Notice2025-06525
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change 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 Grayscale Ethereum Trust ETF, the Grayscale Ethereum Mini Trust ETF, and the Bitwise Ethereum ETF
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
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 16316-16324]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-06525]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102840; File No. SR-BOX-2025-09]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change 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 Grayscale Ethereum Trust ETF, the Grayscale Ethereum Mini Trust
ETF, and the Bitwise Ethereum ETF
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 Grayscale Ethereum
Trust ETF, the Grayscale Ethereum Mini Trust ETF, and the Bitwise
Ethereum ETF. 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 Grayscale Ethereum Trust ETF (the ``Grayscale
Fund'' or ``ETHE''), the Grayscale Ethereum Mini Trust ETF (the
``Grayscale Mini Fund'' or ``ETH''), and the Bitwise Ethereum ETF (the
``Bitwise Fund'' or ``ETHW'' and, collectively, the ``Ether Funds'' or
``Funds'').\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 NYSE American LLC (``NYSE American'')
and approved by the Commission.\4\
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\3\ See proposed Rule 5020(h). On July 23, 2024, the Ether Funds
began trading on NYSE Arca, Inc. (``NYSE Arca''), after the
Commission approved rule changes to list and trade shares of
``Ether-Based Commodity-Based Trust Shares'' pursuant to Rule 8.201-
E(c)(1) (Commodity-Based Trust Shares). See Securities Exchange Act
Release Nos. 100224 (May 23, 2024), 89 FR 46937 (May 30, 2024) (SR-
NYSEARCA-2023-70; SR-NYSEARCA-2024-31) (order approving the listing
and trading of, among other Ether-Based Exchange-Traded Products,
the Bitwise Ethereum ETF and the Grayscale Ethereum Trust (ETH));
and 100541 (July 17, 2024), 89 FR 59786 (July 23, 2024) (SR-
NYSEARCA-2024-44) (order approving the listing and trading of, among
others, the Grayscale Ethereum Trust Mini).
\4\ See Securities Exchange Act Release No. 102799 (April 9,
2025) (Order Approving SR-NYSEAMER-2024-45, as modified by Amendment
No. 2) (``NYSE American Approval Order'').
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Current Rule 5020(h) provides that subject to certain other
criteria set forth in the Rule, securities deemed appropriate for
options trading include Exchange-Traded Fund Shares (``ETFs''), that
represent certain types of interests \5\ and exchange-traded products
(``ETPs'') structured as trusts that hold precious metals (which are
deemed commodities).\6\ Like ETPs backed by precious metals and bitcoin
(i.e., commodities), the Exchange proposes to allow options trading on
the Ether Funds that hold ether--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 and bitcoin). The
Exchange notes on October 19, 2024, the Commission approved the NYSE
American's proposal to list and trade options on the Grayscale
Bitcoin Trust (BTC), the Grayscale Bitcoin Mini Trust BTC, and the
Bitwise Bitcoin ETF. See Securities Exchange Act Release No. 101386
(October 18, 2024), 89 FR 84960 (October 24, 2024) (SR-NYSEARCA-
2024-49) (the ``BTC Approval Order''). The Commission has also
approved for options trading several other bitcoin-related funds:
See, e.g., Securities Exchange Act Release Nos. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (order
approving the listing and trading of options on the iShares Bitcoin
Trust (IBIT)); and 101387 (October 18, 2024), 89 FR 84948 (October
24, 2024) (SR-CBOE-2024-035) (order approving the listing and
trading of options on the Fidelity Wise Origin Bitcoin Fund and the
ARK 21Shares Bitcoin ETF).
\7\ See proposed Rule 5020(h) (expanded to include the listing
and trading of options on shares of ETHE, ETH, AND ETHW, pursuant to
Rule 5020).
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[[Page 16317]]
The Ether Funds are structured as trusts that hold ether. Like ETFs
and ETPs currently deemed appropriate for options trading, the
investment objective of each Ether Fund trust is for its shares to
reflect the performance of ether (less the expenses of the trust's
operations), offering investors an opportunity to gain exposure to
ether without the complexities of ether delivery. Each Ether Fund's
shares represent units of fractional undivided beneficial interest in
the trust, the assets of which consist principally of ether and are
designed to track ether or the performance of the price of ether and
offer access to the ether market.\8\ The Ether Funds provide investors
with cost-efficient alternatives that allow a level of participation in
the ether market through the securities market. The Exchange believes
each Ether Fund satisfies the Exchange's initial listing standards set
forth in Rule 5020(a).\9\ The Exchange notes that the Ether Funds also
satisfy the listing standard applied to ETFs traded on the Exchange
that they be available for creation and redemption each business day as
set forth in Rule 5020(h)(1).\10\
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\8\ The trust may include minimal cash.
\9\ Rule 5020(a) provides for guidelines to be followed by the
Exchange when evaluating potential underlying securities for
Exchange option transactions.
\10\ Rule 5020(h)(1) requires that 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.
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First, each of the Ether Funds satisfy the criteria and guidelines
set forth in Rule 5020(a). 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 Act) and be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.\11\ Each of the Ether Funds is an NMS Stock as defined
in Rule 600 of Regulation NMS under the Act.\12\ The Exchange believes
each Ether Fund is characterized by a substantial number of outstanding
shares that are widely held and actively traded.
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\11\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Rule 5020(b),
subject to exceptions.
\12\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
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As provided in the NYSE American Approval Order, as of November 29,
2025, ETHE had 177,838,500 shares outstanding, ETH had 45,220,787, and
ETHW had 16,600,000. As such, each of the Ether Funds 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).\13\ The
Exchange believes this demonstrates that each Ether Fund is
characterized by a substantial number of outstanding shares.
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\13\ The Exchange notes that on November 19, 2024, ETH underwent
a reverse stock split, reducing the number of shares outstanding--
and increasing the share price--tenfold.
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Further, as provided in the NYSE American Approval Order, as of
December 31, 2024, ETHE had 112,320 beneficial holders, ETH had 17,396,
and ETHW had 5,992. As such, each Ether Fund has significantly more
than 2,000 beneficial holders (approximately 56, 9, and 3 times more,
respectively), which is the minimum number of holders the Exchange
generally requires for corporate stock in order to list options on that
stock pursuant to pursuant to Rule 5020(b)(2).\14\ Therefore, the
Exchange believes the shares of each Ether Fund are widely held.
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\14\ The number of beneficial holders of ETH may have been
impacted by the 10:1 reverse stock split, as investors with fewer
than 10 shares would have received a cash payout. See id.
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According to the NYSE American Approval Order, based on trading
volume since the Funds began trading on July 23, 2024, shares of the
Ether Funds are actively traded. In particular, the total trading
volume from the inception of trading through November 29, 2024 for ETHE
was 427,312,540 shares and ETH was 172,400,020 shares and through
December 31, 2024 was 44,477,060 for ETHW.\15\ As such, even though the
Ether Funds have been trading for less than one year, the trading
volume for each Ether Fund is substantially higher than 2,400,000
shares (roughly 178, 72, and 16 times that amount, respectively), 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). The Exchange believes this data demonstrates that each
Ether Fund is characterized by a substantial number of outstanding
shares that are actively traded.
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\15\ See FactSet, 11/29/2024 and 12/31/24, <a href="https://www.factset.com/data-attribution">https://www.factset.com/data-attribution</a>.
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Options on the Ether Funds 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, Rule 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 Ether Funds),
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 and/or
financial instruments and money market instruments, or non-U.S.
currency, portfolio of commodities including commodity futures
contracts, options on commodity futures contracts, swaps, forward
contracts and/or options on physical commodities, 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 Ether Funds will be physically settled contracts
with American-style exercise.\16\ Consistent
[[Page 16318]]
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 Ether Funds
\17\ at the commencement of trading on the Exchange and may also list
series of options on the Ether Funds for trading on a weekly,\18\
monthly,\19\ or quarterly \20\ basis. The Exchange may also list long-
term equity option series (``LEAPS'') that expire from twelve to one
hundred eighty months from the time they are listed.\21\
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\16\ 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>.
\17\ 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.
\18\ See IM-5050-6.
\19\ See IM-5050-13.
\20\ See IM-5050-4.
\21\ 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 between strike prices of series of
options on the Ether Funds will be $1 or greater when the strike price
is $200 or less and $5 or greater where the strike price is over
$200.\22\ Additionally, the Exchange may list series of options
pursuant to the $1 Strike Price Interval Program,\23\ the $0.50 Strike
Program,\24\ the $2.50 Strike Price Program,\25\ and the $5 Strike
Program.\26\ Pursuant to Rule 7050, where the price of a series of an
Ether 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.\27\Any and all new series of Ether 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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\22\ 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.
\23\ See IM-5050-2.
\24\ See IM-5050-5.
\25\ See IM-5050-3.
\26\ See Rule 5050(d)(5).
\27\ If options on the Ether Funds 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 Ether Fund options.
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.\28\
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\28\ See Rule 3140(c),
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Position and exercise limits for options, including options on
Ether Funds, are determined pursuant to Rules 3120 and 3140,
respectively. Position and exercise limits for options vary according
to the number of outstanding shares and the trading volumes of the
underlying security over the past six months, where the largest in
capitalization and the most frequently traded funds have an option
position and exercise limit of 250,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market; and
smaller capitalization funds have position and exercise limits of
200,000, 75,000, 50,000 or 25,000 contracts (with adjustments for
splits, re-capitalizations, etc.) on the same side of the market.\29\
Position limits are designed to limit the number of options contracts
traded on BOX in an underlying security that an investor, acting alone
or in concert with others directly or indirectly, may control. The
purpose of position limits, which are set forth in Rule 3120, is to
address potential manipulative schemes and adverse market impacts
surrounding the use of options, such as disrupting the market in the
security underlying the options. As such, position limits must balance
concerns regarding mitigating potential manipulation and the cost of
inhibiting potential hedging activity that investors may use for
legitimate economic purposes. To achieve this balance, the Exchange
proposes to set the position and exercise limits for the options on the
Ether Funds at 25,000 contracts.\30\ Capping the position limit at
25,000 contracts, the lowest limit available in options, would address
concerns related to manipulation and protection of investors as this
number is conservative for the Ether Funds and therefore appropriate
given their liquidity. While the Exchange believes that the proposed
25,000-contract position limit is conservative for options on the Ether
Funds, it nonetheless believes that, as provided in the NYSE American
Approval Order, evidence exists to support a much higher position
limit.\31\
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\29\ See Rule 3120(d). For an option to be eligible for the
50,000-contract limit, the security underlying the option must have
most recent six-month trading volume of at least 20,000,000 shares,
or most recent six-month trading volume of at least 15,000,000
shares and at least 40,000,000 shares currently outstanding. For an
option to be eligible for the 75,000-contract limit, the underlying
security must have most recent six-month trading volume of at least
40,000,000 shares, or most recent six-month trading volume of at
least 30,000,000 shares and at least 120,000,000 shares currently
outstanding. For an option to be eligible for the 200,000-contract
limit, the underlying security must have most recent six-month
trading volume of at least 80,000,000 shares, or most recent six-
month trading volume of at least 60,000,000 shares and at least
240,000,000 shares currently outstanding. For an option to be
eligible for the 250,000-contract limit, the security underlying the
option must have most recent six-month trading volume of at least
100,000,000 shares, or most recent six-month trading volume of at
least 75,000,000 shares and at least 300,000,000 shares currently
outstanding. The 25,000-contract limit applies to options on
underlying securities that do not qualify for a higher contract
limit. In addition, IM-3120-2 establishes higher position limits for
options on certain ETFs.
\30\ See proposed IM-3120-2.
\31\ The Exchange may file a subsequent rule change to amend the
position and exercise limit for options on any or all the Ether
Funds based on additional data regarding trading activity, to
continue to balance any concerns regarding manipulation. A higher
position limit would allow institutional investors to utilize
options on the Ether Funds for prudent risk management purposes.
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Specifically, as provided in the NYSE American Approval Order, the
most-recent trading volume in ETHE and ETH well exceeds the requisite
minimum of 100,000,000 shares necessary to qualify for the 250,000-
contract position and exercise limits.\32\ By comparison, other options
symbols with less trading volume for the most-recent six months than
ETHE and ETH are eligible for position and exercise limits of at least
250,000.\33\ Further, the most-recent trading volume for ETHW well
exceeded the requisite minimum of 40,000,000 shares necessary to
qualify for the 75,000-contract position (and exercise) limit, which is
three times the proposed 25,000- contract limit.\34\ Finally, the
proposed 25,000-contract position limit is the default for options that
do not otherwise qualify for a
[[Page 16319]]
higher limit and is therefore an adequate limit for each Ether
Fund.\35\
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\32\ See supra note 4.
\33\ See <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search">https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search</a> (including the following
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR,
SGOL).
\34\ See supra note 4.
\35\ Id.
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As provided in the NYSE American Approval Order, if a market
participant held the maximum permissible options positions in one of
the Ether Fund options and exercised all of them at the same time, that
market participant would control a small percentage of the outstanding
shares of the underlying Ether Fund. For example, as noted above, a
position limit of 25,000 same side contracts effectively restricts a
market participant from holding positions that could result in the
receipt of no more than 2,500,000 shares of the applicable Ether Fund
(if that market participant exercised all its options).
Further, as provided in the NYSE American Approval Order, if 71
market participants had 25,000 same side positions in options on ETHE,
each of them would have to simultaneously exercise all those options to
create a scenario that may put the underlying security under stress.
Similarly, if 18 market participants had 25,000 same side positions in
options on ETH, each of them would have to simultaneously exercise all
those options to create a scenario that may put the underlying security
under stress. Finally, if 7 market participants had 25,000 same side
positions in options on ETHW, each of them would have to simultaneously
exercise all those options to create a scenario that may put the
underlying security under stress. The Exchange believes it is highly
unlikely for any of these scenarios to occur; however, even if such an
event did occur, the Exchange would not expect any of the Ether Funds
to be under stress because such an event would merely induce the
creation of more shares through the trust's creation and redemption
process. Further, given that the issuer of each Ether Fund may create
and redeem shares that represent an interest in ether, the Exchange
believes it is relevant to compare the size of a position limit to the
market capitalization of the ether market. As of November 29, 2024, the
global supply of ether was approximately 120.44 million, and the price
of one ether was approximately $3,593.49,\36\ which equates to a market
capitalization of approximately $439.78 billion. Consider the proposed
position and exercise limit of 25,000 option contracts for each Ether
Fund option. A position and exercise limit of 25,000 same side
contracts effectively restricts a market participant from holding
positions that could result in the receipt of no more than 2,500,000
shares of ETHE, ETH, and ETHW, as applicable (if that market
participant exercised all of its options). Therefore, if a market
participant with the maximum 25,000 same side contracts in options on
any of ETHE, ETH, or ETHW exercised all positions at one time, such an
event would have no practical impact on ether.
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\36\ See <a href="https://finance.yahoo.com/quote/ETH-USD/history/">https://finance.yahoo.com/quote/ETH-USD/history/</a>.
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The NYSE American Approval Order provides the Ether Funds
collectively represent approximately 1.71% of the global supply of
ether (120,440,000).\37\ Based on the $30.15 price of a ETHE share on
November 29, 2024, a market participant could have redeemed one ether
for approximately 119 ETHE shares. Another 14,354,890,070 ETHE shares
could be created before the supply of ether was exhausted. As a result,
5,742 market participants would have to simultaneously exercise 25,000
same side positions in ETHE options to receive shares of the ETHE
holding the entire global supply of ether. Similarly, based on the
$33.84 price of an ETH share on November 29, 2024, a market participant
could have redeemed one ether for approximately 106 ETH shares. Another
12,789,596,206 ETH shares could be created before the supply of ether
was exhausted. As a result, 5,116 market participants would have to
simultaneously exercise 25,000 same side positions in ETH options to
receive shares of ETH holding the entire global supply of ether.
Similarly, based on the $25.80 price of a ETHW share on November 29,
2024, a market participant could have redeemed one ether for
approximately 139 ETHW shares. Another 16,775,191,302 ETHW shares could
be created before the supply of ether was exhausted. As a result, 6,710
market participants would have to simultaneously exercise 25,000 same
side positions in ETHW options to receive shares of ETHW holding the
entire global supply of ether. Unlike the Ether Funds, the number of
shares that corporations may issue is limited. However, like
corporations, which authorize additional shares, repurchase shares, or
split their shares, the Ether Funds may create, redeem, or split shares
in response to demand. The supply of ether is larger than the available
supply of most securities.\38\ Given the significant unlikelihood of
any of these events ever occurring, the Exchange does not believe
options on the Ether Funds should be subject to position and exercise
limits even lower than those proposed (which are already equal to the
lowest available limit for equity options in the industry) to protect
the supply of ether. The Exchange also believes the proposed limits are
appropriate given position limits for ether futures. For example, the
Chicago Mercantile Exchange (``CME'') imposes a position limit of 8,000
futures (for the initial spot month) on its ether futures contract.\39\
On November 29, 2024, CME Jan 25 ether futures settled at $3,629.69. A
position of 8,000 CME ether futures, therefore, would have a notional
value of $1,451,876,000. As provided in the NYSE American Approval
Order, the approximate number of option contracts for each Ether Fund
that would equate to the notional value of CME ether futures is
significantly higher than the proposed limit of 25,000 options contract
for each Ether 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 an ether future is 1, further
demonstrates how conservative the proposed limits of 25,000 options
contracts are for the Ether 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).\40\
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.\41\ 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
[[Page 16320]]
day's delta factors, then the position shall not constitute a position
limit violation. Considering CME's position limits on futures for
ether, the Exchange believes that that the proposed same side position
limits are more than appropriate for the Ether Fund options.
---------------------------------------------------------------------------
\37\ See id.
\38\ The market capitalization of ether would rank in the top 20
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>.
\39\ 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 ether futures contract is valued at fifty ethers as defined
by the CME CF Ether Reference Rate (``ERR''). See CME Rulebook
Chapter 349.
\40\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
\41\ Id.
---------------------------------------------------------------------------
Consistent with its position regarding the irrelevance of bitcoin
supply to position limits for options on bitcoin ETPs, the Exchange
likewise believes the available supply of ether is not relevant to the
determination of position and exercise limits for Ether Fund
options.\42\ Position and exercise limits are not a tool that should be
used to address a potential limited supply 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.\43\ ``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.'' \44\ 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.'' \45\ The Exchange notes that a Registration
Statement on Form S-1 was filed with the Commission for each Ether
Fund, each of which described the supply of ether as being
unlimited.\46\ Each Registration Statement permits an unlimited number
of shares of the applicable Ether Fund to be created. Further, the
Commission approved proposed rule changes that permitted the listing
and trading of shares of each Ether Fund, which approval did not
comment on the sufficient supply of ether or address whether there was
a risk that permitting an unlimited number of shares for an Ether Fund
would impact the supply of ether.\47\ Therefore, the Exchange believes
the Commission had ample time and opportunity to consider whether the
supply of ether was sufficient to permit the creation of unlimited
Ether 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 ether
supply, the proposed positions limits are more than sufficient to
protect investors and the market.
---------------------------------------------------------------------------
\42\ See BTC Approval Order, 89 FR at 84965, n. 48 (asserting
that, outside of the bitcoin context, NYSE American is unaware of
any proposed rule change related to position and exercise limits for
any equity option (including commodity ETF options) for which the
Commission required consideration of whether the available supply of
an underlying (whether it be a corporate stock or an ETF) or the
contents of an ETF (commodity or otherwise) should be considered
when an exchange proposed to establish those limits). See, e.g.,
Securities Exchange Act Release No. 57894 May 30, 2008), 73 FR 32061
(June 5, 2008) (SR-CBOE-2005-11) (approval order in which the
Commission stated that the ``listing and trading of Gold Trust
Options will be subject to the exchanges' rules pertaining to
position and exercise limits and margin''). The Exchange notes the
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 the position and exercise limit for
options on the Ether Funds.
\43\ 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.
\44\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\45\ Id.
\46\ See, e.g., ETHE Form S-1 Registration Statement, at p. 77,
<a href="https://www.sec.gov/Archives/edgar/data/2020455/000119312524106957/d756153ds1.htm">https://www.sec.gov/Archives/edgar/data/2020455/000119312524106957/d756153ds1.htm</a>; ETH Amendment No. 5 to Form S-1 Registration
Statement, at p. 79, <a href="https://www.sec.gov/Archives/edgar/data/2020455/000119312524181081/d756153ds1a.htm">https://www.sec.gov/Archives/edgar/data/2020455/000119312524181081/d756153ds1a.htm</a>; and ETHW Form S-1
Registration Statement 1, at p. 17, <a href="https://www.sec.gov/Archives/edgar/data/2013744/000199937124007581/bitwise-s1a_061824.htm">https://www.sec.gov/Archives/edgar/data/2013744/000199937124007581/bitwise-s1a_061824.htm</a>
(``Ether Funds Reg. Stmts.'').
\47\ See infra note 50.
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes the proposal to list
options on the Ether Funds with positions and exercise limits of 25,000
on the same side, the lowest position limit available in the options
industry, is conservative and appropriate given the market
capitalization, average daily volume, and high number of outstanding
shares for each of the Ether Funds. The proposed position and exercise
limits reasonably and appropriately balance the liquidity provisioning
in the market against the prevention of manipulation. The Exchange
believes these proposed limits are effectively designed to prevent an
individual customer or entity from establishing options positions that
could be used to manipulate the market of the underlying Ether Funds as
well as the ether market.\48\ As described herein, options on the Ether
Funds will trade in the same manner as any other ETF or ETP options on
the Exchange, except that the Ether Funds will not be eligible for FLEX
Equity Option trading. The Exchange Rules that currently apply to the
listing and trading of options on BOX, including, for example, Rules
that govern listing criteria, expiration and exercise prices, minimum
increments, margin requirements, customer accounts and trading halt
procedures will apply to the listing and trading of Ether Funds on BOX
in the same manner as they apply to all other ETFs and ETPs that are
listed and traded on BOX, including the precious metal-backed commodity
ETPs already deemed appropriate for options trading on BOX pursuant to
Rule 5020(h). Further, as described above, Exchange Rules regarding
position and exercise limits will likewise apply to options on the
Ether Funds except that, as proposed, the position and exercise limits
will be set at 25,000 on the same side.
---------------------------------------------------------------------------
\48\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11). See also BTC
Approval Order.
---------------------------------------------------------------------------
The Exchange has analyzed BOX's capacity and represents that it and
The Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle the additional traffic associated with the
listing of options on Ether Funds. The Exchange believes any additional
traffic that would be generated from the trading of options on Ether
Funds would be manageable. The Exchange represents that Exchange
Participants will not have a capacity issue as a result of this
proposed rule change. The Exchange represents that the same
surveillance procedures applicable to all other options currently
listed and traded on BOX will apply to options on Ether Funds, and that
it has the necessary systems capacity to support the new option series.
The Exchange's existing surveillance and reporting safeguards are
designed to deter and detect possible manipulative behavior which might
arise from listing and trading options on ETFs and ETPs, such as
(existing) precious metal-commodity backed ETP options as well as the
proposed options on Ether Funds. The Exchange believes that its
surveillance procedures are adequate to properly monitor the trading of
options on Ether Funds and to deter and detect violations of Exchange
rules. Specifically, the Exchange's market surveillance staff will have
access to surveillances that it conducts, and that Financial Industry
Regulatory Authority
[[Page 16321]]
(``FINRA'') conducts on its behalf, with respect to the Ether Funds
and, as appropriate, would review activity in the underlying Funds when
conducting surveillances for market abuse or manipulation in the
options on the Ether Funds. Additionally, the Exchange is a member of
the Intermarket Surveillance Group (``ISG'') under the Intermarket
Surveillance Group Agreement. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. As such, the Exchange would be able to
obtain information regarding trading in shares of the Ether Funds from
their primary listing markets and from other markets that trade shares
of the Ether Funds 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 FINRA to conduct certain options-related market
surveillances.\49\ Further, the Exchange will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on the Ether Funds. The underlying shares of spot
ether ETPs, including the Ether Funds, are also subject to safeguards
related to addressing market abuse and manipulation. As the Commission
stated in its order approving proposals of several exchanges to list
and trade shares of spot ether-based exchange-traded products: Each
Exchange has a comprehensive surveillance-sharing agreement with the
[CME] via their common membership in the Intermarket Surveillance
Group. This facilitates the sharing of information that is available to
the CME through its surveillance of its markets, including its
surveillance of the CME ether futures market.\50\ The Exchange states
that, given the consistently high correlation between the CME ether
futures market and the spot ether 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 Ether ETPs].'' \51\
In light of surveillance measures related to both options and futures
as well as the underlying Ether Funds,\52\ 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 Ether Funds. Finally,
quotation and last sale information for ETFs is available via the
Consolidated Tape Association (``CTA'') high speed line. Quotation and
last sale information for such securities is also available from the
exchange on which such securities are listed. Quotation and last sale
information for options on Ether Funds will be available via OPRA and
major market data vendors. The Exchange believes that offering options
on Ether Funds will benefit investors by providing them with an
additional, relatively lower cost investing tool to gain exposure to
the price of ether and hedging vehicle to meet their investment needs
in connection with ether-related products and positions. The Exchange
expects investors will transact in options on Ether Funds in the
unregulated over-the-counter (``OTC'') options market,\53\ 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 Ether Fund options may cause investors
to bring this liquidity to BOX, which would increase market
transparency and enhance the process of price discovery conducted on
BOX through increased order flow. The Exchange notes that the ETPs that
hold precious metal commodities on which BOX may already list and trade
options are trusts structured in substantially the same manner as Ether
Funds and essentially offer the same objectives and benefits to
investors, just with respect to different assets. The Exchange notes
that it has not identified any issues with the continued listing and
trading of options on any ETFs or ETPs that hold commodities (i.e.,
precious metals) that it currently lists and trades on BOX. Finally,
the Exchange notes that applicable Exchange rules will require that
customers receive appropriate disclosure before trading options in
Ether Funds.\54\ Further, brokers opening accounts and recommending
options transactions must comply with relevant customer suitability
standards.\55\
---------------------------------------------------------------------------
\49\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
\50\ See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937, 46938 (May 30, 2024) (File Nos. 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;
SR-CboeBZX-2024-018) (Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, to List
and Trade Ether-Based Commodity-Based Trust Shares and Trust Units)
(``Ether ETP Approval Order'').
\51\ See Ether ETP Approval Order, 89 FR at 46941.
\52\ See Amendment No. 2 to Proposed Rule Change to List and
Trade Shares of the Grayscale Ethereum ETF under NYSE Arca Rule
8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2023-70), filed
May 21, 2024, available at <a href="https://www.sec.gov/comments/sr-nysearca-2023-70/srnysearca202370-475871-1363474.pdf">https://www.sec.gov/comments/sr-nysearca-2023-70/srnysearca202370-475871-1363474.pdf</a>; Amendment No. 1 to
Proposed Rule Change to List and Trade Shares of the Bitwise
Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) (SR-NYSEARCA-2024- 31), filed May 21, 2024, available at
<a href="https://www.sec.gov/comments/sr-nysearca-2024-31/srnysearca202431-475891-1363514.pdf">https://www.sec.gov/comments/sr-nysearca-2024-31/srnysearca202431-475891-1363514.pdf</a>; and Amendment No. 2 to Proposed Rule Change to
List and Trade Shares of the Grayscale Ethereum Mini ETF under NYSE
Arca Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2024-
44), filed May 22, 2024, available at <a href="https://www.sec.gov/comments/sr-nysearca-2024-44/srnysearca202444-476231-1364174.pdf">https://www.sec.gov/comments/sr-nysearca-2024-44/srnysearca202444-476231-1364174.pdf</a>.
\53\ 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.
\54\ See Rules 4020(b), (e) and 4100.
\55\ See Rule 4040.
---------------------------------------------------------------------------
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 ``Act''),\56\ in general, and Section 6(b)(5) of the Act,\57\ 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.
---------------------------------------------------------------------------
\56\ 15 U.S.C. 78f(b).
\57\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposal to list and
trade options on Ether Funds will remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, protect investors because
[[Page 16322]]
offering options on Ether Funds will provide investors with an
opportunity to realize the benefits of utilizing options on an Ether
Fund, including cost efficiencies and increased hedging strategies. The
Exchange believes that offering Ether 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 ether and with ether-related products and
positions. Additionally, BOX's offering of Ether 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 BOX
already lists options on other commodity-based ETPs,\58\ which, as
described above, are trusts structured in substantially the same manner
as Ether Funds and essentially offer the same objectives and benefits
to investors, just with respect to a different commodity (i.e., Ether
rather than precious metals) and for which the Exchange has not
identified any issues with the continued listing and trading of
commodity-backed ETP options BOX currently lists for trading. 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 Ether Funds satisfy
the initial listing standards and continued listing standards currently
in the Exchange Rules applicable to options on all ETFs and ETPs,
including ETPs that hold other commodities already deemed appropriate
for options trading on BOX. Additionally, as demonstrated above, each
Ether Fund is characterized by a substantial number of shares that are
widely held and actively traded. Ether Fund options will trade in the
same manner as any other ETF or ETP options--the same Exchange Rules
that currently govern the listing and trading of options, including
permissible expirations, strike prices, minimum increments, and margin
requirements, will govern the listing and trading of options on Ether
Funds in the same manner. The Exchange believes the proposed rule
change to exclude the Ether Funds from being eligible for trading as
FLEX Equity Options is consistent with the Act, because without this
prohibition, trading a FLEX Equity Option in the Funds would otherwise
establish different position and exercise limits than those proposed
herein.\59\ The proposed position and exercise limit for options on the
Ether Funds is 25,000 contracts, which proposed limits were recently
approved for certain ETPs that hold bitcoin.\60\ These position and
exercise limits are the lowest position and exercise limits available
in the options industry, are extremely conservative and more than
appropriate given the Ether Funds' market capitalization, average daily
volume, number of beneficial holders, and high number of outstanding
shares.\61\ The proposed position and exercise limits are consistent
with the Act as they addresses concerns related to manipulation and
protection of investors because the position and exercise limits are
extremely conservative and more than appropriate given the Ether Funds
are actively traded. The Exchange also believes the proposal to exclude
from FLEX trading options on the Ether Funds (i.e., per Rule 5055) at
this time will remove impediments to and perfect the mechanism of a
free and open market and a national market system because it adds
clarity and transparency to Exchange Rules making them easier to
navigate and understand to the benefit of investors and the public
interest. The Exchange represents that BOX has the necessary systems
capacity to support the new Ether Fund options. The Exchange believes
that its existing surveillance and reporting safeguards are designed to
deter and detect possible manipulative behavior which might arise from
listing and trading options, including Ether Fund options. The
Exchange's existing surveillance and reporting safeguards are designed
to deter and detect possible manipulative behavior which might arise
from listing and trading options on ETFs and ETPs, such as (existing)
precious metal-commodity backed ETP options as well as the proposed
options on Ether Funds. The Exchange believes that its surveillance
procedures are adequate to properly monitor the trading of options on
Ether Funds and to deter and detect violations of Exchange rules.
Specifically, the Exchange's market surveillance staff will have access
to surveillances that it conducts, and that FINRA conducts on its
behalf, with respect to the Ether Funds and, as appropriate, would
review activity in the underlying Funds when conducting surveillances
for market abuse or manipulation in the options on the Ether Funds.
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. As such, the Exchange would be able to
obtain information regarding trading in shares of the Ether Funds from
their primary listing markets and from other markets that trade shares
of the Ether Funds through ISG. In addition, the Exchange has a
Regulatory Services Agreement with the FINRA and as noted herein,
pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate regulatory responsibilities to FINRA to conduct certain
options-related market surveillances. Further, the Exchange will
implement any new surveillance procedures it deems necessary to
effectively monitor the trading of options on the Ether Funds. The
underlying shares of spot ether ETPs, including the Ether Funds, are
also subject to safeguards related to addressing market abuse and
manipulation. As the Commission stated in its order approving proposals
of several exchanges to list and trade shares of spot ether-based ETPs,
``[e]ach Exchange has a comprehensive surveillance-sharing agreement
with the CME via their common membership in the Intermarket
Surveillance Group. This facilitates the sharing of information that is
available to the CME through its surveillance of its markets, including
its surveillance of the CME ether futures market.'' \62\ The Exchange
states that, given the consistently high correlation between the CME
ether futures market and the spot ether 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 [Ether ETPs].'' \63\
In light of surveillance measures related to both options and futures
as well as the underlying Ether
[[Page 16323]]
Funds,\64\ 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 Ether Funds. Further, the Exchange will implement any new
surveillance procedures it deems necessary to effectively monitor the
trading of options on Ether ETPs.
---------------------------------------------------------------------------
\58\ See Rule 5020(h).
\59\ The Exchange may submit a subsequent rule filing that would
permit the Exchange to authorize for trading FLEX Equity Options on
the Ether Funds (which filing may propose changes to existing FLEX
Equity Option position limits for such options if appropriate).
\60\ See BTC Approval Order. See also IM-3120-2.
\61\ As noted herein, the Ether Funds collectively represent
approximately 1.71% of the ether market.
\62\ See Ether ETP Approval Order, 89 FR, at 46938.
\63\ See Ether ETP Approval Order, 89 FR at 46941.
\64\ See Amendment No. 2 to Proposed Rule Change to List and
Trade Shares of the Grayscale Ethereum ETF under NYSE Arca Rule
8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2023-70), filed
May 21, 2024, available at <a href="https://www.sec.gov/comments/sr-nysearca-2023-70/srnysearca202370-475871-1363474.pdf">https://www.sec.gov/comments/sr-nysearca-2023-70/srnysearca202370-475871-1363474.pdf</a>; Amendment No. 1 to
Proposed Rule Change to List and Trade Shares of the Bitwise
Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) (SR-NYSEARCA-2024-31), filed May 21, 2024, available at
<a href="https://www.sec.gov/comments/sr-nysearca-2024-31/srnysearca202431-475891-1363514.pdf">https://www.sec.gov/comments/sr-nysearca-2024-31/srnysearca202431-475891-1363514.pdf</a>; and Amendment No. 2 to Proposed Rule Change to
List and Trade Shares of the Grayscale Ethereum Mini ETF under NYSE
Arca Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2024-
44), filed May 22, 2024, available at <a href="https://www.sec.gov/comments/sr-nysearca-2024-44/srnysearca202444-476231-1364174.pdf">https://www.sec.gov/comments/sr-nysearca-2024-44/srnysearca202444-476231-1364174.pdf</a>.
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Finally, the Exchange notes that this proposal will remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, protect investors because
applicable Exchange rules will require that customers receive
appropriate disclosure before trading options on Ether Funds \65\ and
will require that brokers opening accounts and recommending options
transactions comply with relevant customer suitability standards.\66\
---------------------------------------------------------------------------
\65\ See Rules 4020(b), (e) and 4100.
\66\ See Rule 4040.
---------------------------------------------------------------------------
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 NYSE American that was
recently approved by the Commission.\67\
---------------------------------------------------------------------------
\67\ See supra note 4.
---------------------------------------------------------------------------
Intramarket Competition: The Exchange does not believe that the
proposed rule change will impose any burden on intramarket competition
that is not necessary or appropriate in furtherance of the purposes of
the Act as Ether Funds would need to satisfy the initial listing
standards set forth in the Exchange Rules in the same manner as any
other ETF before BOX could list options on them. Additionally, Ether
Fund options will be equally available to all market participants who
wish to trade such options. The Exchange Rules currently applicable to
the listing and trading of options on ETFs on BOX will apply in the
same manner to the listing and trading of all options on Ether Funds.
Also, and as stated above, BOX already lists options on other
commodity-based ETPs.\68\
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\68\ See Rule 5020(h).
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Intermarket Competition: The Exchange does not believe that the
proposal to list and trade options on Ether Funds will impose any
burden on intermarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. To the extent that the
advent of Ether 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
BOX. Additionally, other options exchanges are free to amend their
listing rules, as applicable, to permit them to list and trade options
on Ether Funds. The Exchange notes that listing and trading Ether 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 Ether 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 ether prices and ether-related
products and positions on a listed options exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange 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 \69\ and Rule 19b-4(f)(6) thereunder.\70\
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 \71\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\72\
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\69\ 15 U.S.C. 78s(b)(3)(A)(iii).
\70\ 17 CFR 240.19b-4(f)(6).
\71\ 15 U.S.C. 78s(b)(3)(A)(iii).
\72\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission has waived the pre-filing requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \73\ 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),\74\ 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 Ether Funds.\75\ The Exchange has provided information regarding
the underlying Ether Funds, including, among other things, information
regarding trading volume, the number of beneficial holders, and the
market capitalization of the Ether Funds. The proposal also establishes
position and exercise limits for options on the Ether Funds and
provides information regarding the surveillance procedures that will
apply to Ether Funds options. The Commission believes that waiver of
the operative delay could benefit investors by providing an additional
venue for trading Ether Funds 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
[[Page 16324]]
waives the 30-day operative delay and designates the proposed rule
change as operative upon filing.\76\
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\73\ 17 CFR 240.19b-4(f)(6).
\74\ 17 CFR 240.19b-4(f)(6)(iii).
\75\ See NYSE American Approval Order, supra note 4.
\76\ 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#0270776e672f616d6f6f676c7671427167612c656d74"><span class="__cf_email__" data-cfemail="e193948d84cc828e8c8c848f9592a1928482cf868e97">[email protected]</span></a>. Please include
file number SR-BOX-2025-09 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-2025-09. 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-2025-09 and should be
submitted on or before May 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\77\
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\77\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06525 Filed 4-16-25; 8:45 am]
BILLING CODE P
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