Notice2025-06499
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 402, Criteria for Underlying Securities, Exchange Rule 307, Position Limits, and Exchange Rule 309, Exercise Limits To Allow the Exchange To List and Trade Options on 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 17, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 73 (Thursday, April 17, 2025)</title>
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[Federal Register Volume 90, Number 73 (Thursday, April 17, 2025)]
[Notices]
[Pages 16339-16348]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-06499]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102821; File No. SR-MIAX-2025-20]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange
Rule 309, Exercise Limits To Allow the Exchange To List and Trade
Options on the Fidelity Ethereum Fund
April 11, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 9, 2025, Miami International Securities Exchange, LLC
(``MIAX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange
Rule 309, Exercise Limits, to list and trade options on the Fidelity
Ethereum Fund (the ``Fidelity Fund'').
The text of the proposed rule change is available on the Exchange's
website at <a href="https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings">https://www.miaxglobal.com/markets/us-options/all-options-exchanges/rule-filings</a>, at MIAX's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 402, Criteria for
Underlying Securities, Exchange Rule 307, Position Limits, and Exchange
Rule 309, Exercise Limits,\3\ to allow the Exchange to list and trade
options on the Fidelity Fund, designating the Fidelity Fund as
appropriate for options trading on the Exchange.\4\ This is a
competitive filing based on similar proposals submitted by Cboe
Exchange, Inc. (``Cboe''), which was approved by the Securities and
Exchange Commission (the ``Commission'').\5\
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\3\ The Exchange notes that its affiliate options exchanges,
MIAX PEARL, LLC (``MIAX Pearl'') and MIAX Sapphire, LLC (``MIAX
Sapphire''), submitted (or will submit) substantively similar
proposals. The Exchange notes that all the rules of Chapter III of
MIAX, including Exchange Rules 307 and 309, are incorporated by
reference into the MIAX Pearl and MIAX Sapphire rulebooks. The
Exchange also notes that all of the rules of Chapter III of MIAX,
including Exchange Rules 307 and 309, and the rules of Chapter IV of
MIAX, including Exchange Rule 402, are incorporated by reference
into the MIAX Emerald, LLC (``MIAX Emerald'') rulebook.
\4\ On May 23, 2024, the Securities and Exchange Commission (the
``Commission'') approved proposals by NYSE Arca, Inc., The Nasdaq
Stock Market LLC, and Cboe BZX Exchange, Inc. to list and trade the
shares of 8 ether-based commodity-based trust shares and trust
units. See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (Order Granting Accelerated
Approval of Proposed Rule Changes, as Modified by Amendments
Thereto, To List and Trade Shares of Ether-Based Exchange-Traded
Products)(``Ether ETP Approval Order'').
\5\ See Securities Exchange Act Release No. 102797 (April 9,
2025) (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) (``Cboe Ether Approval Order'').
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Current Exchange Rule 402(i)(4) provides that securities deemed
appropriate for options trading include shares or other securities
(``Exchange Traded Fund Shares'' or ``ETFs'') that represent certain
types of interests,\6\
[[Page 16340]]
including interests in certain specific trusts that hold financial
instruments, money market instruments, or precious metals (which are
deemed commodities).
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\6\ See Exchange Rule 402(i), which permits options trading on
exchange-traded funds (``ETFs'') that: (1) represent interests in
registered investment companies (or series thereof) organized as
open-end management investment companies, unit investment trusts or
similar entities that hold portfolios of securities and/or financial
instruments (``Funds''), including, but not limited to, stock index
futures contracts, options on futures, options on securities and
indices, equity caps, collars and floors, swap agreements, forward
contracts, repurchase agreements and reverse repurchase agreements
(the ``Financial Instruments''), and money market instruments,
including, but not limited to, U.S. government securities and
repurchase agreements (the ``Money Market Instruments'') comprising
or otherwise based on or representing investments in broad-based
indexes or portfolios of securities and/or Financial Instruments and
Money Market Instruments (or that hold securities in one or more
other registered investment companies that themselves hold such
portfolios of securities and/or Financial Instruments and Money
Market Instruments); (2) represent interests in a trust or similar
entity that holds a specified non-U.S. currency or currencies
deposited with the trust which when aggregated in some specified
minimum number may be surrendered to the trust or similar entity by
the beneficial owner to receive the specified non-U.S. currency or
currencies and pays the beneficial owner interest and other
distributions on the deposited non-U.S. currency or currencies, if
any, declared and paid by the trust (``Currency Trust Shares''); (3)
represent commodity pool interests principally engaged, directly or
indirectly, in holding and/or managing portfolios or baskets of
securities, commodity futures contracts, options on commodity
futures contracts, swaps, forward contracts and/or options on
physical commodities and/or non-U.S. currency (``Commodity Pool
ETFs''); (4) are issued by the SPDR[supreg] Gold Trust, the iShares
COMEX Gold Trust, the iShares Silver Trust, the Aberdeen Standard
Silver ETF Trust, the Aberdeen Standard Physical Gold Trust, the
Aberdeen Standard Palladium ETF Trust, the Aberdeen Standard
Platinum ETF Trust, the Goldman Sachs Physical Gold ETF, the Sprott
Physical Gold Trust, the iShares Bitcoin Trust, the Grayscale
Bitcoin Trust, the Grayscale Bitcoin Mini Trust, the Bitwise Bitcoin
ETF, the Fidelity Wise Origin Bitcoin Fund, or the ARK 21 Shares
Bitcoin ETF; or (5) represent an interest in a registered investment
company (``Investment Company'') organized as an open-end management
company or similar entity, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies,
which is issued in a specified aggregate minimum number in return
for a deposit of a specified portfolio of securities and/or a cash
amount with a value equal to the next determined net asset value
(``NAV''), and when aggregated in the same specified minimum number,
may be redeemed at a holder's request, which holder will be paid a
specified portfolio of securities and/or cash with a value equal to
the next determined NAV (``Managed Fund Share''); provided that all
of the conditions listed in (5)(i) and 5(ii) are met.
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The Fidelity Fund is an Ethereum-backed commodity ETFs [sic]
structured as trusts [sic]. Similar to any ETFs currently deemed
appropriate for options trading under Exchange Rule 402(i), 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 ETFs 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.\7\ 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 ETFs currently deemed appropriate for options trading
are that ETFs may hold securities, certain financial instruments, and
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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\7\ The trust may include minimal cash.
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The Exchange believes that the Fidelity Fund satisfies the
Exchange's initial listing standards for ETFs on which the Exchange may
list options. Specifically, the Fidelity Fund satisfies the initial
listing standards set forth in Exchange Rule 402(i)(5)(i), as is the
case for other ETFs on which the Exchange lists options (including
trusts that hold commodities). Exchange Rule 402(i)(5)(i) requires that
the ETFs must either (1) meet the criteria and standards set forth in
Exchange Rule 402(a) or 402(b),\8\ or (2) be available for creation or
redemption each business day from or through the issuer in cash or in
kind at a price related to net asset value, and the issuer must be
obligated to issue ETFs in a specified aggregate number even if some or
all of the investment assets required to be deposited have not been
received by the issuer, subject to the condition that the person
obligated to deposit the investments has undertaken to deliver the
investment assets as soon as possible and such undertaking is secured
by the delivery and maintenance of collateral consisting of cash or
cash equivalents satisfactory to the issuer, as provided in the
respective prospectus. The Fidelity Fund satisfies Exchange Rule
402(i)(5)(i)(B), as it is subject to this creation and redemption
process.
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\8\ Subparagraphs (a) and (b) of Exchange Rule 402 provide for
guidelines to be used by the Exchange when evaluating potential
underlying securities for Exchange option transactions.
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While not required by the Rules for purposes of options listings,
the Exchange believes that the Fidelity Fund satisfies the criteria and
guidelines set forth in Exchange Rule 402. Pursuant to Exchange Rule
402(a), a security (which includes ETFs) on which options may be listed
and traded on the Exchange must be duly registered (with the
Commission) and be an NMS stock (as defined in Rule 600 of Regulation
NMS under the Act, and be characterized by a substantial number of
outstanding shares that are widely held and actively traded.\9\ The
Fidelity Fund is an NMS Stock as defined in Rule 600 of Regulation NMS
under the Act.\10\ The Exchange believes that the Fidelity Fund is
characterized by a substantial number of outstanding shares that are
widely held and actively traded.
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\9\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Exchange Rule
403(b).
\10\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
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Based on the data presented in the Cboe filing,\11\ 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 Exchange Rule 402(b)(1). The
Exchange believes this demonstrates that the Fidelity Fund is
characterized by a substantial number of outstanding shares.
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\11\ See supra note 5.
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Further, based on the data presented in the Cboe filing,\12\ 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 Exchange Rule 402(b)(2).
Therefore, the Exchange believes the shares of the Fidelity Fund are
widely held.
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\12\ See supra note 5.
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The Exchange also believes that the shares of the Fidelity Fund are
actively traded. Based on the data presented in the Cboe filing,\13\ 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:
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\13\ See supra note 5.
[[Page 16341]]
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Trading volume (shares) ADV (shares) ADV (notional $)
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115,589,047..................... 1,070,269 33,864,193
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As demonstrated above based on the data presented in the Cboe
filing,\14\ 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 402(b)(4).
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.
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\14\ See supra note 5.
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Options on the Fidelity Fund will also be subject to the Exchange's
continued listing standards set forth in Exchange Rule 403(g), for ETFs
deemed appropriate for options trading pursuant to Exchange Rule
402(i). Specifically, Exchange Rule 403(g) provides that ETFs that were
initially approved for options trading pursuant to Exchange Rule 402(i)
shall be deemed not to meet the requirements for continued approval,
and the Exchange shall not open for trading any additional series of
option contracts of the class covering such ETFs, if the ETFs are
delisted from trading pursuant to Exchange Rule 403(b)(4) or the ETFs
are halted or suspended from trading in their primary market.
Additionally, options on ETFs may be subject to the suspension of
opening transactions in any of the following circumstances: (1) in the
case of options covering ETFs approved for trading under Exchange Rule
402(i)(5)(i)(A), in accordance with the terms of paragraphs (b)(1),
(2), and (3) of Exchange Rule 403; (2) in the case of options covering
ETFs approved for trading under Exchange Rule 402(i)(5)(i)(B) (as is
the case for the Fidelity Fund), following the initial twelve-month
period beginning upon the commencement of trading in the ETFs on a
national securities exchange and are defined as an NMS stock, there are
fewer than 50 record and/or beneficial holders of such ETFs for 30 or
more consecutive trading days; (3) the value of the index or portfolio
of securities, non-U.S. currency, or portfolio of commodities including
commodity futures contracts, options on commodity futures contracts,
swaps, forward contracts and/or options on physical commodities and/or
financial instruments and money market instruments on which the ETFs
are based is no longer calculated or available; or (4) such other event
shall occur or condition exist that in the opinion of the Exchange
makes further dealing in such options on the Exchange inadvisable.
Options on the Fidelity Fund will be physically settled contracts
with American-style exercise.\15\ Consistent with current Exchange Rule
404, which governs the opening of options series on a specific
underlying security (including ETFs), the Exchange will open at least
one expiration month for options on the Fidelity Fund \16\ at the
commencement of trading on the Exchange and may also list series of
options on the Fidelity Fund for trading on a weekly,\17\ monthly,\18\
or quarterly \19\ basis. The Exchange may also list long-term equity
option series (``LEAPS'') that expire from 12 to 39 months from the
time they are listed.\20\
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\15\ See Exchange Rule 401, which provides that the rights and
obligations of holders and writers are set forth in the Rules of the
Options Clearing Corporation (``OCC''); see also OCC Rules, Chapters
VIII (which governs exercise and assignment) and Chapter IX (which
governs the discharge of delivery and payment obligations arising
out of the exercise of physically settled stock option contracts).
\16\ See Exchange Rule 404(b). The monthly expirations are
subject to certain listing criteria for underlying securities
described within Exchange Rule 404 and its Interpretations and
Policies. Monthly listings expire the third Friday of the month. The
term ``expiration date'' (unless separately defined elsewhere in the
OCC By-Laws), when used in respect of an option contract (subject to
certain exceptions), means the third Friday of the expiration month
of such option contract, or if such Friday is a day on which the
exchange on which such option is listed is not open for business,
the preceding day on which such exchange is open for business. See
OCC By-Laws Article I, Section 1. Pursuant to Exchange Rule 404(c),
additional series of options of the same class may be opened for
trading on the Exchange when the Exchange deems it necessary to
maintain an orderly market, to meet customer demand or when the
market price of the underlying stock moves more than five strike
prices from the initial exercise price or prices. Pursuant to
Exchange Rule 404(e), new series of options on an individual stock
may be added until the beginning of the month in which the options
contract will expire. Due to unusual market conditions, the
Exchange, in its discretion, may add a new series of options on an
individual stock until the close of trading on the business day
prior to expiration.
\17\ See Exchange Rule 404, Interpretation and Policy .02.
\18\ See Exchange Rule 404, Interpretation and Policy.13.
\19\ See Exchange Rule 404, Interpretation and Policy.03.
\20\ See Exchange Rule 406(a).
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Pursuant to Exchange Rule 404, Interpretation and Policy .06, which
governs strike prices of series of options on ETFs, the interval
between strike prices of series of options on ETFs approved for options
trading pursuant to Exchange Rule 402(i) shall be fixed at a price per
share which is reasonably close to the price per share at which the
underlying security is traded in the primary market at or about the
same time such series of options is first open for trading on the
Exchange, or at such intervals as may have been established on another
options exchange prior to the initiation of trading on the Exchange.
With respect to the Short Term Options Series or Weekly Program, during
the month prior to expiration of an option class that is selected for
the Short Term Option Series Program, the strike price intervals for
the related non-Short Term Option (``Related non-Short Term Option'')
shall be the same as the strike price intervals for the Short Term
Option.\21\ Specifically, the Exchange may open for trading Short Term
Option Series at strike price intervals of (i) $0.50 or greater where
the strike price is less than $100, and $1 or greater where the strike
price is between $100 and $150 for all option classes that participate
in the Short Term Options Series Program; (ii) $0.50 for option classes
that trade in one dollar increments and are in the Short Term Option
Series Program; or (iii) $2.50 or greater where the strike price is
above $150.\22\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\23\ the $0.50 Strike
Program,\24\ and the $2.50 Strike Price Program.\25\ Pursuant to
Exchange Rule 510, where the price of a series of options on the
Fidelity Fund is less than $3.00, the minimum increment will be $0.05,
and where the price is $3.00 or higher, the minimum increment will be
$0.10 \26\ consistent with the minimum increments for options on other
ETFs listed on the
[[Page 16342]]
Exchange. Any and all new series of the Fidelity Fund options that the
Exchange lists will be consistent and comply with the expirations,
strike prices, and minimum increments set forth in Rules 404 and 510,
as applicable.
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\21\ See Exchange Rule 404, Interpretation and Policy.02(e).
\22\ Id.
\23\ See Exchange Rule 404, Interpretation and Policy .01.
\24\ See Exchange Rule 404, Interpretation and Policy .04.
\25\ See Exchange Rule 404(f).
\26\ See Exchange Rule 510.
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Fidelity Fund options will trade in the same manner as any other
ETF options on the Exchange. The Exchange Rules that currently apply to
the listing and trading of all ETFs options on the Exchange, including,
for example, Exchange Rules that govern listing criteria, expiration
and exercise prices, minimum increments, position and exercise limits,
margin requirements, customer accounts and trading halt procedures will
apply to the listing and trading of Fidelity Fund options on the
Exchange in the same manner as they apply to other options on all other
ETFs that are listed and traded on the Exchange, including the
precious-metal backed commodity ETFs already deemed appropriate for
options trading on the Exchange pursuant to current Exchange Rule
402(i)(4).
The Exchange also proposes to amend Rules 307 and 309.
Specifically, the Exchange proposes to amend Interpretation and Policy
.01 to Exchange Rule 307 to provide a position limit of 25,000 same
side option contracts for the Fidelity Fund option. Additionally,
pursuant to the proposed change to Interpretation and Policy .01 to
Exchange Rule 309, the exercise limits for options on the Fidelity Fund
will be equivalent to this proposed position limit.
The Exchange, based on the data presented in the Cboe filing,\27\
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 the 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 market capitalization
(as of December 23, 2024).
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\27\ See supra note 5.
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Market
ADV (shares) Outstanding shares capitalization ($)
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Fidelity Fund....................................... 1,070,269 41,700,000 1,433,229,000
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The Exchange, used the data presented in the Cboe filing,\28\ to
then compare 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), as presented in the Cboe filing,\29\ 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.\30\ As discussed above and
described in the Cboe filing,\31\ 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 402(b)(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 402(b)(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 402(b)(3).
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\28\ See supra note 5.
\29\ See supra note 5.
\30\ 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.
\31\ See supra note 5.
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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, as
presented in the Cboe filing.\32\
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\32\ See supra note 5.
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Therefore, if a market participant held the maximum permissible
options positions in the 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.
Rule 307 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 below, 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).
------------------------------------------------------------------------
Minimum Percentage of
Position/exercise limit (in outstanding outstanding
equivalent shares) shares 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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[[Page 16343]]
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 the Fidelity
Fund Options.\33\
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\33\ 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 404,
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 limits
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 limits for the Fidelity
Fund option 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.\34\
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\34\ See Securities Exchange Act Release No. 101717 (November
22, 2024), 89 FR 94828 (November 29, 2024) (SR-MIAX-2024-
43)(``Bitcoin ETF Option Approval''); See also Exchange Rule 307,
Interpretations and Policies .01 and Exchange Rule 309, proposed
Interpretations and Policies .01
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All of the above information demonstrates that the proposed
position and exercise limits for the Fidelity Fund options are more
than reasonable and appropriate. The trading volume, ADV, and
outstanding shares of the Fidelity Fund demonstrate that this fund is
actively traded and widely held, and proposed position and exercise
limits are well below those of other ETFs with similar market
characteristics. The proposed position and exercise limits are the
lowest position and exercise limits 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.
The Exchange further notes that Exchange Rule 1502, which governs
margin requirements applicable to trading on the Exchange, including
options on ETFs, will also apply to the trading of the Fidelity Fund
options. Notwithstanding the position limits in Exchange Rule 307(d)
and exercise limits in Exchange Rule 309, the Exchange proposes the
position and exercise limits for the options on the Fidelity Fund to be
25,000 contracts on the same side pursuant to proposed Interpretation
and Policy .01 to Exchange Rule 307 and proposed Interpretation and
Policy .01 to Exchange Rule 309.
The Exchange represents that the same surveillance procedures
applicable to all other options on other ETFs currently listed and
traded on the Exchange will apply to options on the Fidelity Fund. Also
the Exchange represents that it has the necessary systems capacity to
support the new option series. The Exchange believes that its existing
surveillance and reporting safeguards are designed to deter and detect
possible manipulative behavior which might potentially arise from
listing and trading options on ETFs, including the proposed options on
the Fidelity Fund.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to the Fidelity Fund options that it applies to the
Exchange's other options products.\35\ The Exchange's staff will have
access to the surveillance programs conducted by its affiliate
exchanges, MIAX Pearl and MIAX Sapphire, with respect to trading in the
shares of the underlying 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 surveillance data from MIAX Pearl and MIAX
Sapphire, the Exchange will be able to obtain information regarding
trading in the shares of the underlying Fidelity Fund from Cboe and
other markets through ISG. In addition, the Exchange has a Regulatory
Services Agreement with the Financial Industry Regulatory Authority
(``FINRA''). Pursuant to a multi-party 17d-2 joint plan, all options
exchanges allocate regulatory responsibilities amongst themselves and
to FINRA 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,
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\35\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\36\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
[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
ether futures market.\37\
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\37\ See Ethereum ETP Approval Order, 89 FR 46938.
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 represents that it will implement
any new surveillance procedures it deems necessary to
[[Page 16344]]
effectively monitor the trading of options on the Fidelity Fund.
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\38\ See Ethereum ETP Approval Order, 89 FR 46939.
\39\ See 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 the
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 position; (2) increased market transparency; and (3)
heightened contra-party creditworthiness due to the role of OCC as
issuer and guarantor of all listed options. The Exchange believes that
listing the 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 ETFs that hold financial instruments,
money market instruments, or precious metal commodities on which the
Exchange may already list and trade options are trusts structured in
substantially the same manner as 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 options on ETFs,
including ETFs 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. 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 ETFs in the OTC options market
if such options were not available for trading in a listed
environment.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\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.
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.
---------------------------------------------------------------------------
\41\ 15 U.S.C. 78f(b).
\42\ 15 U.S.C. 78f(b)(5).
\43\ Id.
---------------------------------------------------------------------------
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 a greater opportunity to
realize the benefits of utilizing options on the Fidelity Fund,
including cost efficiencies and increased hedging strategies. The
Exchange believes that offering the 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 risks 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 the 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 options on
other commodity-based ETFs,\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 ETF options it currently lists for trading.
---------------------------------------------------------------------------
\44\ See Exchange Rule 402(i)(4).
---------------------------------------------------------------------------
The Exchange also believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, because it is consistent with current
Exchange Rules, previously filed with the Commission. Options on the
Fidelity Fund satisfy the initial listing standards and continued
listing standards currently in the Exchange Rules applicable to options
on all ETFs, including ETFs that hold other commodities already deemed
appropriate for options trading on the Exchange. Additionally, as
demonstrated above, 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 ETF options--
the same Exchange Rules that currently govern the listing and trading
of all options on ETFs, including permissible expirations, strike
prices and minimum increments, and applicable position and exercise
limits (as proposed herein), and 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 for options for the Fidelity Fund is 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. The Exchange believes the proposed
position and exercise limits are extremely conservative for Fidelity
Fund options
[[Page 16345]]
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.
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. According to Cboe's
filing,\45\ 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.
---------------------------------------------------------------------------
\45\ See supra note 5.
\46\ See Ethereum Price (ETH), Market Cap, Price Today & Chart
History--Blockworks.
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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.\47\ According to Cboe's filing,\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 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. 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.
---------------------------------------------------------------------------
\47\ 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.
\48\ See supra note 5.
\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.
\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
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). According to Cboe's filing,\52\ 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.
---------------------------------------------------------------------------
\52\ See supra note 5.
---------------------------------------------------------------------------
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,\53\ 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
[[Page 16346]]
create, redeem, or split shares in response to demand. Additionally,
the supply of Ethereum is unlimited.\54\ The current supply of Ethereum
is larger than the available supply of most securities.\55\ 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.
---------------------------------------------------------------------------
\53\ See Ethereum Price (ETH), Market Cap, Price Today & Chart
History--Blockworks.
\54\ 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).
\55\ 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>.
---------------------------------------------------------------------------
The Exchange believes the available supply of Ethereum is not
relevant when establishing position limits for options overlying the
Fidelity Fund.\56\ Position and exercise limits are not a tool that
should be used to address a potential limited supply of the underlying
of an underlying. Position and exercise limits do not limit the total
number of options that may be held, but rather they limit the number of
positions a single customer may hold or exercise at one time.\57\
``Since the inception of standardized options trading, the options
exchanges have had rules imposing limits on the aggregate number of
options contracts that a member or customer could hold or exercise.''
\58\ 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.'' \59\
---------------------------------------------------------------------------
\56\ 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.
\57\ 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.
\58\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\59\ 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.\60\ 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.\61\ 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.
---------------------------------------------------------------------------
\60\ See Amendment No. 5 to Form S-1 Registration Statement No.
333-278249, Fidelity Fund, filed July 17, 2024, at 17.
\61\ See Ethereum ETP Approval Order.
---------------------------------------------------------------------------
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.\62\
---------------------------------------------------------------------------
\62\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------
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 ETF options,
including Fidelity Fund options.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options on the Fidelity Fund that it applies to the
Exchange's other options products.\63\ The Exchange's staff will have
access to the surveillance programs conducted by its affiliate
exchanges, MIAX Pearl and MIAX Sapphire, with respect to the underlying
Fidelity Fund when conducting surveillances for market abuse or
manipulation in the options on the Fidelity Fund. The Exchange will
review activity in the underlying 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 ISG under
the Intermarket Surveillance Group Agreement. ISG members work together
to coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition to obtaining
surveillance data from MIAX Pearl and MIAX Sapphire, the Exchange will
be able to obtain information from Cboe and other markets through ISG.
In addition, the Exchange has a Regulatory Services Agreement with
FINRA. Pursuant to a multi-party 17d-2 joint plan, all options
exchanges allocate regulatory responsibilities to amongst themselves
and FINRA to conduct certain options-related market surveillance that
are common to rules of all options exchanges.\64\
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\63\ The surveillance program includes real-time patterns for
price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing).
\64\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO
(``common members''). Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
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[[Page 16347]]
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 represents that it will implement
any new surveillance procedures it deems necessary to effectively
monitor the trading of options on the Fidelity Fund.
Finally, the Commission has previously approved the listing and
trading of options on other cryptocurrency backed commodity ETFs
structured as trusts.\65\
---------------------------------------------------------------------------
\65\ See Securities Exchange Act Release Nos. 101698 (November
21, 2024), 89 FR 93802 (November 27, 2024) (SR-MIAX-2024-40) (Self-
Regulatory Organizations; MIAX Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Amend Exchange
Rule 402, Criteria for Underlying Securities, Exchange Rule 307,
Position Limits, and Exchange Rule 309, Exercise Limits To Allow the
Exchange To List and Trade Options on the iShares Bitcoin Trust);
101716 November 22, 2024), 89 FR 94856 (November 29, 2024) (SR-MIAX-
2024-42) (Self-Regulatory Organizations; MIAX Exchange LLC; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Exchange Rule 402, Criteria for Underlying Securities,
Exchange Rule 307, Position Limits, and Exchange Rule 309, Exercise
Limits To Allow the Exchange To List and Trade Options on the
Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, and the
Bitwise Bitcoin ETF); 101717 (November 22, 2024), 89 FR 94828
(November 29, 2024) (SR-MIAX-2024-43) (Self-Regulatory
Organizations; MIAX Exchange LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Amend Exchange Rule 402,
Criteria for Underlying Securities, Exchange Rule 307, Position
Limits, and Exchange Rule 309, Exercise Limits To Allow the Exchange
To List and Trade Options on the Fidelity Wise Origin Bitcoin Fund
(the ``Fidelity Fund'') and the ARK 21Shares Bitcoin ETF (the ``ARK
21 Fund'')).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. In this regard and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to the filing submitted by Cboe.\66\
---------------------------------------------------------------------------
\66\ See supra note 5.
---------------------------------------------------------------------------
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. Moreover, options on the Fidelity Fund will be
subject to Exchange Rules that currently govern the listing and trading
of options on ETFs, including permissible expirations, strike prices,
minimum increments, position and exercise limits (including as proposed
to modify herein), and margin requirements. Also, and as stated above,
the Exchange already lists options on other cryptocurrency backed
commodity ETFs structured as trusts.\67\ 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 ETF for the Exchange
to continue listing options on them.
---------------------------------------------------------------------------
\67\ See Exchange Rule 402(i)(4).
---------------------------------------------------------------------------
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 the 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 the 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \68\ and Rule 19b-4(f)(6) thereunder.\69\
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \70\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\71\
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\68\ 15 U.S.C. 78s(b)(3)(A)(iii).
\69\ 17 CFR 240.19b-4(f)(6).
\70\ 15 U.S.C. 78s(b)(3)(A)(iii).
\71\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \72\ under the
Act does not normally become operative prior to 30 days after the date
of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\73\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative immediately upon filing. The
Commission previously approved the listing and trading of options on
the Fidelity Fund.\74\ The Exchange has provided information regarding
the underlying Fidelity Fund, including, among other things,
information
[[Page 16348]]
regarding trading volume, the number of beneficial holders, and the
market capitalization of the Fidelity Fund. The proposal also
establishes position and exercise limits for options on the Fidelity
Fund and provides information regarding the surveillance procedures
that will apply to Fidelity Fund options. The Commission believes that
waiver of the operative delay could benefit investors by providing an
additional venue for trading Fidelity Fund options. Therefore, the
Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\75\
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\72\ 17 CFR 240.19b-4(f)(6).
\73\ 17 CFR 240.19b-4(f)(6)(iii).
\74\ See supra note 5.
\75\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6614130a034b05090b0b030812152615030548010910"><span class="__cf_email__" data-cfemail="e496918881c9878b8989818a9097a4978187ca838b92">[email protected]</span></a>. Please include
file number SR-MIAX-2025-20 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-MIAX-2025-20. 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-MIAX-2025-20 and should be
submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\76\
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\76\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06499 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on April 17, 2025.
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