Notice2025-09257
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 3, and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 3, To Amend Rules Regarding Position and Exercise Limits for Options on the Grayscale Bitcoin Trust and To Permit Flexible Exchange Options on the Grayscale Bitcoin Trust
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
May 23, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 99 (Friday, May 23, 2025)</title>
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[Federal Register Volume 90, Number 99 (Friday, May 23, 2025)]
[Notices]
[Pages 22120-22127]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-09257]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103066; File No. SR-NYSEARCA-2025-07]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 3, and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 3, To Amend Rules Regarding Position and Exercise Limits
for Options on the Grayscale Bitcoin Trust and To Permit Flexible
Exchange Options on the Grayscale Bitcoin Trust
May 19, 2025.
I. Introduction
On January 29, 2025, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend rules regarding the
position and exercise limits for options on the Grayscale Bitcoin Trust
and to permit Flexible Exchange Options on the Grayscale Bitcoin Trust.
On February 7, 2025, the Exchange filed Amendment No. 1 to the proposed
rule change. The proposed rule change, as amended, was published for
comment in the Federal Register on February 18, 2025.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 102402 (Feb. 11,
2025), 90 FR 9765.
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On March 12, 2025, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ The Commission has received no comments on the proposed rule
change, as modified by Amendment No. 1. On April 28, 2025, the Exchange
filed Amendment No. 2 to the proposed rule change (``Amendment No.
2''). On May 6, 2025, the Exchange withdrew Amendment No. 2 and filed
Amendment No. 3 to the proposed rule change (``Amendment No. 3''), as
described in Items II and III below, which Items have been prepared by
the Exchange.\6\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as modified by Amendment No. 3,
and is instituting proceedings pursuant to Section 19(b)(2)(B) of the
Act \7\ to determine whether to approve or disapprove the proposed rule
change, as modified by Amendment No. 3.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 102629, 90 FR 12630
(Mar. 18, 2025). The Commission designated May 19, 2025, as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change.
\6\ Amendment No. 3 is available at: <a href="https://www.sec.gov/comments/sr-nysearca-2025-07/srnysearca202507-598415-1738062.pdf">https://www.sec.gov/comments/sr-nysearca-2025-07/srnysearca202507-598415-1738062.pdf</a>.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Self-Regulatory Organization's Description of the Proposed Rule
Change, as Modified by Amendment No. 3
The Exchange proposes to certain [sic] rules that restrict the
position and exercise limits for options on the Grayscale Bitcoin Trust
ETF (``GBTC'') and to permit Flexible Exchange (``FLEX'') Options on
GBTC. This Amendment No. 3 supersedes and replaces the original filing
in its entirety.\8\ The proposed rule change is
[[Page 22121]]
available on the Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
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\8\ On February 7, 2025, the Exchange submitted partial
Amendment No.1 to its proposal to make certain technical changes to
the Exhibit 5 (the ``original filing''). See Securities Exchange Act
Release No. 102629 (February 11, 2025), 90 FR 12630 (February 18,
2025) (SR-NYSEARCA-2025-07). On April 28, 2025, the Exchange filed
Amendment No. 2, which was withdrawn on May 6, 2025. This Amendment
No. 3 modifies the original filing to make clarifying changes to the
Purpose section to reflect that the proposed position and exercise
limits for options on GBTC will be the same as the position and
exercise limits for other equity options (i.e., not a fixed limit of
25,000 contracts) and that any FLEX and non-FLEX positions in GBTC
options must be aggregated for purposes of calculating position and
exercise limits for such options, which changes more closely align
with the rule text in the Exhibit 5. The Exchange also proposes a
technical change to replace rule text references to ``the Grayscale
Bitcoin Trust BTC (BTC)'' with its ticker symbol, ``GBTC''.
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III. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend certain rules that restrict the
position and exercise limits for options on GBTC and to permit GBTC
options to trade as FLEX Equity Options (``FLEX GBTC'') as described
herein. Specifically, the Exchange proposes to (1) amend Commentary
.06(f) to Rule 6.8-O (Position Limits) to remove the 25,000-contract
position limit on GBTC options thus allowing such limits to be
increased; \9\ and (2) amend Rules 5.32-O(f)(1) (Terms of FLEX) and
5.36-O(b) (Position Limits) to permit FLEX GBTC options and to require
the aggregation of any FLEX and non-FLEX positions for purposes of
calculating position and exercise limits for GBTC.
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\9\ As discussed herein, the removal of GBTC (and associated
25,000-contact limit) from Commentary .06(f) means the position
limit for GBTC options will be determined based on trading in GBTC
during the most recent six-month period. See Rule 6.8-O, Commentary
.06(a)-(e). As discussed herein, GBTC options currently qualify for
position (and exercise) limits of 250,000 contracts per Rule 6.8-O,
Commentary .06(e)(i).
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The Exchange notes that this proposal is competitive given that
Nasdaq ISE, LLC (``ISE'') recently filed a proposal to remove the
25,000-contract position and exercise limits applicable to options on
the iShares Bitcoin Trust ETF (``IBIT'').\10\
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\10\ See Amendment No 2 to Proposed Rule Change to modify the
position and exercise limits for IBIT options to the applicable
position and exercise limits as determined by Options 9, Sections 13
and 15 (SR-ISE-2024-62), filed Mar. 26, 2025, available at <a href="https://www.sec.gov/comments/sr-ise-2024-62/srise202462-593575-1721782.pdf">https://www.sec.gov/comments/sr-ise-2024-62/srise202462-593575-1721782.pdf</a>.
(``ISE IBIT Proposal''). Like GBTC, IBIT is an ETF that holds
bitcoin.
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Background
GBTC is an ETF that holds bitcoin and is listed on the
Exchange.\11\ On October 18, 2024, the Commission approved the listing
and trading of GBTC options on NYSE American, LLC (``NYSE
American'').\12\ On November 22, 2024, the Exchange obtained rule
authority to trade GBTC options.\13\ The position (and exercise) \14\
limits for GBTC options are 25,000 contracts, as set forth in Rule 6.8-
O, Commentary .06(f), the lowest limit available in options.\15\
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\11\ NYSE Arca received approval to list and trade Bitcoin-Based
Commodity-Based Trust Shares in GBTC pursuant to NYSE Arca Rule
8.201-E(c)(1). See Securities Exchange Act Release No. 99306
(January 10, 2024), 89 FR 3008 (January 17, 2024) (Order Granting
Accelerated Approval of Proposed Rule Changes, as Modified by
Amendments Thereto, to list and trade options on, among other ETFs,
GBTC) (SR-NYSEARCA-2021-90).
\12\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (order
approving rules to permit the listing and trading of GBTC options,
among others) (the ``GBTC Options Approval Order'').
\13\ See Securities Exchange Act Release No. 101713 (November
22, 2024), 89 FR 94839 (November 29, 2024) (SR-NYSEARCA-2024-101)
(notice of immediately effective rule change to permit GBTC options
trading, based on the already-approved NYSE American rules) (the
``Arca GBTC Options Notice'').
\14\ The Exchange notes that the exercise limit for GBTC options
are based on, and are always the same as, the position limit for
such options. See Rule 6.9-O (Exercise Limits).
\15\ Pursuant to Rule 6.8-O, Commentary .06(f), options on the
following ETFs--all of which, like GBTC, hold bitcoin--are also
subject to a 25,000-contract position and exercise limit: IBIT, the
Grayscale Bitcoin Mini Trust BTC (``BTC''), the Bitwise Bitcoin ETF
(``BITB''), the Fidelity Wise Origin Bitcoin Fund (``FBTC''), and
the ARK 21Shares Bitcoin (``ARKB'').
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FLEX Equity Options are not generally subject to position (or
exercise) limits.\16\ Today, pursuant to Rule 5.32-O(f)(1), GBTC
options are not approved for FLEX trading.\17\ Therefore, the 25,000-
contract limit for GBTC options currently applies solely to non-FLEX
GBTC options.
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\16\ See Rule 5.35-O(b) (subject to the exceptions enumerated in
the rule ``there shall be no position limits'' for FLEX Equity
Options).
\17\ Pursuant to Rule 5.32-O(f)(1), FLEX trading is also not
available for options on IBIT, BTC, BITB, FBTC, and ARKB.
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Per the Commission, ``rules regarding position and exercise limits
are intended to prevent the establishment of options positions that can
be used or might create incentives to manipulate or disrupt the
underlying market so as to benefit the options positions.'' \18\ For
this reason, the Commission requires that ``position and exercise
limits must be sufficient to prevent investors from disrupting the
market for the underlying security by acquiring and exercising a number
of options contracts disproportionate to the deliverable supply and
average trading volume of the underlying security.'' \19\ Based on its
review of the data and analysis provided by NYSE American, the
Commission concluded that the proposed 25,000-contract position and
exercise limits for GBTC options satisfied these objectives.\20\ The
Exchange adopted the already-approved 25,000-contract limit for GBTC
options.\21\
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\18\ See GBTC Options Approval Order, 89 FR at 84971.
\19\ See id.
\20\ See id.
\21\ See Arca GBTC Options Notice, 89 FR at 94842. See also Rule
6.8-O, Commentary .06(f).
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Position Limits
While NYSE American proposed an aggregated 25,000 contract position
(and exercise) limit for GBTC options, it nonetheless believed that
evidence existed to support a much higher position limit.\22\
Specifically, in approving GBTC options trading on NYSE American, the
Commission considered and reviewed NYSE American's analysis that the
exercisable risk associated with a position (and exercise) limit of
25,000 contracts represented only 0.9% of the outstanding shares of
GBTC.\23\ The Commission also considered and reviewed NYSE American's
arguments that with a 25,000-contract limit, and 284,570,100 GBTC
shares outstanding, 114 market participants would have to
simultaneously exercise their positions to place GBTC under stress.\24\
Based on the Commission's review of this information and analysis, the
Commission concluded that the proposed position and exercise limits of
25,000 contracts were designed to prevent investors from disrupting the
market for the underlying security by acquiring and exercising a number
of options contracts disproportionate to the deliverable supply and
average trading volume of the underlying security, and to prevent the
establishment of options positions that can be used or might create
incentives to manipulate or disrupt the underlying
[[Page 22122]]
market so as to benefit the options position.\25\
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\22\ See GBTC Options Approval Order, 89 FR, at 84970 (referring
to NYSE American's argument that, as of Sept. 30, 2024, GBTC traded
723,758,100 shares in the most recent six months of trading, which
would qualify GBTC for a 250,000-contract position limit per NYSE
American Rule 904, Commentary .07(a), which is identical to Arca
Rule 6.8-O Commentary .06(e)).
\23\ See id. Data represents figures from FactSet as of August
30, 2024.
\24\ See GBTC Options Approval Order, 89 FR at 84971.
\25\ Id.
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GBTC currently qualifies for a 250,000-limit on same-side contracts
pursuant to Rule 6.8-O Commentary .06(e)(i), which requires that
trading volume for the underlying security in the most recent six
months be at least 100,000,000 shares.\26\ As of November 25, 2024,
during the most recent six-month period, trading volume for GBTC was
550,687,400 shares. In addition, as of November 25, 2024, the market
capitalization for GBTC was $20,661,316,542,\27\ with an average daily
volume (``ADV'') for the preceding three months of 3,829,597 shares.
GBTC is well above the requisite minimum of 100,000,000 shares
necessary to qualify for the 250,000-contract position and exercise
limit. Also, as of November 25, 2024, there were 19,787,762 bitcoins in
circulation.\28\ At a price of $94,830 per bitcoin,\29\ that equates to
a market capitalization of greater than $1.876 trillion. If an
aggregated position and exercise limit of 250,000 contracts were
considered, the exercisable risk would represent 9.13% \30\ of GBTC
shares outstanding. Given GBTC's liquidity, the current 25,000-contract
position (and exercise) limit is extremely conservative.
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\26\ See Rule 6.8-O Commentary .06(e) (providing at subparagraph
(e) that the position limit shall be 250,000 contracts for options:
(i) on underlying stock or Exchange-Traded Fund Share that had
trading volume of at least 100,000,000 shares during the most recent
six-month trading period; or (ii) on an underlying stock or
Exchange-Traded Fund Share that had trading volume of at least
75,000,000 shares during the most recent six-month trading period
and has at least 300,000,000 shares currently outstanding).
\27\ The market capitalization of GBTC was determined by
multiplying a settlement price ($75.42) by the number of shares
outstanding (273,950,100). Data represents figures from FactSet as
of November 25, 2024.
\28\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\29\ This is the approximate price of bitcoin from 4 p.m. ET on
November 25, 2024.
\30\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/273,950.100 shares
outstanding).
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As noted above, position and exercise limits are designed to limit
the number of options contracts traded on an exchange in an underlying
security that an investor, acting alone or in concert with others
directly or indirectly, may control. These limits, which are described
in Rules 6.8-O and 6.9-O, are intended 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. Position and exercise limits must balance concerns regarding
mitigating potential manipulation and the cost of inhibiting potential
hedging activity that could be used for legitimate economic purposes.
To achieve this balance, the Exchange proposes to remove GBTC (and
the associated 25,000-contract limit) from Commentary .06(f), which
would enable GBTC options to trade in the same manner as options on
other ETFs not included in this Commentary.\31\ Specifically, this
proposal would result in an increased position (and exercise) limit for
GBTC options from 25,000 to 250,000 same-side contacts, pursuant to
Commentary .06(e)(i). In addition, like options on other ETFs not
listed in Commentary .06(f), position limits for GBTC options would be
subject to subsequent six (6) month reviews to determine future
position (and exercise) limits.\32\
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\31\ See proposed Rule 6.8-O, Commentary .06(f). The Exchange
notes that the ETFs included in Commentary .06(f) (other than ETFs
like GBTC that hold bitcoin) have significantly higher position
limits than are authorized by Rule, which increases were subject to
Exchange rule filings.
\32\ See Rule 6.8-O, Commentary .06(e) (providing that, every
six months, the Exchange will review the volume and outstanding
share information on all underlying ETFs on which options are traded
months to determine applicable position limits). See also Rule 6.9-O
(providing that exercise limits for options on an underlying will be
the same as the position limits for such underlying).
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In addition to determining GBTC's eligibility for a 250,000-
contract position (and exercise) limit per Commentary .06(e)(i), the
Exchange performed additional analyses regarding GBTC in support of
this proposal. First, the Exchange reviewed GBTC's data relative to the
market capitalization of the entire bitcoin market in terms of exercise
risk and availability of deliverables. As noted above, as of November
25, 2024, there were 19,787,762 bitcoins in circulation.\33\ At a price
of $94,830 per bitcoin,\34\ that equates to a market capitalization of
greater than $1.876 trillion. If an aggregated position (and exercise)
limit of 250,000 contracts were considered, the exercisable risk would
represent 9.13% \35\ of the outstanding shares outstanding of GBTC.
Since GBTC has a creation and redemption process managed through the
issuer (whereby bitcoin is used to create GBTC shares), the position
limit can be compared to the total market capitalization of the entire
bitcoin market, and in that case, the exercisable risk for options on
GBTC would represent less than 0.10% of all bitcoin outstanding.\36\
The Exchange notes that if GBTC options were subject to a 250,000-
contract position and exercise limit (based on GBTC trading volume) and
if all options on GBTC shares were exercised at once, this occurrence
would have a virtually unnoticed impact on the entire bitcoin market.
This analysis demonstrates that a 250,000-contract position (and
exercise) limit for GBTC options would be appropriate given GBTC's
liquidity.
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\33\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\34\ This is the approximate price of bitcoin from 4 p.m. ET on
November 25, 2024.
\35\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/273,950,100 shares
outstanding).
\36\ This number was arrived at with this calculation: ((250,000
limit * 100 shares per option * $75.42 settle)/(19,787,762 BTC
outstanding * $94,830 BTC price)).
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Next, the Exchange reviewed the proposed position limit by
comparing it to position limits for derivative products regulated by
the Commodity Futures Trading Commission (``CFTC''). While the CFTC,
through the relevant Designated Contract Markets, only regulates
options positions based upon delta equivalents (creating a less
stringent standard), the Exchange examined equivalent bitcoin futures
position limits. In particular, the Exchange looked to the Chicago
Mercantile Exchange (``CME'') bitcoin futures contract,\37\ which has a
position limit of 2,000 futures (for the initial spot month).\38\ On
October 22, 2024, CME bitcoin futures settled at $94,945.\39\ On
October 22, 2024, GBTC settled at $53.64, which would equate to greater
than 17,700,410 shares of GBTC if the CME notional position limit was
utilized. Since substantial portions of any distributed options
portfolio are likely to be out of the money on expiration, an options
position limit equivalent to the CME position limit for bitcoin futures
(considering that all options deltas are <=1.00) should be a bit higher
than the CME implied limit of 177,004.
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\37\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\38\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook. Each CME bitcoin futures contract is valued at five
bitcoins as defined by the CME CF Bitcoin Reference Rate (``BRR'').
See CME Rule 35001.
\39\ 2,000 futures at a 5-bitcoin multiplier (per the contract
specifications) equates to $949,450,000 (2000 contracts * 5 BTC per
contract * $94,945 price of November BTC future) of notional value.
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Of note, unlike options contracts, CME position limits are
calculated on a net futures-equivalent basis by contract and include
contracts that aggregate into one or more base contracts according to
an aggregation ratio(s).\40\ Therefore, if a portfolio includes
positions in options on futures, CME would aggregate those
[[Page 22123]]
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 day's
delta factors, then the position shall not constitute a position limit
violation. Considering CME's position limits on bitcoin futures, the
Exchange believes a 250,000-contract limit for GBTC options would be
appropriate.
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\40\ See <a href="https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm">https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm</a>.
\41\ Id.
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Finally, the Exchange analyzed a position and exercise limit of
250,000 for GBTC against options on SPDR Gold Shares (``GLD''), which
(like GBTC), is a commodity-backed ETF.\42\ The Exchange notes that GLD
has a float of 306.1 million shares and a position limit of 250,000
contracts.\43\ As previously noted, position and exercise limits are
designed to limit the number of options contracts traded on the
exchange in an underlying security that an investor, acting alone or in
concert with others directly or indirectly, may control. A position
limit exercise in GLD would represent 8.17% of the float of GLD. In
comparison, a 250,000-contract position limit in GBTC would represent
9.13% of the float of GBTC. . [sic] While less conservative than the
standard applied to options on GLD, the Exchange nonetheless believes
that subjecting GBTC options to a 250,000-contract position and
exercise limit would be appropriate.\44\
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\42\ GLD, like GBTC, holds one asset in trust.
\43\ See <a href="https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld">https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld</a>.
\44\ See, e.g., Rule 6.8-O, Commentary .06(e) (setting forth
trading volume requirements to qualify for a 250,000-contract
position (and exercise) limit).
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Based on the foregoing, the Exchange believes that it has
demonstrated that GBTC has more than sufficient liquidity to garner an
increased position and exercise limit of 250,000 same-side contracts.
The Exchange believes that the significant liquidity present in GBTC
mitigates against the potential for manipulation.
The Exchange believes that allowing GBTC options to have increased
aggregated position and exercise limits would lead to a more liquid and
competitive market environment for such options, which will benefit
customers that trade these options. Further, the reporting requirement
for such options would remain unchanged. Thus, the Exchange will still
require that each member that maintains positions in GBTC options on
the same side of the market, for its own account or for the account of
a customer, report certain information to the Exchange. This
information includes, but would not be limited to, the options
positions, whether such positions are hedged and, if so, a description
of the hedge(s). Market Makers \45\ would continue to be exempt from
this reporting requirement, however, the Exchange may access Market
Maker position information.\46\ Moreover, the Exchange's requirement
that members file reports with the Exchange for any customer who held
aggregate large long or short positions on the same side of the market
of 200 or more option contracts of any single class for the previous
day will remain at this level.\47\
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\45\ Per Rule 6.32-O(a), a Market Maker is an individual who is
registered with the Exchange for the purpose of making transactions
as a dealer-specialist.
\46\ The Options Clearing Corporation (``OCC'') through the
Large option Position Reporting (``LOPR'') system acts as a
centralized service provider for OTP Holder compliance with position
reporting requirements by collecting data from each OTP Holder or
OTP Firm, consolidating the information, and ultimately providing
detailed listings of each TPH's report to the Exchange, as well as
Financial Industry Regulatory Authority, Inc. (``FINRA''), acting as
its agent pursuant to a regulatory services agreement (``RSA'').
\47\ See Rule 6.6-O. Reporting of Options Positions.
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The Exchange also has no reason to believe that the growth in
trading volume in GBTC options will not continue. Rather, the Exchange
expects continued options volume growth in GBTC as opportunities for
investors to participate in the options markets increase and evolve.
The Exchange believes that the current position and exercise limits in
GBTC options are restrictive and will hamper the listed options markets
from being able to compete fairly and effectively with the over-the-
counter (``OTC'') markets. OTC transactions occur through bilateral
agreements, the terms of which are not publicly disclosed to the
marketplace. As such, OTC transactions do not contribute to the price
discovery process on a public exchange or other lit markets. The
Exchange believes that without the proposed changes to position and
exercise limits for GBTC options, market participants will find the
25,000-contract position limit an impediment to their business and
investment objectives as well as an impediment to efficient pricing. As
a result, market participants may find the less transparent OTC markets
a more attractive alternative to achieve their investment and hedging
objectives, leading to a retreat from the listed options markets, where
trades are subject to reporting requirements and daily surveillance.
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are capable of properly
identifying disruptive and/or manipulative trading activity. The
Exchange also represents that it has adequate surveillances in place to
detect potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. These
procedures monitor market activity to identify unusual activity in both
options and the underlying equities.
FLEX GBTC Options
The Exchange also proposes to permit FLEX GBTC options and would
require the aggregation of any FLEX and non-FLEX positions in GBTC for
purposes of calculating position and exercise limits.\48\ Thus, for
example, assuming a 250,000-contract position limit for options on
GBTC, the Exchange would restrict a market participant from holding
positions that could result in the receipt of more than 250,000,000
shares (if that market participant exercised all its GBTC options).
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\48\ See proposed Rules 5.32-O(f)(1) (excluding GBTC options
from prohibition against FLEX trading); and 5.35-O(b)(iii) (adopting
requirement that any FLEX and non-FLEX positions in GBTC be
aggregated for purposes of calculating position and exercise limits
for GBTC as set forth in Rules 6.8-O and 6.9-O).
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The share creation and redemption process available to GBTC is
designed to ensure that an ETF's price closely tracks the value of its
underlying asset. For example, if a market participant exercised a long
call position for 25,000 contracts and purchased 2,500,000 shares of
GBTC and this purchase resulted in the value of GBTC shares to trade at
a premium to the value of the (underlying) bitcoin held by GBTC, the
Exchange believes that other market participants would attempt to
arbitrage this price difference by selling short GBTC shares while
concurrently purchasing bitcoin. Those market participants
(arbitrageurs) would then deliver cash to GBTC and receive shares of
GBTC, which would be used to close out any previously established short
position in GBTC. Thus, this creation and redemptions process would
significantly reduce the potential risk of price dislocation between
the value of
[[Page 22124]]
GBTC shares and the value of bitcoin holdings.
The Exchange understands that FLEX Options on ETFs are currently
traded in the OTC market by a variety of market participants, e.g.,
hedge funds, proprietary trading firms, and pension funds, to name a
few. The Exchange believes there is room for significant growth if a
comparable product were introduced for trading on a regulated market.
The Exchange expects that users of these OTC products would be among
the primary users of FLEX GBTC options. The Exchange also believes that
the trading of FLEX GBTC options would allow these same market
participants to better manage the risk associated with the volatility
of GBTC (the underlying ETF) positions given the enhanced liquidity
that an exchange-traded product would bring. Additionally, the Exchange
believes that FLEX GBTC options traded on the Exchange would have three
important advantages over the contracts that are traded in the OTC
market. First, because of greater standardization of contract terms,
exchange-traded contracts should develop more liquidity. Second,
counter-party credit risk would be mitigated by the fact that the
contracts are issued and guaranteed by OCC. Finally, the price
discovery and dissemination provided by the Exchange and its members
would lead to more transparent markets. The Exchange believes that its
ability to offer FLEX GBTC options would aid it in competing with the
OTC market and at the same time expand the universe of products
available to interested market participants. The Exchange believes that
an exchange-traded alternative may provide a useful risk management and
trading vehicle for market participants and their customers.
The Exchange has analyzed its capacity and represents that it and
The Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle the additional traffic associated with the
listing of FLEX GBTC options. The Exchange believes any additional
traffic that would be generated from the trading of FLEX GBTC options
would be manageable. The Exchange believes OTP Holders will not have a
capacity issue as a result of this proposed rule change. The Exchange
also represents that it does not believe this proposed rule change will
cause fragmentation of liquidity. The Exchange will monitor the trading
volume associated with the additional options series listed as a result
of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.
The Exchange represents that the same surveillance procedures
applicable to the Exchange's other options products listed and traded
on the Exchange, including non-FLEX GBTC options, will apply to FLEX
GBTC options, and that it has the necessary systems capacity to support
such options. FLEX options products (and their respective symbols) are
integrated into the Exchange's existing surveillance system
architecture and are thus subject to the relevant surveillance
processes. The Exchange's market surveillance staff (including staff of
FINRA who perform surveillance and investigative work on behalf of the
Exchange pursuant to a regulatory services agreement) conducts
surveillances with respect to GBTC (the underlying ETF) and, as
appropriate, would review activity in GBTC when conducting
surveillances for market abuse or manipulation in the FLEX GBTC
options.\49\ The Exchange does not believe that allowing FLEX GBTC
options would render the marketplace for non-FLEX GBTC options, or
equity options in general, more susceptible to manipulative practices.
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\49\ See GBTC Options Approval Order, 89 FR at 84966-68
(regarding surveillance procedures applicable to GBTC and other
funds that hold bitcoin).
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The Exchange represents that its existing trading surveillances are
adequate to monitor the trading in GBTC as well as any subsequent
trading of FLEX GBTC options on the Exchange. Additionally, the
Exchange is a member of the Intermarket Surveillance Group (``ISG'')
under the ISG Agreement. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. In addition to the surveillance that is
conducted by the Exchange's market surveillance staff, the Exchange
would also be able to obtain information regarding trading in shares of
GBTC on other exchanges through ISG. In addition, and as referenced
above, the Exchange has a regulatory services agreement with FINRA,
pursuant to which FINRA conducts certain surveillances on behalf of the
Exchange. Further, pursuant to a multi-party 17d-2 joint plan, all
options exchanges allocate regulatory responsibilities to FINRA to
conduct certain options-related market surveillances.\50\ The Exchange
will implement any additional surveillance procedures it deems
necessary to effectively monitor the trading of GBTC options.
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\50\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
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The proposed rule change is designed to allow investors seeking to
trade options on GBTC to utilize FLEX GBTC options. The Exchange
believes that offering innovative products flows to the benefit of the
investing public. A robust and competitive market requires that
exchanges respond to member's evolving needs by constantly improving
their offerings. Such efforts would be stymied if exchanges were
prohibited from offering innovative products such as the proposed FLEX
GBTC options. The Exchange believes that introducing FLEX GBTC options
would further broaden the base of investors that use FLEX Options (and
options on GBTC in general) to manage their trading and investment
risk, including investors that currently trade in the OTC market for
customized options. The proposed rule change is also designed to
encourage Market Makers to shift liquidity from the OTC market on the
Exchange, which, it believes, will enhance the process of price
discovery conducted on the Exchange through increased order flow.
Implementation
The Exchange will announce the implementation date by Trader Update
within sixty (60) days of rule approval.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\51\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\52\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\51\ 15 U.S.C. 78f(b).
\52\ 15 U.S.C. 78f(b)(5).
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[[Page 22125]]
Position Limits
The Exchange believes the proposed rule change to remove the
25,000-contract position (and exercise) limit on GBTC options thus
allowing such options to qualify for higher aggregated limits will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest as it will provide market participants with the
ability to more effectively execute their trading and hedging
activities. In addition, this proposed change may allow Market Makers
to maintain their liquidity in these options in amounts commensurate
with the continued demand for GBTC options. Further, an increased
aggregated position (and exercise) limit on GBTC options may encourage
other liquidity providers to continue to trade on the Exchange rather
than shift their volume to OTC markets, which will enhance the process
of price discovery conducted on the Exchange through increased order
flow. The Exchange notes that permitting a higher aggregated position
(and exercise) limit on GBTC options would further allow institutional
investors to utilize such options for prudent risk management purposes.
As noted herein, the Exchange analyzed several data points that
support the appropriateness of an aggregated position (and exercise)
limit of 250,000 contracts for GBTC options based on recent trading
volume in GBTC. Specifically, a comparison of GBTC's market
capitalization to the bitcoin market in terms of exercise risk and
availability of deliverables revealed that the exercisable risk of an
aggregated limit of 250,000 contracts represented 9.13% of GBTC shares
outstanding. Further, since GBTC has a creation and redemption process
managed through the issuer (whereby bitcoin is used to create GBTC
shares), a 250,000-contract position (and exercise) limit as compared
to the market capitalization of the bitcoin market indicated that the
exercisable risk for GBTC options represented less than 0.10% of all
bitcoin outstanding. Moreover, a comparison of a 250,000-contract
position limit for GBTC options to the (actual) position limits for
equivalent bitcoin futures revealed that a 250,000-contract limit would
be appropriate. Finally, the Exchange compared an aggregated position
limit of 250,000 contracts for GBTC options against GLD, another
commodity-backed ETF. A position limit exercise in GLD represents 8.17%
of the float of GLD. By comparison, a position limit exercise in GBTC
options (assuming a 250,000-contract limit) would represent 9.13% of
the GBTC float. Although a 250,000-contract position (and exercise)
limit on GBTC options would not be as conservative as the standard
applied to GLD, it is comparable and therefore appropriate.
FLEX GBTC Options
The Exchange believes that the proposal to permit FLEX GBTC options
and to require aggregation of any FLEX and non-FLEX positions in GBTC
for purpose of calculating position and exercise limits would remove
impediments to and perfect the mechanism of a free and open market for
several reasons. First, the Exchange believes that offering FLEX GBTC
options will benefit investors by providing them with an additional,
relatively lower cost investing tool to gain exposure to the price of
bitcoin and provide a hedging vehicle to meet their investment needs in
connection with a bitcoin-related product. Moreover, the proposal would
broaden the base of investors that use FLEX Options to manage their
trading and investment risk, including investors that currently trade
in the OTC market for customized options. By trading a product in an
exchange-traded environment (that is currently being used in the OTC
market), the Exchange would be able to compete more effectively with
the OTC market. The Exchange believes the proposed rule change is
designed to prevent fraudulent and manipulative acts and practices in
that it would lead to the migration of options currently trading in the
OTC market to trading to the Exchange. Also, any migration to the
Exchange from the OTC market would result in increased market
transparency and enhance the process of price discovery conducted on
the Exchange through increased order flow. The Exchange also believes
that offering FLEX GBTC options may open up the market for GBTC options
to more retail investors.
Additionally, the Exchange believes the proposed rule change is
designed to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest because FLEX GBTC options are
designed to create greater trading and hedging opportunities and
flexibility. The proposed rule change should also result in enhanced
efficiency in initiating and closing out positions and heightened
contra-party creditworthiness due to the role of OCC as issuer and
guarantor of FLEX GBTC options. Further, the proposed rule change would
result in increased competition by permitting the Exchange to offer
products that are currently used in the OTC market.
The Exchange believes that offering innovative products flows to
the benefit of the investing public. A robust and competitive market
requires that exchanges respond to member's evolving needs by
constantly improving their offerings. Such efforts would be stymied if
exchanges were prohibited from offering innovative products such as the
proposed FLEX GBTC options. The Exchange does not believe that allowing
FLEX GBTC options would render the marketplace for equity options more
susceptible to manipulative practices.
Finally, the Exchange represents that it has an adequate
surveillance program in place to detect manipulative trading in FLEX
GBTC options. Regarding the proposed FLEX GBTC options, the Exchange
would use the same surveillance procedures currently utilized for FLEX
Options listed on the Exchange (as well as for non-FLEX GBTC options).
For surveillance purposes, the Exchange would have access to
information regarding trading activity in GBTC (the underlying
ETF).\53\ In light of surveillance measures related to both options and
GBTC (the underlying ETF), the Exchange believes that existing
surveillance procedures are designed to deter and detect possible
manipulative behavior which might potentially arise from listing and
trading the proposed FLEX GBTC options.
---------------------------------------------------------------------------
\53\ See GBTC Options Approval Order, 89 FR at 84966-68
(regarding surveillance procedures applicable to GBTC and other
funds that hold bitcoin).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Position Limits. The Exchange believes that its proposal to remove
the 25,000-contract position and exercise limit on GBTC options, thus
allowing such limits to increase, will not burden intra-market
competition because it applies to all market participants that trade
(or want to trade) GBTC options. The Exchange believes the proposal
would provide additional opportunities for market participants to
continue to efficiently achieve their investment and trading objectives
for equity options on the Exchange. The Exchange expects that all
option exchanges will adopt substantively similar proposals for
[[Page 22126]]
adopting the additional position limit tiers, such that the Exchange's
proposal would benefit competition. For these reasons, the Exchange
does not believe that the proposed rule change will impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Act.
FLEX GBTC Options. The Exchange believes that the proposal to
permit FLEX GBTC options will not impose any burden on intra-market
competition as all market participants can opt to utilize this product
or not. The proposed rule change is designed to allow investors seeking
option exposure to bitcoin to trade FLEX GBTC options. Moreover, the
Exchange believes that the proposal to permit FLEX GBTC options would
broaden the base of investors that use FLEX Options to manage their
trading and investment risk, including investors that currently trade
in the OTC market for customized options. The Exchange believes that
the proposed FLEX GBTC options will not impose any burden on inter-
market competition but will instead encourage competition by increasing
the variety of options products available for trading on the Exchange,
which products will provide a valuable tool for investors to manage
risk. Should this proposal be approved, competing options exchanges
will be free to offer products like the proposed FLEX GBTC options.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2025-07, as Modified by Amendment No. 3, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \54\ to determine whether the proposed rule
change, as modified by Amendment No. 3, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposed rule
change. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide comments on the proposed rule
change.
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\54\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\55\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the proposed
rule change's consistency with the Act, and in particular, Section
6(b)(5) of the Act, which requires, among other things, that the rules
of a national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.\56\
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\55\ Id.
\56\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
self-regulatory organization that proposed the rule change.'' \57\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\58\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\59\ The Commission is instituting
proceedings to allow for additional consideration and comment on the
issues raised herein, including as to whether the proposal is
consistent with the Act. In particular, the Commission asks commenters
to address the potential market impacts of the proposed position and
exercise limits.
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\57\ 17 CFR 201.700(b)(3).
\58\ See id.
\59\ See id.
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V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal, as modified by Amendment No. 3. In particular, the
Commission invites the written views of interested persons concerning
whether the proposal is consistent with Section 6(b)(5) or any other
provision of the Act, and the rules and regulations thereunder.
Although there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of views,
data, and arguments, the Commission will consider, pursuant to Rule
19b-4, any request for an opportunity to make an oral presentation.\60\
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\60\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by June 13, 2025. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
June 27, 2025.
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#d2a0a7beb7ffb1bdbfbfb7bca6a192a1b7b1fcb5bda4"><span class="__cf_email__" data-cfemail="bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2025-07 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2025-07. 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
[[Page 22127]]
public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to file number
SR-NYSEARCA-2025-07 and should be submitted on or before June 13, 2025.
Rebuttal comments should be submitted by June 27, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
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\61\ 17 CFR 200.30-3(a)(12), (57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-09257 Filed 5-22-25; 8:45 am]
BILLING CODE 8011-01-P
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