Notice2025-06516
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing of Proposed Rule Change To Amend BOX Rules 3120 (Position Limits), 5020 (Criteria for Underlying Securities), and 5055 (FLEX Equity Options) To Permit the Listing and Trading of 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 16229-16236]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-06516]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102837; File No. SR-BOX-2025-10]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
of Proposed Rule Change To Amend BOX Rules 3120 (Position Limits), 5020
(Criteria for Underlying Securities), and 5055 (FLEX Equity Options) To
Permit the Listing and Trading of 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 10, 2025, BOX Exchange LLC (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule 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 Rules 3120 (Position Limits), 5020
(Criteria for Underlying Securities), and 5055 (FLEX Equity Options) to
permit the listing and trading of options on the Fidelity Ethereum
Fund. The text of the proposed rule change is available from the
principal office of the Exchange, at the Commission's Public Reference
Room and also on the Exchange's internet website at <a href="https://rules.boxexchange.com/rulefilings">https://rules.boxexchange.com/rulefilings</a>.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
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 Rules 3120 (Position Limits) and
5020 (Criteria for Underlying Securities) to allow the Exchange to list
and trade options on the Fidelity Ethereum Fund (the ``Fidelity
Fund'').\3\ Additionally, the Exchange proposes to amend Rule 5055
(FLEX Equity Options). This is a competitive filing that is based on a
proposal recently submitted by Cboe Exchange, Inc. (``CBOE'') and
approved by the Commission.\4\
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\3\ 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 SR-CboeBZX-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'').
\4\ See Securities Exchange Act Release No. 102797 (April 9,
2025) (Order Approving SR-CBOE-2025-036, as modified by Amendment
No. 1) (``CBOE Approval Order'').
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As discussed herein and as provided in the CBOE Approval Order, the
Exchange believes options on the Fidelity Fund would permit increased
hedging strategies and cost efficiency, with respect to the underlying
Funds. Further, permitting the listing of such options would enhance
the transparency and efficiency of markets in these and correlated
products. Current Rule 5020(h) provides that subject to certain other
criteria set forth in that Rule, securities deemed appropriate for
options trading include Exchange-Traded Fund Shares (``ETFs''), that
represent certain types of interests \5\ and exchange-traded products
[[Page 16230]]
(``ETPs'') structured as trusts that hold precious metals (which are
deemed commodities).\6\ Like ETPs backed by precious metals (i.e.,
commodities), the Exchange proposes to allow options trading on the
Fidelity Fund that hold Ethereum--which is also deemed a commodity.\7\
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\5\ See Rule 5020(h) which provides that securities deemed
appropriate for options trading shall include shares or other
securities (``Exchange-Traded Fund Shares'') that are traded on a
national securities exchange and are defined as an ``NMS stock''
under Rule 600 of Regulation NMS and that (i) 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 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); or (ii) represent interests in a trust 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 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''); or (iii) 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'') or (iv) represent interests
in the SPDR[supreg] Gold Trust, the iShares COMEX Gold Trust, the
iShares Silver Trust, the abrdn Gold ETF Trust, the abrdn Silver ETF
Trust, the abrdn Palladium ETF Trust, the abrdn Platinum ETF Trust,
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 21Shares Bitcoin ETF; provided that all conditions in Rules
5020(h)(1) and (2) are met.
\6\ See Rule 5020(h) (permitting the listing and trading of
options on certain ETPs backed by precious metals).
\7\ See proposed Rule 5020(h).
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The Fidelity Fund is an Ethereum-backed commodity ETF structured as
a trust. Similar to any shares currently deemed appropriate for options
trading under Rule 5020(h), 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 shares 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.\8\ 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 Exchange-Traded Fund Shares
currently deemed appropriate for options trading are that Exchange-
Traded Fund Shares 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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\8\ The trust may include minimal cash.
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The Exchange believes the Fidelity Fund satisfies the Exchange's
initial listing standards for Exchange-Traded Fund Shares on which the
Exchange may list options. Specifically, the Fidelity Fund satisfies
the initial listing standards set forth in Rule 5020(h)(1) and (2), as
is the case for other shares on which the Exchange lists options
(including trusts that hold commodities). Rule 5020(h)(1) requires that
shares must either (i) meet the criteria and guidelines set forth in
paragraphs (a) and (b) of Rule 5020; or (ii) the Exchange-Traded Fund
Shares are available for creation or redemption each business day from
or through the issuing trust, investment company, commodity pool or
other entity in cash or in kind at a price related to net asset value,
and the issuer is obligated to issue Exchange-Traded Fund Shares in a
specified aggregate number even if some or all of the investment assets
and/or cash required to be deposited have not been received by the
issuer, subject to the condition that the person obligated to deposit
the investment assets has undertaken to deliver them 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 of the Exchange-Traded Fund Shares, all as
described in the Exchange-Traded Fund Shares' prospectus. The Fidelity
Fund satisfies Rule 5020(h)(2), as it is subject to this creation and
redemption process.
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 5020(b). Pursuant to Rule 5020(a), a
security 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.\9\ The Fidelity Fund is an NMS Stock as defined in
Rule 600 of Regulation NMS under the Act.\10\ As provided in the CBOE
Approval Order, 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 Rule 5020(b),
subject to exceptions.
\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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Specifically, as shown in the CBOE Approval Order, 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 5020(b)(1). The Exchange
believes this demonstrates that the Fidelity Fund is characterized by a
substantial number of outstanding shares.
Further, as provided in the CBOE Approval Order, 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 5020(b)(2). Therefore, the
Exchange believes the shares of the Fidelity Fund are widely held.
The Exchange also believes the shares of the Fidelity Fund are
actively traded. As provided in the CBOE Approval Order, 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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Trading volume (shares) ADV (shares) ADV (notional $)
----------------------------------------------------------------------------------------------------------------
115,589,047................................................... 1,070,269 33,864,193
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[[Page 16231]]
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
5020(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.
Options on the Fidelity Fund will be subject to the Exchange's
continued listing standards set forth in Rule 5030(h) for ETFs and ETPs
deemed appropriate for options trading pursuant to Rule 5020(h).
Specifically, 5030(h) provides that funds that were initially approved
for options trading pursuant to Rule 5020(h) 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 fund, if the fund ceases to be an NMS stock or if
the fund is halted from trading in their primary market. In addition,
options on funds may be subject to the suspension of opening
transactions in any of the following circumstances: (1) in the case of
options covering funds approved for trading under Rule 5020(h)(1)(i),
in accordance with the terms of subparagraphs (b)(1),(2),(3) and (6) of
Rule 5030; (2) in the case of options covering funds approved for
trading under Rule 5020(h)(1)(ii) (as is the case for the Fidelity
Fund), following the initial twelve-month period beginning upon the
commencement of trading in the fund on a national securities exchange
and are defined as an NMS stock, there are fewer than 50 record and/or
beneficial holders of such fund 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.\11\ Consistent with current Rule 5050,
which governs the opening of options series on a specific underlying
security (including ETFs and ETPs), the Exchange will open at least one
expiration month for options on the Fidelity Fund \12\ at the
commencement of trading on the Exchange and may also list series of
options on the Fidelity Fund for trading on a weekly,\13\ monthly,\14\
or quarterly \15\ 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.\16\
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\11\ See Rule 5010 (Rights and Obligations of Holders and
Writers), which provides that the rights and obligations of holders
and writers of option contracts of any class of options dealt in on
the Exchange shall be as set forth in the Rules of the Clearing
Corporation. See also OCC Rules, Chapter VIII, which governs
exercise and assignment, and Chapter IX, which governs the discharge
of delivery and payment obligations arising out of the exercise of
physically settled stock option contracts. OCC Rules can be located
at: <a href="https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf">https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occrules.pdf</a>.
\12\ See Rule 5050(b). The standard expirations are subject to
certain listing criteria for underlying securities described within
Rule 5020. Standard 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
5050(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.
\13\ See IM-5050-6.
\14\ See IM-5050-13.
\15\ See IM-5050-4.
\16\ See Rule 5070.
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Pursuant to IM-5050-1(b), which governs strike prices of series of
options on ETFs, 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.\17\
Additionally, the Exchange may list series of options pursuant to the
$1 Strike Price Interval Program,\18\ the $0.50 Strike Program,\19\ the
$2.50 Strike Price Program,\20\ and the $5 Strike Program.\21\ Pursuant
to Rule 7050, 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.\22\ 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 5050 and 7050, as applicable.
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\17\ 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, IM-5050-6, IM-
5050-13, and IM-5050-4, specifically set forth intervals between
strike prices on Quarterly Options Series, Short Term Option Series,
and Monthly Options Series, respectively.
\18\ See IM-5050-2.
\19\ See IM-5050-5.
\20\ See IM-5050-3.
\21\ See Rule 5050(d)(5).
\22\ If options on the Fidelity Fund are eligible to participate
in the Penny Interval Program, the minimum increment of $0.01 below
$3.00 and $0.05 above $3.00 would apply. See Rule 7050(a)(3). See
also Rule 7260 (which describes the requirements for the Penny
Interval Program).
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The Exchange also proposes to amend IM-3120-2 to provide a position
limit of 25,000 same side option contracts for the Fidelity Fund
option. Further, Rule 3140 provides that the exercise limits shall be
determined in the manner described in Rule 3120, therefore the exercise
limits would also be 25,000 contracts.
As provided in the CBOE Approval Order, these proposed position and
exercise limits were determined considering, among other things, the
ADV (since trading of the Fidelity Fund began on July 23, 2024) and
outstanding shares of the Fidelity Fund (which as discussed above
demonstrate that the Fidelity Fund is widely held and actively traded
and thus justify these conservatively proposed position limits), as set
forth below, along with market capitalization (as of December 23,
2024):
[[Page 16232]]
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Market capitalization
ADV (shares) Outstanding shares ($)
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1,070,269..................................................... 41,700,000 1,433,229,000
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As provided in the CBOE Approval Order, the number of outstanding
shares of the Fidelity Fund were compared 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.\23\ 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 5020(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 5020(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
5020(b)(4).
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\23\ 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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As provided in the CBOE Approval Order, 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.
Rule 3120(d) 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).
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Minimum outstanding Percentage of
Position/exercise limit (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.\24\
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\24\ 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 IM-5050-2.
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 limits for Fidelity
Fund options are 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.\25\
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\25\ See Securities Exchange Act Release No. 101773 (November
27, 2024), 89 FR 95834 (December 3, 2024) (SR-BOX-2024-29) (Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change to
Amend Rules 3120 (Position Limits) and 5020 (Criteria for Underlying
Securities) to Permit Options Trading on Bitcoin Funds).
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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 limits are
well below those of options on other ETFs with similar market
characteristics. The proposed position and exercise limits 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
[[Page 16233]]
Fund's market capitalization, ADV, and high number of outstanding
shares.
Rule 5055 currently permits the Exchange to authorize for trading a
FLEX option class on any equity security if it may authorize for
trading a non-FLEX option class on that equity security pursuant to
Rule 5020. The proposed rule change amends Rule 5055 to exclude the
Fidelity Fund from this provision.
Fidelity Fund options will trade in the same manner as any other
fund options on BOX. The Exchange Rules that currently apply to the
listing and trading of all ETF or ETP 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 ETFs or ETPs
that are listed and traded on the Exchange, including the precious-
metal backed commodity funds already deemed appropriate for options
trading on the Exchange pursuant to current Rule 5050(h).
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.\26\ Additionally, the Exchange is a
member of the Intermarket Surveillance Group (``ISG'') under the
Intermarket Surveillance Group Agreement. The Exchange would be able to
obtain information regarding trading in shares of the Fidelity Fund
from Cboe BZX Exchange, Inc. (``BZX'') and other markets that trade
shares of the Fidelity Fund through ISG. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition, the Exchange has a
Regulatory Services Agreement with the 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.\27\
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\26\ 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).
\27\ 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: (i) receive regulatory reports from such
members; (ii) examine such members for compliance with the Act and
the rules and regulations thereunder, and the rules of the SRO; or
(iii) carry out other specified regulatory responsibilities with
respect to such members.
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The underlying shares of spot Ethereum 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 ether futures market.'' \28\ 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].'' \29\ In
light of surveillance measures related to both options and futures as
well as the Fidelity Fund,\30\ 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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\28\ See Ethereum ETP Approval Order, 89 FR at 46938.
\29\ See Ethereum ETP Approval Order, 89 FR at 46939.
\30\ 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,\31\ 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 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 ETF options,
including ETFs that hold commodities (i.e., precious metals) that it
currently lists and trades on the Exchange.
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\31\ 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 that the proposal is consistent with the
requirements of Section 6(b) of the Securities Exchange Act of 1934
(the
[[Page 16234]]
``Act''),\32\ in general, and Section 6(b)(5) of the Act,\33\ in
particular, in that it is 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 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) \34\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\32\ 15 U.S.C. 78f(b).
\33\ 15 U.S.C. 78f(b)(5).
\34\ 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 BOX 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 ETPs,\35\ 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 ETP options it currently lists for trading.
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\35\ See Rule 5020(h).
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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 ETFs and ETPs, including ETPs that hold other commodities
already deemed appropriate for options trading on BOX. 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 or ETP
options--the same Exchange Rules that currently govern the listing and
trading of all ETF 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 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
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.\36\ 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 CBOE Approval
Order 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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\36\ See IM-3120-2.
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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.\37\
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\37\ The Exchange may submit a separate rule filing that would
permit the Exchange to authorize for trading FLEX options on the
Fidelity Fund (which filing may propose changes to existing FLEX
option position limits for such options if appropriate).
---------------------------------------------------------------------------
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. The Exchange notes that the proposed
rule change is substantively the same as a rule change proposed by CBOE
which the Commission recently approved.\38\
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\38\ See supra, note 4.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition 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 a filing submitted by CBOE that was recently
approved by the Commission.\39\
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\39\ Id.
---------------------------------------------------------------------------
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 ETF or ETP 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 ETFs or ETPs
that are listed and traded on BOX. Also, and as stated above, the
Commission has approved the trading of options on other
[[Page 16235]]
commodity-based ETFs and ETPs.\40\ 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 or ETP for the
Exchange to continue listing options on them.
---------------------------------------------------------------------------
\40\ See Rule 5020(h).
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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 BOX may make BOX 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 BOX 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 BOX 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 BOX 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.
The proposed rule change to exclude options on the Fidelity Fund
from being eligible for trading as FLEX Equity Options does not impose
an undue burden on intermarket competition because discussions with the
Commission regarding appropriate position limits for ETF options are
ongoing. Finally, the proposed rule change to exclude options on the
Fidelity Fund from being eligible for trading as FLEX Equity Options
does not impose an undue burden on intramarket competition because BOX
Participants will not be allowed to transact a FLEX Equity Option on
the Fidelity Fund.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
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 \41\ and Rule 19b-4(f)(6) thereunder.\42\
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 \43\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\44\
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\41\ 15 U.S.C. 78s(b)(3)(A)(iii).
\42\ 17 CFR 240.19b-4(f)(6).
\43\ 15 U.S.C. 78s(b)(3)(A)(iii).
\44\ 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) \45\ 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),\46\ 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.\47\ The Exchange has provided information regarding
the underlying Fidelity Fund, including, among other things,
information 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.\48\
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\45\ 17 CFR 240.19b-4(f)(6).
\46\ 17 CFR 240.19b-4(f)(6)(iii).
\47\ See Securities Exchange Act Release No. 102797 (April 9,
2025) (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) (SR-CBOE-2024-036).
\48\ 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:
[[Page 16236]]
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#88fafde4eda5ebe7e5e5ede6fcfbc8fbedeba6efe7fe"><span class="__cf_email__" data-cfemail="dcaea9b0b9f1bfb3b1b1b9b2a8af9cafb9bff2bbb3aa">[email protected]</span></a>. Please include
file number SR-BOX-2025-10 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-BOX-2025-10. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-BOX-2025-10 and should be
submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\49\
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\49\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06516 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.