Notice2025-06347
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Permit the Listing and Trading of Options on Shares of the Fidelity Ethereum Fund
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 15, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 71 (Tuesday, April 15, 2025)</title>
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[Federal Register Volume 90, Number 71 (Tuesday, April 15, 2025)]
[Notices]
[Pages 15746-15757]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-06347]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102797; File No. SR-CBOE-2024-036]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Permit the
Listing and Trading of Options on Shares of the Fidelity Ethereum Fund
April 9, 2025.
On August 19, 2024, Cboe Exchange, Inc. (``Cboe Options'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to allow the listing and trading
of options on Units \3\ that represent interests in the Fidelity
Ethereum Fund (the ``Fidelity Fund''), the 21Shares Core Ethereum ETF,
the Invesco Galaxy Ethereum ETF, the Franklin Ethereum ETF, the VanEck
Ethereum Trust, the Grayscale Ethereum Trust, the Grayscale Mini
Ethereum Trust, the Bitwise Ethereum ETF, and the iShares Ethereum
Trust ETF.\4\ The proposed rule change was published for comment in the
Federal Register on September 4, 2024.\5\ On October 11, 2024, pursuant
to Section 19(b)(2) of the Act,\6\ the Commission designated a longer
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\7\ On November 14, 2024, the
Commission instituted proceedings pursuant to Section 19(b)(2)(B) of
the Act \8\ to determine whether to approve or disapprove the proposed
rule change.\9\ The Commission received comments regarding the
proposal.\10\ On January 21, 2025, the Exchange filed Amendment No. 1
to the proposal, which supersedes and replaces the original proposal in
its entirety.\11\ The Commission is publishing this notice to solicit
comments on Amendment No. 1 from interested persons and is approving
the proposed rule change, as modified by Amendment No. 1, on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Cboe Rule 1.1 defines a ``Unit'' (which may also be referred
to as an exchange-traded fund (``ETF'')) as a share or other
security traded on a national securities exchange and defined as an
NMS stock as set forth in Rule 4.3.
\4\ The Commission approved proposals by several exchanges to
list and trade shares of trusts that hold ether, including the
Fidelity Fund. See Securities Exchange Act Release Nos. 100224 (May
23, 2024), 89 FR 46937 (May 30, 2024) (``Ether ETP Order''); and
100541 (July 17, 2024), 89 FR 59786 (July 23, 2024). Ether is a
digital asset that is native to, and minted and transferred via, a
distributed, open-source protocol used by a peer-to-peer computer
network through which transactions are recorded on a public
transaction ledger known as ``Ethereum.'' The Ethereum protocol
governs the creation of new ether and the cryptographic system that
secures and verifies transactions on Ethereum. See Ether ETP Order,
89 FR at footnote 13. Item II of this order, which provides notice
of Amendment No. 1, uses the terms ``ether'' and ``Ethereum'' as
they are used in Amendment No. 1.
\5\ See Securities Exchange Act Release No. 100862 (Aug. 28,
2024), 89 FR 72146.
\6\ 15 U.S.C. 78s(b)(2).
\7\ See Securities Exchange Act Release No. 101321 (Oct. 11,
2024), 89 FR 83723 (Oct. 17, 2024).
\8\ 15 U.S.C. 78s(b)(2)(B).
\9\ See Securities Exchange Act Release No. 101631, 89 FR 91811
(Nov. 20, 2024) (``Order Instituting Proceedings'').
\10\ Comments on the proposal are available at: <a href="https://www.sec.gov/comments/sr-cboe-2024-036/srcboe2024036.htm">https://www.sec.gov/comments/sr-cboe-2024-036/srcboe2024036.htm</a>.
\11\ Amendment No. 1 narrows the scope of the proposal to
provide for the listing and trading of options on the shares of a
single fund, the Fidelity Fund; establishes position and exercise
limits of 25,000 contracts for options on shares of the Fidelity
Fund; provides that the Exchange will not authorize the trading of
FLEX Options on shares of the Fidelity Fund; and provides data and
analysis designed to support the proposed position and exercise
limits and to demonstrate that shares of the Fidelity Fund are
widely held and actively traded. Amendment No. 1 to the proposal is
available at: <a href="https://www.sec.gov/comments/sr-cboe-2024-036/srcboe2024036.htm">https://www.sec.gov/comments/sr-cboe-2024-036/srcboe2024036.htm</a>.
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I. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
The Exchange filed with the Commission a proposed rule change, as
modified by Amendment No. 1, to list and trade options on shares of the
Fidelity Fund. The text of the proposed rule change is provided in
Exhibit 5. The text of the proposed rule change is also available on
the Exchange's website <a href="https://www.cboe.com/us/options/regulation/rule_filings/">https://www.cboe.com/us/options/regulation/rule_filings/</a>, at the Exchange's Office of the Secretary, and at the
Commission's Public Reference Room.
II. The Exchange's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 4.3 regarding the criteria for
underlying securities. Specifically, the Exchange proposes to amend
Rule 4.3, Interpretation and Policy .06(a)(4) to allow the Exchange to
list and trade options on Units \12\ that represent interests in the
Fidelity Ethereum Fund (the ``Fidelity Fund''),\13\ designating them as
``Units'' deemed appropriate for options trading on the Exchange.
Current Rule 4.3, Interpretation and Policy .06 provides that, subject
to certain other criteria set forth in that
[[Page 15747]]
Rule, securities deemed appropriate for options trading include Units
that represent certain types of interests,\14\ including interests in
certain specific trusts that hold financial instruments, money market
instruments, precious metals (which are deemed commodities), or Bitcoin
(which is also deemed a commodity).
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\12\ Rule 1.1 defines a ``Unit'' (which may also be referred to
as an ETF) as a share or other security traded on a national
securities exchange and defined as an NMS stock as set forth in Rule
4.3.
\13\ See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (SR-NYSEArca-2023-70; SR-NYSEArca-
2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023-069; SR-CboeBZX-2023-
070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095; and SRCboeBZX-2024-
018) (Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, to List and Trade Shares of
Ether-Based Exchange-Traded Products) (``Ethereum ETP Approval
Order'').
\14\ See Rule 4.3, Interpretation and Policy .06(a), which
permits options trading on Units that 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 including, but not limited to, stock index futures
contracts, options on futures, options on securities and indexes,
equity caps, collars and floors, swap agreements, forward contracts,
repurchase agreements and reverse purchase 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 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); interests in a trust or similar entity that holds a
specified non-U.S. currency deposited with the trust or similar
entity when aggregated in some specified minimum number may be
surrendered to the trust by the beneficial owner to receive the
specified non-U.S. currency and pays the beneficial owner interest
and other distributions on deposited non-U.S. currency, if any,
declared and paid by the trust (``Currency Trust Shares'');
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
Units''); interests in the SPDR Gold Trust, the iShares COMEX Gold
Trust, the iShares Silver Trust, the Aberdeen Standard Physical
Silver Trust, the Aberdeen Standard Physical Gold Trust, the
Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard
Physical Platinum Trust, the Sprott Physical Gold Trust, the Goldman
Sachs Physical Gold ETF, the Fidelity Wise Origin Bitcoin Fund, the
ARK 21Shares Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale
Bitcoin Trust, the Grayscale Bitcoin Mini Trust, or the Bitwise
Bitcoin ETF; or an interest in a registered investment company
(``Investment Company'') organized as an open-end management
investment 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'').
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The Fidelity Fund is an Ethereum-backed commodity ETF structured as
a trust. Similar to any Unit currently deemed appropriate for options
trading under Rule 4.3, Interpretation and Policy .06, the investment
objective of the Fidelity Fund is for its shares to reflect the
performance of Ethereum (less the expenses of the trust's operations),
offering investors an opportunity to gain exposure to Ethereum without
the complexities of Ethereum delivery. As is the case for Units
currently deemed appropriate for options trading, the Fidelity Fund's
shares represent units of fractional undivided beneficial interest in
the trust, the assets of which consist principally of Ethereum and are
designed to track Ethereum or the performance of the price of Ethereum
and offer access to the Ethereum market.\15\ The Fidelity Fund provides
investors with cost-efficient alternatives that allow a level of
participation in the Ethereum market through the securities market. The
primary substantive difference between the Fidelity Fund and Units
currently deemed appropriate for options trading are that Units may
hold securities, certain financial instruments, specified precious
metals (which are deemed commodities), and Bitcoin (which is also
deemed a commodity), while the Fidelity Fund holds Ethereum (which is
also deemed a commodity).
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\15\ The trust may include minimal cash.
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The Exchange believes the Fidelity Fund satisfies the Exchange's
initial listing standards for Units on which the Exchange may list
options. Specifically, the Fidelity Fund satisfies the initial listing
standards set forth in Rule 4.3, Interpretation and Policy .06(b), as
is the case for other Units on which the Exchange lists options
(including trusts that hold commodities). Rule 4.3, Interpretation and
Policy .06 requires that Units must either (1) meet the criteria and
standards set forth in Rule 4.3, Interpretation and Policy .01(a),\16\
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 prospectus. The Fidelity Fund satisfies Rule
4.3, Interpretation and Policy .06(b)(2), as it is subject to this
creation and redemption process.
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\16\ Rule 4.3, Interpretation and Policy .01 provides for
guidelines to be by the Exchange when evaluating potential
underlying securities for Exchange option transactions.
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While not required by the Rules for purposes of options listings,
the Exchange believes the Fidelity Fund satisfies the criteria and
guidelines set forth in Rule 4.3, Interpretation and Policy .01.
Pursuant to Rule 4.3(a), a security (which includes a Unit) 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 Securities Exchange Act of 1934,
as amended (the ``Act'')), and be characterized by a substantial number
of outstanding shares that are widely held and actively traded.\17\ The
Fidelity Fund is an NMS Stock as defined in Rule 600 of Regulation NMS
under the Act.\18\ The Exchange believes the Fidelity Fund is
characterized by a substantial number of outstanding shares that are
widely held and actively traded.
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\17\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Rule 4.3,
Interpretation and Policy .01, subject to exceptions.
\18\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
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As of December 23, 2024, the Fidelity Fund had 41,700,000 shares
outstanding, which is nearly six times more than the minimum number of
shares of a corporate stock (i.e., 7,000,000 shares) that the Exchange
generally requires to list options on that stock pursuant to Rule 4.3,
Interpretation and Policy .01(a)(1). The Exchange believes this
demonstrates that the Fidelity Fund is characterized by a substantial
number of outstanding shares.
Further, as of November 26, 2024, there were 38,170 beneficial
holders of shares of the Fidelity Fund, which is significantly more
than 2,000 beneficial holders (approximately 19 times more), which is
the minimum number of holders the Exchange generally requires for
corporate stock in order to list options on that stock pursuant to Rule
4.3, Interpretation and Policy .01(a)(2). Therefore, the Exchange
believes the shares of the Fidelity Fund are widely held.\19\
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\19\ The Exchange continues to believe assets under management
(``AUM''), rather than shares outstanding and number of holders, is
a better measure of investable capacity of ETFs and a more
appropriate figure for determining position and exercise limits of
ETFs and looks forward to further discussions with the Commission
staff on this topic.
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[[Page 15748]]
The Exchange also believes the shares of the Fidelity Fund are
actively traded. As of December 23, 2024, the total trading volume (by
shares) and the approximate average daily volume (``ADV'') (in shares
and notional) from July 23, 2024 (the date on which shares of the
Fidelity Fund began trading) to December 23, 2024 for the Fidelity Fund
was as follows:
------------------------------------------------------------------------
Trading volume (shares) ADV (shares) ADV (notional $)
------------------------------------------------------------------------
115,589,047 1,070,269 33,864,193
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As demonstrated above, despite the fact that the Fidelity Fund has
been trading for approximately five months as of December 23, 2024, its
total trading volume as of that date was substantially higher than
2,400,000 shares (more than 48 times that amount), which is the minimum
12-month volume the Exchange generally requires for a corporate stock
in order to list options on that security as set forth in Rule 4.3,
Interpretation and Policy .01. Additionally, as of December 23, 2024,
the trading volume for the Fidelity Fund was in the top 5% of all ETFs
that are currently trading. The Exchange believes this data
demonstrates the Fidelity Fund is characterized as having shares that
are actively traded.
Options on the Fidelity Fund will be subject to the Exchange's
continued listing standards set forth in Rule 4.4, Interpretation and
Policy .06 for Units deemed appropriate for options trading pursuant to
Rule 4.3, Interpretation and Policy .06. Specifically, Rule 4.4,
Interpretation and Policy .06 provides that Units that were initially
approved for options trading pursuant to Rule 4.3, Interpretation and
Policy .06 shall be deemed not to meet the requirements for continued
approval, and the Exchange shall not open for trading any additional
series of option contracts of the class covering that such Units, if
the Units cease to be an NMS stock or the Units are halted from trading
in their primary market. Additionally, options on Units may be subject
to the suspension of opening transactions in any of the following
circumstances: (1) in the case of options covering Units approved for
trading under Rule 4.3, Interpretation and Policy .06(b)(1), in
accordance with the terms of paragraphs (a), (b), and (c) of Rule 4.4,
Interpretation and Policy .01; (2) in the case of options covering
Units approved for trading under Rule 4.3 Interpretation and Policy
.06(b)(2) (as is the case for the Fidelity Fund), following the initial
twelve-month period beginning upon the commencement of trading in the
Units on a national securities exchange and are defined as an NMS
stock, there are fewer than 50 record and/or beneficial holders of such
Units for 30 or more consecutive trading days; (3) the value of the
index or portfolio of securities, non-U.S. currency, or portfolio of
commodities including commodity futures contracts, options on commodity
futures contracts, swaps, forward contracts and/or options on physical
commodities and/or financial instruments and money market instruments
on which the Units are based is no longer calculated or available; or
(4) such other event shall occur or condition exist that in the opinion
of the Exchange makes further dealing in such options on the Exchange
inadvisable.
Options on the Fidelity Fund will be physically settled contracts
with American-style exercise.\20\ Consistent with current Rule 4.5,
which governs the opening of options series on a specific underlying
security (including Units), the Exchange will open at least one
expiration month for options on the Fidelity Fund \21\ at the
commencement of trading on the Exchange and may also list series of
options on the Fidelity Fund 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 12 to 180 months from the
time they are listed.
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\20\ See Rule 4.2, which provides that the rights and
obligations of holders and writers are set forth in the Rules of the
Options Clearing Corporation (``OCC''); and Equity Options Product
Specifications January 3, 2024), available at Equity Options
Specifications (<a href="http://cboe.com">cboe.com</a>); see also OCC Rules, Chapters VIII (which
governs exercise and assignment) and Chapter IX (which governs the
discharge of delivery and payment obligations arising out of the
exercise of physically settled stock option contracts).
\21\ See Rule 4.5(b). The monthly expirations are subject to
certain listing criteria for underlying securities described within
Rule 4.3. 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 Rule 4.5(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. 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 Rule 4.5(d).
\23\ See Rule 4.5(g).
\24\ See Rule 4.5(e).
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Pursuant to Rule 4.5, Interpretation and Policy .07, which governs
strike prices of series of options on Units, the interval of strikes
prices for series of options on the Fidelity Fund will be $1 or greater
when the strike price is $200 or less and $5 or greater where the
strike price is over $200.\25\ Additionally, the Exchange may list
series of options pursuant to the $1 Strike Price Interval Program,\26\
the $0.50 Strike Program,\27\ the $2.50 Strike Price Program,\28\ and
the $5 Strike Program.\29\ Pursuant to Rule 5.4, where the price of a
series of a Fidelity 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 Fidelity
Fund options that the Exchange lists will be consistent and comply with
the expirations, strike prices, and minimum increments set forth in
Rules 4.5 and 5.4, as applicable.
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\25\ 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, Rules 4.5(d),
(e), and (g) specifically sets forth intervals between strike prices
on Quarterly Options Series, Short Term Option Series, and Monthly
Options Series, respectively.
\26\ See Rule 4.5, Interpretation and Policy .01(a).
\27\ See Rule 4.5, Interpretation and Policy .01(b).
\28\ See Rule 4.5, Interpretation and Policy .04.
\29\ See Rule 4.5, Interpretation and Policy .01(f).
\30\ If options on the Fidelity Fund are eligible to participate
in the Penny Interval Program, the minimum increment will be $0.01
for series with a price below $3.00 and $0.05 for series with a
price at or above $3.00. See 5.4(d) (which describes the
requirements for the Penny Interval Program).
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The Exchange also proposes to amend Rule 8.30. Specifically, the
Exchange proposes to adopt Rule 8.30, Interpretation and Policy .10 to
provide a position limit of 25,000 same side option contracts for the
Fidelity Fund option. Additionally, pursuant to Rule 8.42,
Interpretation and Policy .02, the exercise limits for options on the
Fidelity Fund will be equivalent to this proposed position limit.
The Exchange determined these proposed position and exercise limits
considering, among other things, the ADV (since trading of the Fidelity
Fund began on July 23, 2024) and outstanding shares of the Fidelity
Fund (which as discussed above demonstrate that the Fidelity Fund is
widely held and actively traded and thus justify these conservatively
proposed position limits), as set forth below, along with
[[Page 15749]]
market capitalization (as of December 23, 2024):
------------------------------------------------------------------------
Market capitalization
ADV (shares) Outstanding shares ($)
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1,070,269 41,700,000 1,433,229,000
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The Exchange then compared the number of outstanding shares of the
Fidelity Fund to those of other ETFs. The approximate average position
(and exercise limit) of ETF options with similar outstanding shares (as
of December 31, 2024) was approximately 102,703 contracts, which is
significantly higher (approximately 4 times) than the proposed position
and exercise limit of 25,000 contracts for Fidelity Fund options.\31\
As discussed above, shares of the Fidelity Fund are actively held and
widely traded: (1) the Fidelity Fund (as of December 23, 2024) had
significantly more than 7,000,000 shares outstanding, which is the
minimum number of shares of a corporate stock that the Exchange
generally requires to list options on that stock pursuant to Rule 4.3,
Interpretation and Policy .01(a)(1); (2) the Fidelity Fund (as of
November 26, 2024) had significantly more than 2,000 beneficial
holders, which is the minimum number of holders the Exchange generally
requires for corporate stock in order to list options on that stock
pursuant to Rule 4.3, Interpretation and Policy .01(a)(2); and (3) the
Fidelity Fund had a trading volume in the approximately five-month time
period since it began trading substantially higher than 2,400,000
shares, 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 Rule 4.3, Interpretation and Policy .01.
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\31\ The position limits for those ETF options for which the
underlying ETFs had similar outstanding shares were all 50,000 or
above, and nearly half of them had position limits of 200,000 or
250,000 contracts.
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With respect to outstanding shares, if a market participant held
the maximum number of positions possible pursuant to the proposed
position and exercise limits, the equivalent shares represented by the
proposed position/exercise limit would represent approximately 6.0% of
the 41,700,000 current outstanding shares of the Fidelity Fund.
Therefore, if a market participant held the maximum permissible options
positions in Fidelity 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 Fidelity Fund.
Cboe Options Rule 8.30, Interpretation and Policy .02, provides two
methods of qualifying for a position limit tier above 25,000 option
contracts. The first method is based on six-month trading volume in the
underlying security, and the second method is based on slightly lower
six-month trading volume and number of shares outstanding in the
underlying security. An underlying stock or ETF that qualifies for
method two based on trading volume and number of shares outstanding
would be required to have the minimum number of outstanding shares as
shown in middle column of the table below.
The table, which provides the equivalent shares of the position
limits applicable to equity options, including ETFs, further represents
the percentages of the minimum number of outstanding shares that an
underlying stock or ETF must have to qualify for that position limit
(under the second method described above).
------------------------------------------------------------------------
Position/exercise limit Minimum outstanding Percentage of
(in equivalent shares) shares outstanding shares
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2,500,000 6,300,000 40.0
5,000,000 40,000,000 12.5
7,500,000 120,000,000 6.3
20,000,000 240,000,000 8.3
25,000,000 300,000,000 8.3
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The equivalent shares represented by the proposed position and
exercise limits for the Fidelity Fund as a percentage of outstanding
shares of the Fidelity Fund is significantly lower than the percentage
for the lowest possible position limit for equity options of 25,000,
which is the position limit the Exchange is proposing for Fidelity Fund
options.\32\
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\32\ As these percentages are based on the minimum number of
outstanding shares an underlying security must have to qualify for
the applicable position limit, these are the highest possible
percentages that would apply to any option subject to that position
and exercise limit. 6,300,000 is the minimum number of outstanding
shares an underlying security must have for the Exchange to continue
to list options on that security, so this would be the smallest
number of outstanding shares permissible for any corporate option
that would have a position limit of 25,000 contract. See Rule 4.5,
Interpretation and Policy .01. This rule applies to corporate stock
options but not ETF options, which currently have no requirement
regarding outstanding shares of the underlying ETF for the Exchange
to continue listing options on that ETF. Therefore, there may be ETF
options trading for which the 25,000 contract position limit
represents an even larger percentage of outstanding shares of the
underlying ETF than set forth above.
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Further, the proposed position and exercise limit for Fidelity Fund
options is equal to the lowest position and exercise limits available
in the options industry for equity options, are extremely conservative
and more than appropriate given the market capitalization, average
daily volume, and high number of outstanding shares of the Fidelity
Fund. The proposed position and exercise limit for the Fidelity Fund is
also equal to the position and exercise limits for ETFs that hold
Bitcoin, as recently approved by the Commission.\33\
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\33\ See Securities Exchange Act Release No. 101387 (October 18,
2024), 89 FR 84948 (October 24, 2024) (SR-CBOE-2024-035) (``Bitcoin
ETF Option Approval''); see also Rule 8.30, Interpretation and
Policy .10.
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All of the above information demonstrates that the proposed
position and exercise limits for Fidelity Fund options are more than
reasonable and appropriate. The trading volume, ADV, and outstanding
shares of the Fidelity Fund demonstrate that its shares are actively
traded and widely held, and proposed position and exercise limit is
well below those of options on other ETFs with similar market
characteristics. The proposed position and exercise limit would be the
lowest position and exercise limit available for equity options in the
industry, are extremely conservative, and are more than appropriate
given the Fidelity Fund's market capitalization, ADV, and high number
of outstanding shares.
Rule 4.20 currently permits the Exchange to authorize for trading a
FLEX option class on any equity security if it may authorize for a
trading a non-FLEX option class on that equity security pursuant to
Rule 4.3. The proposed rule change amends Rule 4.20 to exclude the
Fidelity Fund from this provision.
Fidelity Fund options will trade in the same manner as any other
Unit options on the Exchange. The Exchange Rules that currently apply
to the listing and trading of all Unit options on the Exchange,
including, for example, Rules that govern listing criteria,
expirations, exercise prices, minimum increments, margin requirements,
customer accounts, and trading halt procedures will apply to the
listing and trading of Fidelity Fund options on the Exchange in the
same manner as they apply to other options on all other Units that are
listed and traded on the Exchange, including the precious-metal backed
commodity Units already deemed appropriate for options trading on the
Exchange pursuant to current Rule 4.3, Interpretation and Policy
.06(a)(4).
Today, the Exchange has an adequate surveillance program in place
for options. Cboe intends to apply those same program procedures to
options on the Fidelity Fund that it applies to the
[[Page 15750]]
Exchange's other options products.\34\ Cboe's market surveillance staff
would have access to the surveillances conducted by Cboe BZX Exchange,
Inc. (``BZX'') \35\ with respect to the Fidelity Fund and would review
activity in the Fidelity Fund when conducting surveillances for market
abuse or manipulation in the options on the Fidelity Fund.
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 information from BZX, the Exchange would be able
to obtain information regarding trading of shares of the Fidelity Fund
through ISG.
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\34\ The surveillance program includes surveillance patterns for
price and volume movements as well as patterns for potential
manipulation (e.g., spoofing and marking the close).
\35\ Cboe BZX Exchange, Inc. is an affiliated market of the
Exchange.
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In addition, Cboe has a Regulatory Services Agreement with the
Financial Industry Regulatory Authority (``FINRA'') for certain market
surveillance, investigation and examinations functions. Pursuant to a
multi-party 17d-2 joint plan, all options exchanges allocate amongst
themselves and FINRA responsibilities to conduct certain options-
related market surveillance that are common to rules of all options
exchanges.\36\ The underlying shares of spot Ethereum exchange-traded
products (``ETPs''), including the Fidelity Fund, 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 Ethereum-based ETPs, ``[e]ach Exchange
has a comprehensive surveillance-sharing agreement with the [Chicago
Mercantile Exchange (``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.'' \37\ The Exchange states that, given the consistently high
correlation between the CME Ethereum futures market and the spot
Ethereum 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 [Ethereum ETPs].'' \38\ In
light of surveillance measures related to both options and futures as
well as the Fidelity Fund,\39\ 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 Fidelity Fund. Further, the
Exchange will implement any new surveillance procedures it deems
necessary to effectively monitor the trading of options on the Fidelity
Fund.
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\36\ Section 19(g)(1) of the Act, among other things, requires
every self-regulatory organization (``SRO'') registered as a
national securities exchange or national securities association to
comply with the Act, the rules and regulations thereunder, and the
SRO's own rules, and, absent reasonable justification or excuse,
enforce compliance by its members and persons associated with its
members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section
17(d)(1) of the Act allows the Commission to relieve an SRO of
certain responsibilities with respect to members of the SRO who are
also members of another SRO (``common members''). Specifically,
Section 17(d)(1) allows the Commission to relieve an SRO of its
responsibilities to: receive regulatory reports from such members;
examine such members for compliance with the Act and the rules and
regulations thereunder, and the rules of the SRO; or carry out other
specified regulatory responsibilities with respect to such members.
\37\ See Ethereum ETP Approval Order, 89 FR at 46938.
\38\ See Ethereum ETP Approval Order, 89 FR at 46939.
\39\ See Amendment No. 2 to SR-CboeBZX-2023-095, Proposed Rule
Change To List and Trade Shares of the Fidelity Ethereum Fund Under
BZX Rule 14.11(e)(4), Commodity-Based Trust Shares (filed May 21,
2024); see also Ethereum ETP Approval Order.
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The Exchange has also analyzed its capacity and represents that it
believes the Exchange and OPRA have the necessary systems capacity to
handle the additional traffic associated with the listing of new series
that may result from the introduction of options on the Fidelity Fund
up to the number of expirations currently permissible under the Rules.
Because the proposal is limited to one class, the Exchange believes any
additional traffic that may be generated from the introduction of
Fidelity Fund options will be manageable.
The Exchange believes that offering options on the Fidelity Fund
will benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Ethereum and
hedging vehicle to meet their investment needs in connection with
Ethereum-related products and positions. The Exchange expects investors
will transact in options on the Fidelity Fund in the unregulated over-
the-counter (``OTC'') options market,\40\ 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 positions; (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 Fidelity 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 Units that hold financial
instruments, money market instruments, or precious metal commodities on
which the Exchange may already list and trade options are trusts
structured in substantially the same manner as the Fidelity Fund and
essentially offer the same objectives and benefits to investors, just
with respect to different assets. The Exchange notes that it has not
identified any issues with the continued listing and trading of any
Unit options, including Units that hold commodities (i.e., precious
metals) that it currently lists and trades on the Exchange. The
Exchange notes that quotation and last sale information for shares of
the Fidelity Fund are available from the CTA high-speed lines, as well
as from BZX (on which the shares are primarily listed). Quotation and
last sale information for options on the Fidelity Fund will be
available from OPRA and market data vendors.
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\40\ The Exchange understands from customers that investors have
historically transacted in options on Units in the OTC options
market if such options were not available for trading in a listed
environment.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\41\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \42\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
[[Page 15751]]
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \43\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\41\ 15 U.S.C. 78f(b).
\42\ 15 U.S.C. 78f(b)(5).
\43\ Id.
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In particular, the Exchange believes that the proposal to list and
trade options on the Fidelity Fund will remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, protect investors because offering options on
the Fidelity Fund will provide investors with an opportunity to realize
the benefits of utilizing options on the Fidelity Fund, including cost
efficiencies and increased hedging strategies. The Exchange believes
that offering Fidelity 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
Ethereum and with Ethereum-related products and positions.
Additionally, the Exchange's offering of Fidelity 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 (or has the authority to list) options on other
commodity-based Units,\44\ which, as described above, are trusts
structured in substantially the same manner as the Fidelity Fund and
essentially offer the same objectives and benefits to investors, just
with respect to a different commodity (i.e., Ethereum rather than
Bitcoin or precious metals) and for which the Exchange has not
identified any issues with the continued listing and trading of
commodity-backed Unit options it currently lists for trading.
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\44\ See Rule 4.3, Interpretation and Policy .06(a)(4).
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The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules previously filed with the Commission. Options on the
Fidelity Fund satisfy the initial listing standards and continued
listing standards currently in the Exchange Rules applicable to options
on all Units, including Units that hold other commodities already
deemed appropriate for options trading on the Exchange. Additionally,
as demonstrated above, the Fidelity Fund is characterized by a
substantial number of shares that are widely held and actively traded.
Fidelity Fund options will trade in the same manner as any other Unit
options--the same Exchange Rules that currently govern the listing and
trading of all Unit options, including permissible expirations, strike
prices and minimum increments, and applicable margin requirements, will
govern the listing and trading of options on the Fidelity Fund in the
same manner.
The Exchange believes the proposed position and exercise limits are
designed to prevent fraudulent and manipulative acts and practices and
promote just and equitable principles of trade, as they are designed to
address potential manipulative schemes and adverse market impacts
surrounding the use of options, such as disrupting the market in the
security underlying the options. The proposed position and exercise
limits in this Amendment No. 1 for Fidelity Fund options are 25,000
contracts, which is currently the lowest limit applicable to any equity
options (including ETF options) and the position and exercise limits
that apply to comparable ETFs that hold Bitcoin.\45\ The Exchange
believes the proposed position and exercise limits are extremely
conservative for Fidelity Fund options given the trading volume and
outstanding shares for the Fidelity Fund. The information above
demonstrates that the average position and exercise limits of options
on ETFs with comparable outstanding shares and trading volume to those
of the Fidelity Fund are significantly higher than the proposed
position and exercise limits for Fidelity Fund options. Therefore, the
proposed position and exercise limits for Fidelity Fund options are
conservative relative to options on ETFs with comparable market
characteristics.
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\45\ See Rule 8.30. The Exchange notes in the initial Rule
Filing, the position and exercise limit for the Fidelity Fund option
would have been 25,000 contracts once the options began trading
(pursuant to Rule 8.30, the Fidelity Fund option would have a higher
position and exercise limit until the next time the Exchange
conducted the review of limits). Therefore, this Amendment No. 1 is
proposing to adopt a lower position and exercise limit as were
practically proposed in the initial Rule Filing.
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Further, given that the issuer of the Fidelity Fund may create and
redeem shares that represent an interest in Ethereum, the Exchange
believes it is relevant to compare the size of a position limit to the
market capitalization of the Ethereum market. As of December 23, 2024,
the global supply of Ethereum was approximately 120,000,000 coins, and
the price of one Ethereum coin was approximately $3,494.25,\46\ which
equates to a market capitalization of approximately $419.31 billion.
Consider the proposed position and exercise limit of 25,000 option
contracts for the Fidelity 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 of Fidelity Fund shares (if that market
participant exercised all its options). Using a share price of $34.37
on December 23, 2024, the value of 2,500,000 shares of the Fidelity
Fund at that price is $85,925,000, and the approximate percentage of
that value of the size of the Ethereum market is 0.02%. Therefore, if a
market participant with the maximum 25,000 same side contracts in
Fidelity Fund options exercised all positions at one time, such an
event would have no practical impact on the Ethereum market.
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\46\ See Ethereum Price (ETH), Market Cap, Price Today & Chart
History--Blockworks.
\47\ The Exchange may submit a separate rule filing that would
permit the Exchange to authorize for trading FLEX options on the
Fidelity (which filing may propose changes to existing FLEX option
position limits for such options if appropriate).
\48\ See CME Rulebook Chapter 349 (description of CME Ether
Futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME Ethereum futures contract is valued at 50 Ethereum as
defined by the CME CF Ether Reference Rate (``BRR''). See CME Rule
35001.
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The Exchange believes the proposed rule change to exclude the
Fidelity Fund from being eligible for trading as FLEX options is
consistent with the Act, because it will permit the Exchange to
continue to participate in ongoing discussions with the Commission
regarding appropriate position limits for ETF options.\47\
The Exchange also believes the proposed position and exercise
limits are appropriate given position limits for Ethereum futures. For
example, the Chicago Mercantile Exchange (``CME'') imposes a position
limit of 8,000 futures (for the initial spot month) on its Ethereum
futures contract.\48\ On December 23, 2024, CME Dec 24 Ethereum Futures
settled at approximately $3,418.00. A position of 8,000 CME Ethereum
futures, therefore, would have a notional value of $1,367,200,000. A
position of
[[Page 15752]]
approximately 397,789 option contracts would equate to that notional
value.\49\ This approximate number of option contracts for the Fidelity
Fund that equate to the notional value of CME Ethereum futures is
significantly higher than the proposed limit of 25,000 options contract
for the Fidelity 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 Ethereum Future is 1, further
demonstrates how conservative the proposed limit of 25,000 options
contracts are for the Fidelity Fund options.
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\49\ The notional value of the futures is calculated as follows:
8,000 futures x 50 (the futures multiplier) x $3,418 (the price of
one future) = $1,367,200,000. The number of option contracts that
equates to that notional value is calculated as follows:
$1,367,200,000/notional value of one option contract ($34.37 (share
price of Fidelity Fund) x 100 (option multiplier)) = 397,789 option
contracts.
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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).\50\ 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.\51\ 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. Considering CME's position limits on futures for Ethereum,
the Exchange believes that that the proposed same side position limits
are more than appropriate for Fidelity Fund options.
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\50\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\51\ Id.
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The Exchange believes the proposed position and exercise limits in
this Amendment No. 1 will have no material impact to the supply of
Ethereum. For example, consider again the proposed position limit of
25,000 option contracts for the Fidelity Fund option. 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 Fidelity Fund (if that
market participant exercised all its options). As of December 23, 2024,
the Fidelity Fund had 41,700,000 shares outstanding. This means that
the approximate number of market participants that could hold the
maximum of 25,000 same side positions in the Fidelity Fund that would
equate to the number of shares outstanding of that Fund is 16.
This means if 16 market participants had 25,000 same side positions
in Fidelity Fund options, 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 such an event to occur; however, even if either such event
did occur, the Exchange would not expect the Fidelity 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.
As of December 23, 2024, the global supply of Ethereum was
approximately 120,000,000, and the price of one Ethereum coin was
approximately $3,418.00,\52\ which equates to a market capitalization
of approximately $419.31 billion. Based on the $34.37 price of a
Fidelity Fund share on December 23, 2024, a market participant could
have redeemed one Ethereum for approximately 99 Fidelity Fund shares.
Another 11,880,000,000 Fidelity Fund shares could be created before the
then-circulating global supply of Ethereum was exhausted. As a result,
4,752 market participants would have to simultaneously exercise 25,000
same side positions in Fidelity Fund options to receive shares of the
Fidelity Fund holding the entire global supply of Ethereum. Unlike the
Fidelity Fund, the number of shares that corporations may issue is
limited. However, like corporations, which authorize additional shares,
repurchase shares, or split their shares, the Fidelity Fund may create,
redeem, or split shares in response to demand. Additionally, the supply
of Ethereum is unlimited.\53\ The current supply of Ethereum is larger
than the available supply of most securities.\54\ Given the significant
unlikelihood of any of these events ever occurring, the Exchange does
not believe options on the Fidelity Fund 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 Ethereum.
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\52\ See Ethereum Price (ETH), Market Cap, Price Today & Chart
History--Blockworks.
\53\ See Ethereum Price (ETH), Market Cap, Price Today & Chart
History--Blockworks; see also Amendment No. 5 to Form S-1
Registration Statement No. 333-278249, Fidelity Fund, filed July 17,
2024, at 17 (noting that approximately 1,700 Ethereum are issued per
day, subject to various factors); and Amendment No. 3 to Form S-1
Registration Statement No. 333-257474, ARK 21 Fund, filed May 10,
2024, at 15-16 (noting that approximately 1,700 Ethereum are issued
per day, subject to various factors).
\54\ The market capitalization of Ethereum would rank in the top
25 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>.
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The Exchange believes the available supply of Ethereum is not
relevant to the determination of position and exercise limits for
options overlying the Fidelity Fund.\55\ Position and exercise limits
are not a tool that should be used to address a potential limited
supply of the underlying of the instrument underlying the option (in
this case, the Ethereum being held within the Fidelity Fund). 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.\56\ ``Since the inception of
standardized options trading, the options exchanges have had rules
[[Page 15753]]
imposing limits on the aggregate number of options contracts that a
member or customer could hold or exercise.'' \57\ 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.'' \58\
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\55\ 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, other than recently with respect
to ETFs that hold Bitcoin. 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''); compare to Bitcoin ETF Option Approval. The Exchange
notes when the Commission approved the filing to list options on an
ETF holding gold, filing, the position limits in Rule 8.30 were the
same as they are today. 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 Fidelity
Fund options.
\56\ 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.
\57\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\58\ See id.
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The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for the Fidelity Fund, which described the
supply of Ethereum and the potential limits to that supply.\59\ The
Registration Statement permits an unlimited number of shares of the
Fidelity Fund to be created. Further, the Commission approved the
listing and trading of shares of the Fidelity Fund, which approval did
not comment on the sufficient supply of Ethereum or address whether
there was a risk that permitting an unlimited number of shares for the
Fidelity Fund would impact the supply of Ethereum.\60\ Therefore, the
Exchange believes the Commission had ample time and opportunity to
consider whether the supply of Ethereum was sufficient to permit the
creation of unlimited Fidelity 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 Ethereum supply, the proposed positions limit is more than
sufficient to protect investors and the market.
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\59\ See Amendment No. 5 to Form S-1 Registration Statement No.
333-278249, Fidelity Fund, filed July 17, 2024, at 17.
\60\ See Ethereum ETP Approval Order.
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Based on the above information demonstrating, among other things,
that the Fidelity Fund is characterized by a substantial number of
outstanding shares that are actively traded and widely held, the
Exchange believes the proposed position and exercise limits are
extremely conservative compared to those of ETF options with similar
market characteristics. 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 as well as the Ethereum
market.\61\
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\61\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
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The Exchange represents that it has the necessary systems capacity
to support the new Fidelity Fund options. As discussed above, the
Exchange believes that its existing surveillance and reporting
safeguards are designed to deter and detect possible manipulative
behavior which might arise from listing and trading Unit options,
including Fidelity Fund options.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act as options on the Fidelity Fund
will be equally available to all market participants who wish to trade
such options and will trade generally in the same manner as other
options. The Exchange Rules that currently apply to the listing and
trading of all Unit options on the Exchange, including, for example,
Rules that govern listing criteria, expirations, exercise prices,
minimum increments, margin requirements, customer accounts, and trading
halt procedures will apply to the listing and trading of Fidelity Fund
options on the Exchange in the same manner as they apply to other
options on all other Units that are listed and traded on the Exchange.
Also, and as stated above, the Commission has approved the trading of
options on other commodity-based Units.\62\ Further, the Fidelity Fund
would need to satisfy the maintenance listing standards set forth in
the Exchange Rules in the same manner as any other Unit for the
Exchange to continue listing options on them.
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\62\ See Rule 4.3, Interpretation and Policy .06(a)(4).
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The Exchange does not believe that the proposal to list and trade
options on the Fidelity Fund 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 Fidelity Fund
options trading on the Exchange may make the Exchange a more attractive
marketplace to market participants at other exchanges, such market
participants are free to elect to become market participants on the
Exchange. Additionally, other options exchanges are free to amend their
listing rules, as applicable, to permit them to list and trade options
on the Fidelity Fund. The Exchange notes that listing and trading
Fidelity 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 Fidelity 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 Ethereum
prices and Ethereum-related products and positions on a listed options
exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received written comments on the
proposed rule change.
III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange,\63\ and, in particular,
the requirements of Section 6 of the Act.\64\ Specifically, the
[[Page 15754]]
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\65\ which requires that an exchange have
rules designed to prevent fraudulent and manipulative acts and
practices, to remove impediments to and perfect the mechanism of a free
and open market, and to protect investors and the public interest.
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\63\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\64\ 15 U.S.C. 78f.
\65\ 15 U.S.C. 78f(b)(5).
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The Order Instituting Proceedings sought comment on issues raised
by the proposal, including whether the proposal included sufficient
data and analysis to support a conclusion that the proposal is
consistent with the requirements of Section 6(b)(5) of the Act. As
discussed more fully below, commenters raised concerns regarding the
potential risks of the proposed options to individual investors and the
financial system.\66\
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\66\ See letters from Benjamin L. Schiffrin, Director of
Securities Policy, Better Markets, Inc., dated Dec. 5, 2024
(``Better Markets Letter''); and Robert Rutkowski, dated Dec. 6,
2024 (``Rutkowski Letter'').
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A. Widely Held and Actively Traded
The Exchange's initial listing standards require, among other
things, that the security underlying a listed option be ``characterized
by a substantial number of outstanding shares that are widely held and
actively traded.'' \67\ As described above, the Exchange states that,
as of December 23, 2024, the Fidelity Fund had 41,700,000 shares
outstanding and that, as of November 26, 2024, the Fidelity Fund had
38,170 beneficial holders.\68\ In addition, the Exchange states that,
from July 23, 2024, until December 23, 2024, the Fidelity Fund had
five-month total trading volume of 115,589,047 shares, average daily
volume of 1,070,269 shares, and average notional daily volume of
$33,864,193.\69\ The Exchange further states that, as of December 23,
2024, the trading volume for the Fidelity Fund was in the top 5% of all
ETFs that are currently trading.\70\ In addition, the Exchange states
that, as of December 23, 2024, the Fidelity Fund had a market
capitalization of $1,433,229,000.\71\
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\67\ See Exchange Rule 4.3(a)(2).
\68\ See Amendment No. 1 at 7.
\69\ See id. at 7-8.
\70\ See id. at 8.
\71\ See id. at 11.
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The Commission has reviewed the Exchange's analysis and publicly
available data regarding the Fidelity Fund. Based on this review of
information provided by the Exchange and publicly available
information--including information regarding the number of shares
outstanding and the number of beneficial holders for the Fidelity Fund,
the ADV of the Fidelity Fund, and the market capitalization of the
Fidelity Fund--the Commission concludes that it is reasonable for the
Exchange to determine that the Fidelity Fund satisfies the requirement
of Exchange Rule 4.3(a)(2) that the security underlying a listed option
be widely held and actively traded.
Commenters expressed concerns regarding the potential impact of
spot ether based-ETP options on the traditional financial system.\72\
One commenter stated that ether's Proof-of-Stake protocol presents a
higher risk of runs because it requires more capital.\73\ The commenter
stated that options on spot ether-based ETPs ``would threaten financial
stability by further entangling traditional finance with a volatile
asset that would be susceptible to runs.'' \74\ Another commenter
stated that a run on ether could have harmful consequences for
investors.\75\
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\72\ See Better Markets Letter at 3-4; and Rutkowski Letter at
1.
\73\ See Better Markets Letter at 3.
\74\ Id. at 4.
\75\ See Rutkowski Letter at 1.
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The Commission acknowledges the comments regarding the potential
impact of ether-based ETP options, including the proposed Fidelity Fund
options, on the traditional financial system. Pursuant to Section
19(b)(2) of the Exchange Act, however, the Commission must approve a
proposed rule change filed by a national securities exchange if it
finds that the proposed rule change is consistent with the applicable
requirements of the Exchange Act.\76\ For the reasons discussed herein,
the Commission finds that the proposed rule change satisfies the
requirements of the Exchange Act, including the requirements in Section
6(b)(5) that the rules of a national securities exchange be designed to
prevent fraudulent and manipulative acts and practices, to remove
impediments to and perfect the mechanism of a free and open market, and
to protect investors and the public interest.
---------------------------------------------------------------------------
\76\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C.
78s(b)(2)(C).
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B. Position and Exercise Limits
Position and exercise limits serve as a regulatory tool designed to
deter manipulative schemes and adverse market impacts surrounding the
use of options. Since the inception of standardized options trading,
the options exchanges have had rules limiting the aggregate number of
options contracts that a member or customer may hold or exercise.
Options 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 to benefit
the options position.\77\ In addition, such limits serve to reduce the
possibility of disruption in the options market itself, especially in
illiquid classes.\78\ As the Commission has previously recognized,
markets with active and deep trading interest, as well as with broad
public ownership, are more difficult to manipulate or disrupt than less
active and deep markets with smaller public floats.\79\ The Commission
also has recognized 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.\80\ At the same time, the
Commission has recognized that limits must not be established at levels
that are so low as to discourage participation in the options market by
institutions and other investors with substantial hedging needs or to
prevent specialists and market-makers from adequately meeting their
obligations to maintain a fair and orderly market.\81\
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\77\ See Securities Exchange Act Release No. 39489 (Dec. 24,
1997), 63 FR 276, 279 (Jan 5. 1998) (order approving File No. SR-
Cboe-97-11) (``Position Limit Order'').
\78\ Id.
\79\ Id.
\80\ See, e.g., Securities Exchange Act Release Nos. 21907 (Mar.
29, 1985), 50 FR 13440, 13441 (Apr. 4, 1985) (order approving File
Nos. SR-CBOE-84-21, SR-Amex-84-30, SR-Phlx-84-25, and SR-PSE-85-1);
and 40875 (Dec. 31, 1998), 64 FR 1842, 1843 (Jan. 12, 1999) (order
approving File Nos. SR-CBOE-98-25; Amex-98-22; PCX-98-33; and Phlx-
98-36).
\81\ See id.
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The Exchange proposes a position limit of 25,000 contracts on the
same side of the market for options on the Fidelity Fund and an
equivalent exercise limit.\82\ In proposing these position and exercise
limits, the Exchange considered, among other things, the approximate
five-month ADV, outstanding shares, and market capitalization of the
Fidelity Fund.\83\ The Exchange states that the proposed position and
exercise limits of 25,000 contracts are significantly lower than the
position and exercise limits of options on other ETFs with a similar
number of outstanding shares.\84\ In
[[Page 15755]]
addition, the Exchange states that the number of shares represented by
the proposed position and exercise limits were equal to approximately
6% of the 41,700,000 shares of the Fidelity Fund outstanding as of
December 23, 2024.\85\ The Exchange further states that ``[t]he
proposed position and exercise limit for Fidelity Fund options is equal
to the lowest position and exercise limits available in the options
industry for equity options, are extremely conservative and are more
than appropriate given the market capitalization, ADV, and high number
of outstanding shares of the Fidelity Fund.'' \86\
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\82\ See Amendment No. 1 and proposed Exchange Rule 8.30,
Interpretation and Policy .10, and Exchange Rule 8.42,
Interpretation and Policy .02.
\83\ See Amendment No. 1 at 11.
\84\ The Exchange states that the position and exercise limits
for ETF options with outstanding shares similar to the Fidelity Fund
were all 50,000 or above, and nearly half of them had position
limits of 200,000 or 250,000 contracts. See Amendment No. 1 at
footnote 20.
\85\ See Amendment No. 1 at 12.
\86\ Id. at 13-14.
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The Exchange also compared the size of the position and exercise
limits to the market capitalization of the ether market, which,
according to the Exchange, had a market capitalization of $419.31
billion as of December 23, 2024.\87\ The Exchange calculated that with
a position limit of 25,000 contracts (2,500,000 shares of the Fidelity
Fund), as of December 23, 2024, a market participant could hold a
position in shares of the Fidelity Fund that represented 0.02% of the
ether market, a position that the Exchange states ``would have no
practical impact on the Ethereum market.'' \88\
---------------------------------------------------------------------------
\87\ See id. at 21.
\88\ Id. at 22.
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The Exchange states that the proposed position and exercise limits
also are appropriate given position limits for ether futures.\89\ The
Exchange states that the Chicago Mercantile Exchange (``CME'') imposes
a position limit of 8,000 ether futures for the initial spot month and
that, as of December 23, 2024, such a position would have had a
notional value of $1,367,200,000.\90\ The Exchange states that, as of
that date, 397,789 options on the Fidelity Fund would be the equivalent
of the $1,367,200,000 CME ether futures notional value.\91\ The
Exchange states that the option contract equivalent number is
significantly higher than the proposed limit of 25,000 contracts for
the Fidelity Fund.\92\
---------------------------------------------------------------------------
\89\ See id.
\90\ See id.
\91\ See id.
\92\ See id. at 22-23.
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In addition, the Exchange states that with a position limit of
25,000 contracts, 16 market participants, each with a same-side
position of 25,000 contracts, would have to exercise all of their
Fidelity Fund options to create a scenario that may put the Fidelity
Fund shares under stress.\93\ Based on the information provided,
demonstrating, among other things, that the Fidelity Fund is
characterized by a substantial number of outstanding shares that are
actively traded and widely held, the Exchange believes the proposed
position and exercise limits are extremely conservative compared to
those of ETF options with similar market characteristics.\94\ The
Exchange states that the proposed position and exercise limits
reasonably and appropriately balance liquidity provisioning in the
market against the prevention of manipulation.\95\ The Exchange further
states that the 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 as well as the
ether market.\96\
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\93\ The Exchange based this calculation on the number of
Fidelity Fund shares outstanding as of December 23, 2024. See
Amendment No. 1 at 24.
\94\ See id. at 27.
\95\ See id.
\96\ See id. at 27 (citing the Position Limit Order, supra note
77).
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The Commission finds that the proposed position and exercise limits
are consistent with the Act and, in particular, with the requirements
in Section 6(b)(5) that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest. As discussed above, the
Commission has recognized 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.\97\ In addition, the
Commission has stated previously that 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
position.\98\ Based on its review of the data and analysis provided by
the Exchange, the Commission concludes that the proposed position and
exercise limits satisfy these objectives. Specifically, the Commission
has considered and reviewed the Exchange's analysis that, as of
December 23, 2024, the proposed position and exercise limits of 25,000
contracts represented 6.0% of the outstanding shares of the Fidelity
Fund.\99\ The Commission also has considered and reviewed the
Exchange's statement that with a position limit of 25,000 contracts, 16
market participants, each with a same side position of 25,000
contracts, would have to exercise all of their Fidelity Fund options to
create a scenario that may place the Fidelity Fund shares under
stress.\100\ Based on the Commission's review of this information and
analysis, the Commission concludes that the proposed position and
exercise limits are designed to prevent investors from disrupting the
market for the underlying securities by acquiring and exercising a
number of options contracts disproportionate to the deliverable supply
and average trading volume of the underlying security, and to prevent
the establishment of options positions that can be used or might create
incentives to manipulate or disrupt the underlying market so as to
benefit the options position.
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\97\ See supra note 80 and accompanying text.
\98\ See Securities Exchange Act Release No. 57352 (Feb.19,
2008), 73 FR 10076, 10080 (Feb. 25, 2008) (order approving File No.
SR-Cboe-2008-07).
\99\ See Amendment No. 1 at 12.
\100\ See Amendment No. 1 at 24.
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The proposal excludes the Fidelity Fund options from FLEX
trading.\101\ Excluding Fidelity Fund options from FLEX trading will
allow the Commission to consider the listing of FLEX options on the
Fidelity Fund in the context of any separate proposal the Exchange
files to list such options.
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\101\ See proposed Exchange Rule 4.20. The Exchange states that
excluding Fidelity Fund options from FLEX trading will allow the
Exchange to continue to participate in ongoing discussions with the
Commission regarding appropriate position limits for ETF options.
See Amendment No. 1 at 22.
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C. Surveillance
As described more fully above, the Exchange states that it will
apply its existing options surveillance program procedures to options
on the Fidelity Fund, and that it will implement any new surveillance
procedures it deems necessary to effectively monitor the trading of
options on the Fidelity Fund.\102\ The Exchange states that its market
surveillance staff would have access to the surveillances conducted by
Cboe BZX Exchange, Inc. with respect to the Fidelity Fund and would
review activity in the underlying Fidelity Fund when conducting
surveillances for market abuse or manipulation in
[[Page 15756]]
options on the Fidelity Fund.\103\ In addition, the Exchange states
that it is a member of ISG and that it would be able to obtain
information regarding trading in Fidelity Fund shares through ISG.\104\
The Exchange further states that ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets.\105\
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\102\ See Amendment No. 1 at 15 and 16-17. The Exchange states
that its surveillance program includes surveillance patterns for
price and volume movements as well as patterns for potential
manipulation (e.g., spoofing and marking the close). See id. at
footnote 23.
\103\ See Amendment No.1 at 15. Cboe BZX Exchange, Inc. is an
affiliated market of the Exchange. See Amendment No. 1 at footnote
24.
\104\ See id. at 15.
\105\ See id. at 15.
---------------------------------------------------------------------------
Together, these surveillance procedures should allow the Exchange
to investigate suspected manipulations or other trading abuses in
options on the Fidelity Fund.
D. Retail Customers
Commenters expressed concern that the listing of options on spot
ether-based exchange-traded products (``ETPs'') would harm retail
investors because of the volatility of ether.\106\ One commenter, who
stated that ether dropped 22% over a 24-hour period in August of 2024,
further stated that ``[a]pproving options trading on an ETP with such a
volatile underlying asset would inevitably harm retail investors.''
\107\ Another commenter stated that retail investors ``could suffer
immense harm'' from trading options on ether-based ETPs.\108\
---------------------------------------------------------------------------
\106\ See Better Markets Letter at 3; and Rutkowski Letter at 1.
\107\ Better Markets Letter at 3.
\108\ Rutkowski Letter at 1.
---------------------------------------------------------------------------
Existing rules governing broker-dealer conduct when dealing with
retail customers will apply to the proposed Fidelity Fund options. For
example, the Exchange's rules require its members to ``exercise due
diligence to learn the essential facts as to the customer and his
investment objectives and financial situation.'' \109\ In fulfilling
this obligation, the member must consider, among other things, a
customer's investment objectives; employment status; estimated annual
income; estimated net worth; and investment experience and
knowledge.\110\ Further, FINRA's heightened suitability requirements
for options trading accounts require that a person recommending an
opening position in any option contract have ``a reasonable basis for
believing, at the time of making the recommendation, that the customer
has such knowledge and experience in financial matters that he may
reasonably be expected to be capable of evaluating the risks of the
recommended transaction, and is financially able to bear the risks of
the recommended position in the option contract.'' \111\
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\109\ See Exchange Rule 9.1(b).
\110\ See id.
\111\ See FINRA Rule 2360(b)(19).
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 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#acded9c0c981cfc3c1c1c9c2d8dfecdfc9cf82cbc3da"><span class="__cf_email__" data-cfemail="1e6c6b727b337d7173737b706a6d5e6d7b7d30797168">[email protected]</span></a>. Please include
file number SR-CBOE-2024-036 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-CBOE-2024-036. 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-CBOE-2024-036 and should be
submitted on or before May 6, 2025.
V. Accelerated Approval of Amendment No. 1
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act, for approving Amendment No. 1 prior to the 30th day after the
date of publication of notice of Amendment No. 1 in the Federal
Register. Amendment No. 1 narrows the scope of the proposal to the
Fidelity Fund; proposes position and exercise limits for options on the
Fidelity Fund and provides justification and analysis for the proposed
position and exercise limits; provides data designed to show that
shares of the Fidelity Fund are widely held and actively traded; and
provides additional discussion of surveillance procedures that will
apply to the proposed options. In Amendment No. 1 the Exchange provided
data and analysis supporting the proposed position and exercise limits
and stated, among other things, that the proposed position and exercise
limits would represent 6.0% of the outstanding shares of the Fidelity
Fund.\112\ The Commission concludes that the proposed position and
exercise limits are designed to minimize the potential for
manipulations or disruptions of the underlying market.\113\ Amendment
No. 1 also provides data and analysis designed to demonstrate that
shares of the Fidelity Fund are widely held and actively traded and
describes in greater detail the surveillance procedures that will apply
to the proposed Fidelity Fund options. This additional information
assists the Commission in evaluating the proposal and determining that
the proposal is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange, as discussed
above. Amendment No. 1 also revises the proposal to exclude Fidelity
Fund options from FLEX trading. Excluding Fidelity Fund options from
FLEX trading will allow the Commission to consider the listing of FLEX
options on the Fidelity Fund in the context of any separate proposal
the Exchange files to list such options.
[[Page 15757]]
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\114\ to approve the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
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\112\ See Amendment No. 1 at 13.
\113\ The Commission recognizes that position limits should not
be established at levels that are so low as to discourage
participation in the options market by institutions and other
investors with substantial hedging needs or to prevent specialists
and market makers from adequately meeting their obligations to
maintain a fair and orderly market. See, e.g., Securities Exchange
Act Release Nos. 21907 (Mar. 29, 1985), 50 FR 13440 (Apr. 4, 1985)
(order approving File Nos. SR-CBOE-84-21, SR-Amex-84-30, SR-Phlx-84-
25, and SR-PSE-85-1); 40875 (Dec. 31, 1998), 64 FR 1842, 1843 (Jan.
12, 1999) (order approving File Nos. SR-CBOE-98-25; Amex-98-22; PCX-
98-33; and Phlx-98-36). The Commission finds that the proposed
position and exercise limits are consistent with these objectives.
\114\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
For the reasons set forth above, the Commission finds that the
proposed rule change, as modified by Amendment No. 1, is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of Section 6(b)(5) of the Act.\115\
---------------------------------------------------------------------------
\115\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\116\ that the proposed rule change (SR-CBOE-2024-036), as modified
by Amendment No. 1, is approved.
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\116\ 15 U.S.C. 78s(b)(2)
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06347 Filed 4-14-25; 8:45 am]
BILLING CODE 8011-01-P
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