Notice2025-02943
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules Regarding the Position and Exercise Limits for Options on the Grayscale Bitcoin Mini Trust BTC and the Bitwise Bitcoin ETF and To Permit Flexible Exchange Options on the Grayscale Bitcoin Mini Trust BTC 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
February 24, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 35 (Monday, February 24, 2025)</title>
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[Federal Register Volume 90, Number 35 (Monday, February 24, 2025)]
[Notices]
[Pages 10518-10524]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-02943]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102441; File No. SR-NYSEARCA-2025-10]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules
Regarding the Position and Exercise Limits for Options on the Grayscale
Bitcoin Mini Trust BTC and the Bitwise Bitcoin ETF and To Permit
Flexible Exchange Options on the Grayscale Bitcoin Mini Trust BTC and
the Bitwise Bitcoin ETF
February 18, 2025.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on February 3, 2025, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. On February 14, 2025, the Exchange filed Amendment No. 1
to the proposed rule change. The Commission is publishing this notice
to solicit comments on the proposed rule change, as amended, from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 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 certain rules in order to increase
the position and exercise limits for options on the Grayscale Bitcoin
Mini Trust BTC and the Bitwise Bitcoin ETF, and to permit Flexible
Exchange (``FLEX'') Options on such funds. The proposed rule change is
available on the Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries,
[[Page 10519]]
set forth in sections A, B, and C below, of the most significant parts
of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend certain rules in order to increase
the position and exercise limits for options on the Grayscale Bitcoin
Mini Trust BTC (``BTC'') and the Bitwise Bitcoin ETF (``BITB'') (each a
``Fund'' and, collectively, the ``Funds''), and to permit options on
the Funds to trade as FLEX Equity Options (``FLEX Fund options'') as
described herein. Specifically, the Exchange proposes to (1) amend
Commentary .06(f) to Rule 6.8-O (Position Limits) to increase the
position limits for Fund options from 25,000 contracts to 250,000
contracts, and (2) amend Rules 5.32-O(f)(1) (Terms of FLEX) and 5.36-
O(b) (Position Limits) to permit FLEX trading of Fund options and, for
each Fund, to aggregate FLEX positions with non-FLEX positions on the
same underlying Fund.\4\
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\4\ The Exchange notes that it recently submitted a
substantively identical filing to increase the aggregated position
and exercise limits for, and to permit FLEX trading of options on,
the Grayscale Bitcoin Trust (BTC) (``GBTC''), which filing is
pending with the Commission. See SR-NYSEARCA-2025-07, filed Jan. 29,
2025. Like the Funds, GBTC is currently subject to a 25,000-contract
position and exercise limit and is not eligible for FLEX trading.
See Rules 6.8-O, Commentary .06(f); and 5.32-O(f)(1).
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The Exchange notes that this proposal is competitive. Nasdaq ISE,
LLC (``ISE'') recently filed a substantively identical proposal to
increase the position and exercise limits for options on the iShares
Bitcoin Trust ETF (``IBIT'') from 25,000 to 250,000 contracts and
permit trading of FLEX options on IBIT.\5\
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\5\ See Securities Exchange Act Release No. 102065 (December 31,
2024) 90 FR 704 (January 6, 2025) (SR-ISE-2024-62) (notice of
proposal to modify Options 9, Sections 13 and 15, to increase the
IBIT options position and exercise limits from 25,000 to 250,000
contracts) (the ``IBIT Proposal''). Although the IBIT Proposal
focuses on position limits, ISE proposes to modify its rules in
Options 3A, FLEX Options Trading Rules, Section 18, to aggregate
``position limits on FLEX Equity Options for [IBIT]'' with non-FLEX
IBIT options. See id.
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Background
Each Fund is an ETF that holds bitcoin and is listed on the
Exchange.\6\ On October 18, 2024, the Commission approved the listing
and trading of Fund options on NYSE American, LLC (``NYSE
American'').\7\ On November 22, 2024, the Exchange obtained rule
authority to trade options on BTC and BITB.\8\ For each Fund, the
position and exercise limits are 25,000 contracts, as set forth in Rule
6.8-O, Commentary .06(f), the lowest available limit.\9\
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\6\ NYSE Arca received approval to list and trade Bitcoin-Based
Commodity-Based Trust Shares in BTC and BITB pursuant to NYSE Arca
Rule 8.201-E(c)(1). See Securities Exchange Act Release Nos. 100610
(July 26, 2024) (order approving listing and trading of Commodity-
Based Trust Shares of BTC, among other ETFs), 89 FR 62821 (August 1,
2024) (SR-NYSEARCA-2023-45); 99306 (January 10, 2024), 89 FR 3008
(January 17, 2024) (order approving listing and trading of
Commodity-Based Trust Shares of BITB, among other ETFs) (SR-
NYSEARCA-2021-90).
\7\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (order
approving rules to permit the listing and trading of options on BTC
and BITB, among others) (the ``Fund Options Approval Order'').
\8\ See Securities Exchange Act Release No. 101713 (November 22,
2024), 89 FR 94839 (November 29, 2024) (SR-NYSEARCA-2024-101)
(notice of immediately effective rule change to permit BTC and BITB
options trading, based on the already-approved NYSE American rules)
(the ``Arca Fund Options Notice'').
\9\ See also Rule 6.9-O (Exercise Limits). Pursuant to Rule 6.8-
O, Commentary .06(f), the following ETFs are also subject to a
25,000-contract position and exercise limit: IBIT, Fidelity Wise
Origin Bitcoin Fund (``FBTC''), and ARK 21Shares Bitcoin (``ARKB'').
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FLEX Equity Options are not generally subject to position or
exercise limits.\10\ Today, pursuant to Rule 5.32-O(f)(1), Fund options
are not approved for FLEX trading.\11\ Therefore, the 25,000-contract
limit applicable to each Fund currently applies solely to non-FLEX Fund
options.
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\10\ See Rule 5.35-O(b) (subject to the exceptions enumerated in
the rule ``there shall be no position limits'' for FLEX Equity
Options).
\11\ Pursuant to Rule 5.32-O(f)(1), FLEX trading is also not
available for options on IBIT, FBTC, and ARKB.
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Per the Commission, ``rules regarding position and exercise limits
are intended to prevent the establishment of options positions that can
be used or might create incentives to manipulate or disrupt the
underlying market so as to benefit the options positions.'' \12\ For
this reason, the Commission requires that ``position and exercise
limits must be sufficient to prevent investors from disrupting the
market for the underlying security by acquiring and exercising a number
of options contracts disproportionate to the deliverable supply and
average trading volume of the underlying security.'' \13\ Based on its
review of the data and analysis provided by NYSE American, the
Commission concluded that the proposed 25,000-contract position limit
for options on BTC and BITB satisfied these objectives.\14\ The
Exchange adopted the already-approved 25,000-contract limit for BTC and
BITB options.\15\
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\12\ See Fund Options Approval Order, 89 FR at 84971.
\13\ See id.
\14\ See id.
\15\ See Arca Fund Options Notice, 89 FR at 94842. See also Rule
6.8-O, Commentary .06(f).
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For the reasons discussed below, the Exchange proposes to increase
the position (and exercise) limits for BTC and BITB from 25,000 to
250,000 contracts; to allow FLEX trading of options on each Fund; and
to aggregate non-FLEX and FLEX positions in the same underlying Fund
for purposes of calculating the proposed 250,000-contract limit.\16\
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\16\ See proposed Rules 6.8-O, Commentary .06(f) (removing the
25,000 contract position limit currently applicable to options on
BTC and BITB); Rule 5.32-O(f)(1) (excluding BTC and BITB options
from prohibition against FLEX trading); and 5.35-O(b)(iii) (adopting
requirement that, for each Fund, FLEX and non-FLEX positions on the
same underlying Fund be aggregated for purposes of calculating
position and exercise limits as set forth in Rules 6.8-O and 6.9-O).
Absent the current limit of 25,000 contracts, the position limit for
options on BTC and BITB will be determined pursuant to Rule 6.8-O,
Commentary .06(a)-(e). As discussed herein, based on the most recent
trading data for BTC and BITB, each Fund currently qualifies for
position (and exercise) limits of 250,000 contracts per Rule 6.8-O,
Commentary .06(e)(i).
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Increased Position Limits
While NYSE American proposed an aggregated 25,000 contract position
limit for options on BTC and BITB, it nonetheless believed that
evidence existed to support a much higher position limit.\17\
Specifically, in approving the NYSE American proposal for options on
each Fund, the Commission considered and reviewed NYSE American's
analysis that the exercisable risk associated with a position limit of
25,000 contracts represented only 0.7% and 3.6% of the outstanding
shares of BTC and BITB, respectively.\18\ The Commission also
considered and reviewed NYSE American's arguments that with a 25,000-
contract limit for each Fund: (i) the 366,950,100 BTC shares
outstanding, meant that 147 market participants would have to
simultaneously exercise their same-side positions to place BTC under
stress; and (ii) the 68,690,000 BITB shares outstanding, meant that 27
market participants would have to simultaneously exercise their same-
side
[[Page 10520]]
positions to place BITB under stress.\19\ Based on the Commission's
review of this information and analysis, the Commission concluded that
the 25,000-contract position limit for BTC and BITB would address
concerns related to manipulation and investor protection and deemed
this limit conservative and therefore appropriate given the liquidity
of each Fund.\20\
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\17\ See Fund Options Approval Order, 89 FR, at 84970 (referring
to NYSE American's argument that, as of Sept. 30, 2024, BTC traded
335,492,930 shares and BITB traded 263,965,870 shares in the most
recent six months of trading, which would qualify each Fund for a
250,000-contract position limit per NYSE American Rule 904,
Commentary .07(a), which is identical to Arca Rule 6.8-O Commentary
.06(e)). The Exchange notes that, as of September 30, 2024, BTC had
been trading for only two months. See id.
\18\ See id. Data represents figures from FactSet as of August
30, 2024.
\19\ Id., 89 FR, at 84971.
\20\ Id.
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Now that options on BTC and BITB have been trading for more than
two months, the Exchange proposes to increase the aggregated position
and exercise limits for each Fund to 250,000 contracts. BTC and BITB
currently qualify for this increased limit pursuant to Rule 6.8-O
Commentary .06(e), which requires that, for the most recent six-month
period, trading volume for the underlying security is at least
100,000,000 shares.\21\ As of November 25, 2024, during the most recent
six-month period, trading volume for BTC was 163,712,700 shares. During
the same period, trading volume for BITB was 288,800,860 shares. In
addition, as of November 25, 2024, the market capitalization for BTC
was $3,496,748,882 \22\ with an average daily volume (``ADV'') for the
preceding three months of 2,036,369 shares, and the market
capitalization of BITB was 4,095,157,000 \23\ with an ADV for the three
prior months of 2,480.478. Also, as of November 25, 2024, there were
19,787,762 bitcoins in circulation.\24\ At a price of $94,830 per
bitcoin,\25\ that equates to a market capitalization of greater than
$1.876 trillion. If a position limit of 250,000 contracts were
considered for each Fund, the exercisable risk would represent 30.14
%\26\ of BTC shares outstanding; and 31.27 %\27\ of BITB shares
outstanding. Given the liquidity of BTC and BITB, the current 25,000
position limit appears extremely conservative.
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\21\ See Rule 6.8-O Commentary .06(e) (providing at subparagraph
(e) that the position limit shall be 250,000 contracts for options:
(i) on underlying stock or Exchange-Traded Fund Share that had
trading volume of at least 100,000,000 shares during the most recent
six-month trading period; or (ii) on an underlying stock or
Exchange-Traded Fund Share that had trading volume of at least
75,000,000 shares during the most recent six-month trading period
and has at least 300,000,000 shares currently outstanding).
\22\ The market capitalization of BTC was determined by
multiplying a settlement price ($42.16) by the number of shares
outstanding (82,939,964). Data represents figures from FactSet as of
November 25, 2024.
\23\ The market capitalization of BITB was determined by
multiplying a settlement price ($51.70) by the number of shares
outstanding (79,950,100). Data represents figures from FactSet as of
November 25, 2024.
\24\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\25\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\26\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/82,939,964 BTC shares
outstanding).
\27\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/79,950,100 BITB shares
outstanding).
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As noted above, position and exercise limits are designed to limit
the number of options contracts traded on an exchange in an underlying
security that an investor, acting alone or in concert with others
directly or indirectly, may control. These limits, as described in
Rules 6.8-O and 6.9-O, are intended to address potential manipulative
schemes and adverse market impact surrounding the use of options, such
as disrupting the market in the security underlying the options.
Position and exercise limits must balance concerns regarding mitigating
potential manipulation and the cost of inhibiting potential hedging
activity that could be used for legitimate economic purposes. To
achieve this balance, the Exchange proposes to increase the position
and exercise limits for options on BTC and BITB from 25,000 contracts
to 250,000 contracts and to apply this aggregated limit to FLEX and
non-FLEX options in the same underlying Fund. The Exchange believes
this proposed aggregated limit for options on each Fund is appropriate
for the reasons set forth below.
First, the Exchange reviewed the Funds' data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables. As noted above, as of November 25,
2024, there were 19,787,762 bitcoins in circulation.\28\ At a price of
$94,830 per bitcoin,\29\ that equates to a market capitalization of
greater than $1.876 trillion. If the proposed aggregated position limit
of 250,000 contracts were considered, the exercisable risk would
represent 30.14% of BTC shares outstanding \30\ and 31.27% of BITB
shares outstanding.\31\ Since each Fund has a creation and redemption
process managed through the issuer (whereby bitcoin is used to create
BTC or BITB shares, as applicable), the position limit can be compared
to the total market capitalization of the entire bitcoin market, and in
that case, the exercisable risk for options on each Fund would
represent less than 0.06% (BTC) or 0.07% (BITB) of all bitcoin
outstanding.\32\ Assuming a scenario where all options on BTC or BITB
shares were exercised, given the proposed 250,000-contract position and
exercise limit, this would have a virtually unnoticed impact on the
entire bitcoin market. This analysis demonstrates that the proposed
250,000 per same side position and exercise limit for options on BTC
and BITB is appropriate given the high levels of liquidity of each
Fund.
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\28\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\29\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\30\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/82,939,964 BTC shares
outstanding).
\31\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/79,950,100 BITB shares
outstanding).
\32\ For BTC, this number was arrived at with this calculation:
((250,000 limit * 100 shares per option * $42.16 settle)/(19,787,762
bitcoin outstanding * $94,830 bitcoin price)); and for BITB, this
number was arrived at with this calculation: ((250,000 limit * 100
shares per option * $51.70 settle)/(19,787,762 bitcoin outstanding *
$94,830 bitcoin price)).
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Next, the Exchange reviewed the proposed position limit by
comparing it to position limits for derivative products regulated by
the Commodity Futures Trading Commission (``CFTC[hairsp]''). While the
CFTC, through the relevant Designated Contract Markets, only regulates
options positions based upon delta equivalents (creating a less
stringent standard), the Exchange examined equivalent bitcoin futures
position limits. In particular, the Exchange looked to the CME bitcoin
futures contract \33\ that has a position limit of 8,000 futures. On
October 22, 2024, CME bitcoin futures settled at $94,945.\34\ On
October 22, 2024, BTC settled at $29.90, which would equate to greater
than 31,754,180 shares of BTC if the CME notional position limit was
utilized. As of the same date, BITB settled at $36.74, which would
equate to greater than 25,842,406 shares of BITB if the CME notional
position limit was utilized.\35\ Since substantial portions of any
distributed options portfolio is likely to be out of the money on
expiration, an options position limit equivalent to the CME position
limit for bitcoin futures (considering that all options deltas are
<=1.00) should be a bit higher than the CME implied 175,578 limit. Of
note, 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
[[Page 10521]]
an aggregation ratio(s).\36\ 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.\37\ 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 shall not constitute a position limit
violation. Based on this analysis, the Exchange believes that the
proposed 250,000-contract position and exercise limit for options on
each Fund is appropriate.
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\33\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\34\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
\35\ 2,000 futures at a 5-bitcoin multiplier (per the contract
specifications) equates to $949,450,000 (2000 contracts * 5 bitcoin
per contract * $94,945 price of November bitcoin future) of notional
value.
\36\ See <a href="https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm">https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm</a>.
\37\ Id.
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Finally, the Exchange analyzed a position and exercise limit of
250,000 for BTC and BITB against other options on commodity ETFs,
namely SPDR Gold Shares (``GLD'') and iShares Silver Trust
(``SLV'').\38\ GLD has a float of 306.1 million shares \39\ and a
position limit of 250,000 contract. SLV has a float of 520.7 million
shares \40\ and a position limit of 250,000 contracts. As previously
noted, position and exercise 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. A position limit exercise in GLD would
represent 8.17% of the float of GLD; and a position limit exercise in
SLV would represent 4.8% of the float of SLV. In comparison, a 250,000-
contract position limit would represent 30.14% of the BTC float and
31.27% of the BITB float. The proposed 250,000 position and exercise
limit for options on each Fund is comparable with the standard applied
to GLD and SLV and is therefore appropriate. The Exchange believes that
the trading data for BTC and BITB has demonstrated that each Fund has
more than sufficient liquidity to garner an increased position and
exercise limit of 250,000 contracts. The Exchange believes that the
significant liquidity present in each Fund mitigates against the
potential for manipulation.
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\38\ Like BTC and BITB, GLD and SLV each hold one asset in
trust.
\39\ See <a href="https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld">https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld</a>.
\40\ See <a href="https://www.ishares.com/us/products/239855/ishares-silver-trust-fund">https://www.ishares.com/us/products/239855/ishares-silver-trust-fund</a>.
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The Exchange believes that increasing the position and exercise
limits, as proposed, would lead to a more liquid and competitive market
environment for Fund options, which will benefit customers that trade
these options. Further, the reporting requirement for such options
would remain unchanged. Thus, the Exchange will still require that each
member that maintains same-side positions in Fund options, for its own
account or for the account of a customer, report certain information to
the Exchange. This information includes, but would not be limited to,
the options positions, whether such positions are hedged and, if so, a
description of the hedge(s). Market Makers would continue to be exempt
from this reporting requirement, however, the Exchange may access
Market Maker position information.\41\ Moreover, the Exchange's
requirement that members file reports with the Exchange for any
customer who held aggregate large long- or short-positions on the same
side of the market of 200 or more option contracts of any single class
for the previous day will remain at this level.\42\
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\41\ The Options Clearing Corporation (``OCC'') through the
Large option Position Reporting (``LOPR'') system acts as a
centralized service provider for OTP Holder compliance with position
reporting requirements by collecting data from each OTP Holder or
OTP Firm, consolidating the information, and ultimately providing
detailed listings of each TPH's report to the Exchange, as well as
Financial Industry Regulatory Authority, Inc. (``FINRA''), acting as
its agent pursuant to a regulatory services agreement (``RSA'').
\42\ See Rule 6.6-O. Reporting of Options Positions.
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The Exchange anticipates that trading volume in Fund options will
increase as opportunities for investors to participate in the options
markets increase and evolve. The Exchange believes that the current
position and exercise limits in Fund options are restrictive and will
hamper the listed options markets from being able to compete fairly and
effectively with the over-the-counter (``OTC'') markets. OTC
transactions occur through bilateral agreements, the terms of which are
not publicly disclosed to the marketplace. As such, OTC transactions do
not contribute to the price discovery process on a public exchange or
other lit markets. The Exchange believes that without the proposed
changes to position and exercise limits for options on BTC and BITB,
market participants will find the 25,000-contract position limit an
impediment to their business and investment objectives as well as an
impediment to efficient pricing. As a result, market participants may
find the less transparent OTC markets a more attractive alternative to
achieve their investment and hedging objectives, leading to a retreat
from the listed options markets, where trades are subject to reporting
requirements and daily surveillance.
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are capable of properly
identifying disruptive and/or manipulative trading activity. The
Exchange also represents that it has adequate surveillances in place to
detect potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. These
procedures monitor market activity to identify unusual activity in both
options and the underlying equities.
FLEX Fund Options
The Exchange also proposes to permit BTC and BITB to trade as
``FLEX Fund options,'' which would be subject to aggregated position
and exercise limits of 250,000 contracts on all such options--both FLEX
and non-FLEX Fund options. This proposed aggregated limit effectively
restricts a market participant from holding positions that could result
in the receipt of more than 25,000,000 shares (if that market
participant exercised all its options on the same underlying Fund).
The share creation and redemption process available to each Fund is
designed to ensure that an ETF's price closely tracks the value of its
underlying asset. For example, if a market participant exercised a long
call position for 25,000 contracts and purchased 2,500,000 shares of
BTC and this purchase resulted in the value of BTC shares to trade at a
premium to the value of the (underlying) bitcoin held by BTC, the
Exchange believes that other market participants would attempt to
arbitrage this price difference by selling short BTC shares while
concurrently purchasing bitcoin. Those market participants
(arbitrageurs) would then deliver cash to BTC and receive shares of
BTC, which would be used to close out any previously established short
position in BTC. Thus, this creation and redemptions process would
significantly reduce the potential risk of price dislocation between
the value of BTC shares and the value of bitcoin holdings.
The Exchange understands that FLEX Options on ETFs are currently
traded in the OTC market by a variety of market participants, e.g.,
hedge funds,
[[Page 10522]]
proprietary trading firms, and pension funds, to name a few. The
Exchange believes there is room for significant growth if a comparable
product were introduced for trading on a regulated market. The Exchange
expects that users of these OTC products would be among the primary
users of FLEX options on BTC and BITB. The Exchange also believes that
the trading of such FLEX Fund options would allow these same market
participants to better manage the risk associated with the volatility
of BTC or BITB (the underlying ETF) positions given the enhanced
liquidity that an exchange-traded product would bring.
Additionally, the Exchange believes that FLEX Fund options traded
on the Exchange would have three important advantages over the
contracts that are traded in the OTC market. First, because of greater
standardization of contract terms, exchange-traded contracts should
develop more liquidity. Second, counter-party credit risk would be
mitigated by the fact that the contracts are issued and guaranteed by
OCC. Finally, the price discovery and dissemination provided by the
Exchange and its members would lead to more transparent markets. The
Exchange believes that its ability to offer FLEX Fund options would aid
it in competing with the OTC market and at the same time expand the
universe of products available to interested market participants. The
Exchange believes that an exchange-traded alternative may provide a
useful risk management and trading vehicle for market participants and
their customers.
The Exchange has analyzed its capacity and represents that it and
The Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle the additional traffic associated with the
listing of FLEX Fund options. The Exchange believes any additional
traffic that would be generated from the trading of FLEX Fund options
would be manageable. The Exchange believes OTP Holders will not have a
capacity issue as a result of this proposed rule change. The Exchange
also represents that it does not believe this proposed rule change will
cause fragmentation of liquidity. The Exchange will monitor the trading
volume associated with the additional options series listed as a result
of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.
The Exchange represents that the same surveillance procedures
applicable to the Exchange's other options products listed and traded
on the Exchange, including non-FLEX Fund options, will apply to FLEX
Fund options, and that it has the necessary systems capacity to support
such options. FLEX options products (and their respective symbols) are
integrated into the Exchange's existing surveillance system
architecture and are thus subject to the relevant surveillance
processes. The Exchange's market surveillance staff (including staff of
FINRA who perform surveillance and investigative work on behalf of the
Exchange pursuant to a regulatory services agreement) conducts
surveillances with respect to BTC and BITB (the underlying ETFs) and,
as appropriate, would review activity in BTC and BITB when conducting
surveillances for market abuse or manipulation in the FLEX options on
each Fund.\43\ The Exchange does not believe that allowing FLEX Fund
options would render the marketplace for non-FLEX Fund options, or
equity options in general, more susceptible to manipulative practices.
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\43\ See supra note 8, Fund Options Approval Order, 89 FR at
84966-68 (regarding surveillance procedures applicable to BTC, BITB,
and other funds that hold bitcoin).
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The Exchange represents that its existing trading surveillances are
adequate to monitor the trading in BTC and BITB and subsequent trading
of the proposed FLEX Fund options on the Exchange. Additionally, the
Exchange is a member of the Intermarket Surveillance Group (``ISG'')
under the Intermarket Surveillance Group Agreement. ISG members work
together to coordinate surveillance and investigative information
sharing in the stock, options, and futures markets. For surveillance
purposes, the Exchange would therefore have access to information
regarding trading activity in the pertinent underlying securities. In
addition, as referenced above, the Exchange has a regulatory services
agreement with FINRA, pursuant to which FINRA conducts certain
surveillances on behalf of the Exchange. Further, pursuant to a multi-
party 17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillances.\44\ The Exchange will implement any additional
surveillance procedures it deems necessary to effectively monitor the
trading of options on BTC and BITB.
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\44\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
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The proposed rule change is designed to allow investors seeking to
trade options on each Fund to utilize FLEX Fund options. The Exchange
believes that offering innovative products flows to the benefit of the
investing public. A robust and competitive market requires that
exchanges respond to member's evolving needs by constantly improving
their offerings. Such efforts would be stymied if exchanges were
prohibited from offering innovative products such as the proposed FLEX
Fund options. The Exchange believes that introducing FLEX Fund options
would further broaden the base of investors that use FLEX Options (and
options on BTC or BITB, in general) to manage their trading and
investment risk, including investors that currently trade in the OTC
market for customized options. The proposed rule change is also
designed to encourage Market Makers to shift liquidity from the OTC
market on the Exchange, which, it believes, will enhance the process of
price discovery conducted on the Exchange through increased order flow.
Implementation
The Exchange will announce the implementation date by Trader Update
within sixty (60) days of rule approval.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\45\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\46\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, 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.
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\45\ 15 U.S.C. 78f(b).
\46\ 15 U.S.C. 78f(b)(5).
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Increased Position Limits
The Exchange believes increasing the aggregated position and
exercise limits for BTC and BITB options from 25,000 contracts to
250,000 contracts will remove impediments to and perfect the
[[Page 10523]]
mechanism of a free and open market and a national market system, and,
in general, protect investors and the public interest, because it will
provide market participants with the ability to more effectively
execute their trading and hedging activities. Also, increasing the
aggregated position and exercise limits for Fund options may allow
Market Makers to maintain their liquidity in these options in amounts
commensurate with the continued demand in such options. The proposed
higher position and exercise limit may also encourage other liquidity
providers to continue to trade on the Exchange rather than shift their
volume to OTC markets, which will enhance the process of price
discovery conducted on the Exchange through increased order flow. The
Exchange notes that a higher position and exercise limit would further
allow institutional investors to utilize options on BTC and BITB for
prudent risk management purposes.
The Exchange analyzed several data points that supported the
appropriateness of the proposed aggregated 250,000-contract position
and exercise limit on Fund options. As noted above, a comparison of
each Fund's market capitalization to the bitcoin market in terms of
exercise risk and availability of deliverables revealed that the
exercisable risk of the proposed 250,000-contract limit represented
30.14% of BTC shares outstanding \47\ and 31.27% of BITB shares
outstanding.\48\ Further, since each Fund has a creation and redemption
process managed through the issuer (whereby bitcoin is used to create
BTC or BITB shares, as applicable), the proposed position limit as
compared to the market capitalization of the bitcoin market, indicated
that the exercisable risk for options on each Fund represented less
than 0.06% (BTC) or 0.07% (BITB) of all bitcoin outstanding. Moreover,
for each Fund, a comparison of the proposed position limit to the
(actual) position limits for equivalent bitcoin futures revealed that
the proposed 250,000-contract limit for Fund options is appropriate.
Finally, the Exchange's comparison of the proposed position limit
against current position limits on commodity-based ETFs, namely GLD and
SLV, revealed a position and exercise limit in GLD represents 8.17% of
its float and a position and exercise limit in SLV represents 4.8% of
its float. By comparison, a 250,000-contract position and contact limit
in options on each Fund would represent 30.14% of the BTC float and
31.27% of the BITB float. As noted above, although, the proposed
250,000-contract limit on BTC and BITB options is not as conservative
as the standard applied to GLD and SLV, it is comparable and is
therefore appropriate.
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\47\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/82,939,964 BTC shares
outstanding).
\48\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/79,950,100 BITB shares
outstanding).
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FLEX Fund Options
The Exchange believes that the proposal to permit FLEX options on
BTC and BITB would remove impediments to and perfect the mechanism of a
free and open market. The Exchange believes that offering such FLEX
Fund options will benefit investors by providing them with an
additional, relatively lower cost investing tool to gain exposure to
the price of bitcoin and provide a hedging vehicle to meet their
investment needs in connection with a bitcoin-related product.
Moreover, the proposal would broaden the base of investors that use
FLEX Options to manage their trading and investment risk, including
investors that currently trade in the OTC market for customized
options. By trading a product in an exchange-traded environment (that
is currently being used in the OTC market), the Exchange would be able
to compete more effectively with the OTC market. The Exchange believes
the proposed rule change is designed to prevent fraudulent and
manipulative acts and practices in that it would lead to the migration
of options currently trading in the OTC market to trading to the
Exchange. Also, any migration to the Exchange from the OTC market would
result in increased market transparency and enhance the process of
price discovery conducted on the Exchange through increased order flow.
The Exchange also believes that offering the proposed FLEX Fund options
may open up the market for options on these Funds to more retail
investors.
Additionally, the Exchange believes the proposed rule change is
designed to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest because FLEX Fund options are
designed to create greater trading and hedging opportunities and
flexibility. The proposed rule change should also result in enhanced
efficiency in initiating and closing out positions and heightened
contra-party creditworthiness due to the role of OCC as issuer and
guarantor of FLEX Fund options. Further, the proposed rule change would
result in increased competition by permitting the Exchange to offer
products that are currently used in the OTC market.
The Exchange believes that offering innovative products flows to
the benefit of the investing public. A robust and competitive market
requires that exchanges respond to member's evolving needs by
constantly improving their offerings. Such efforts would be stymied if
exchanges were prohibited from offering innovative products such as the
proposed FLEX Fund options. The Exchange does not believe that allowing
FLEX Fund options would render the marketplace for equity options more
susceptible to manipulative practices.
Finally, the Exchange represents that it has an adequate
surveillance program in place to detect manipulative trading in FLEX
Fund options. Regarding the proposed FLEX Fund options, the Exchange
would use the same surveillance procedures currently utilized for FLEX
Options listed on the Exchange (as well as for non-FLEX Fund options).
For surveillance purposes, the Exchange would have access to
information regarding trading activity in BTC and BITB (the underlying
ETF).\49\ In light of surveillance measures related to options trading
on each Fund and to trading of shares of BTC and BITB (the underlying
ETFs), the Exchange believes that existing surveillance procedures are
designed to deter and detect possible manipulative behavior which might
potentially arise from listing and trading the proposed FLEX Fund
options.
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\49\ See supra note 8, Fund Options Approval Order, 89 FR at
84966-68 (regarding surveillance procedures applicable to BTC, BITB,
and other funds that hold bitcoin).
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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.
Increased Position Limits. The Exchange believes that its proposal
to increase the aggregated position limit for options on BTC and BITB
will not burden intra-market competition because the increased limit
would be available to all similarly-situated market participants and
would provide additional opportunities for market participants to
continue to efficiently achieve their investment and trading objectives
for equity options on the Exchange. The proposed rule change will not
impose any burden on inter-market competition as the proposal is not
competitive in nature. The Exchange expects that all option exchanges
will
[[Page 10524]]
adopt substantively similar proposals to increase position and exercise
limits for options on each Fund, such that the Exchange's proposal
would benefit competition. For these reasons, the Exchange does not
believe that the proposed rule change will impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.
FLEX Fund Options. The Exchange believes that the proposal to
permit FLEX Fund options will not impose any burden on intra-market
competition as all market participants can opt to utilize this product
or not. The proposed rule change is designed to allow investors seeking
option exposure to bitcoin to trade FLEX Fund options. Moreover, the
Exchange believes that the proposal to permit FLEX Fund options would
broaden the base of investors that use FLEX Options to manage their
trading and investment risk, including investors that currently trade
in the OTC market for customized options. The Exchange believes that
the proposed FLEX Fund options will not impose any burden on inter-
market competition but will instead encourage competition by increasing
the variety of options products available for trading on the Exchange,
which products will provide a valuable tool for investors to manage
risk. Should this proposal be approved, competing options exchanges
will be free to offer products like the proposed FLEX Fund options.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#ea989f868fc7898587878f849e99aa998f89c48d859c"><span class="__cf_email__" data-cfemail="ccbeb9a0a9e1afa3a1a1a9a2b8bf8cbfa9afe2aba3ba">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2025-10 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-NYSEARCA-2025-10. 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-NYSEARCA-2025-10 and should
be submitted on or before March 17, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02943 Filed 2-21-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 24, 2025.
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.