin ETF.\84\ 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
[[Page 95338]]
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.\85\
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\82\ 17 CFR 240.19b-4(f)(6).
\83\ 17 CFR 240.19b-4(f)(6)(iii).
\84\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (Notice
of Filing of Amendment No. 3 and Order Granting Accelerated Approval
of a Proposed Rule Change, as Modified by Amendment No. 3, To Permit
the Listing and Trading of Options on Bitcoin Exchange-Traded
Funds).
\85\ 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#94e6e1f8f1b9f7fbf9f9f1fae0e7d4e7f1f7baf3fbe2"><span class="__cf_email__" data-cfemail="245651484109474b4949414a5057645741470a434b52">[email protected]</span></a>. Please include
file number SR-SAPPHIRE-2024-37 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-2024-37. 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-2024-37 and should
be submitted on or before December 23, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\86\
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\86\ 17 CFR 200.30-3(a)(12), (59).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-28115 Filed 11-29-24; 8:45 am]
BILLING CODE 8011-01-P
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