Notice2025-09259
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2, and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 2, To Amend Rules Regarding Position and Exercise Limits for Options on the Grayscale Bitcoin Mini Trust ETF and the Bitwise Bitcoin ETF To Permit Flexible Exchange Options on the Grayscale Bitcoin Mini Trust and the Bitwise Bitcoin 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
May 23, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 90, Number 99 (Friday, May 23, 2025)]
[Notices]
[Pages 22132-22139]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-09259]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103068; File No. SR-NYSEARCA-2025-10]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 2, and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 2, To Amend Rules Regarding Position and Exercise Limits
for Options on the Grayscale Bitcoin Mini Trust ETF and the Bitwise
Bitcoin ETF To Permit Flexible Exchange Options on the Grayscale
Bitcoin Mini Trust and the Bitwise Bitcoin ETF
May 19, 2025.
I. Introduction
On February 3, 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 Mini
Trust and the Bitcoin Bitwise ETF and to permit Flexible Exchange
Options on the Grayscale Bitcoin Mini Trust and the Bitwise Bitcoin
ETF. On February 14, 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 24, 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. 102441 (Feb. 18,
2025), 90 FR 10518.
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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''), 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. 2, 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. 2.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 102630, 90 FR 12614
(Mar. 18, 2025). The Commission designated May 25, 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. 2 is available at: <a href="https://www.sec.gov/comments/sr-nysearca-2025-10/srnysearca202510-594695-1727482.pdf">https://www.sec.gov/comments/sr-nysearca-2025-10/srnysearca202510-594695-1727482.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. 2
The Exchange proposes to amend certain rules that restrict the
position and exercise limits for options on the Grayscale Bitcoin Mini
Trust ETF (``BTC'') and the Bitwise Bitcoin ETF (``BITB'') and to
permit Flexible Exchange (``FLEX'') Options on such funds. This
Amendment No. 2 supersedes and replaces the original filing in its
entirety.\8\ The proposed rule change is 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 14, 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. 102441 (February 18, 2025), 90 FR 10518 (February 24,
2025) (SR-NYSEARCA-2025-10) (the ``Notice''). This Amendment No. 2
modifies the original filing to make clarifying changes to the
Purpose section to reflect that the proposed position and exercise
limits for options on BTC and BITB 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 the same underlying ETF must be aggregated for purposes of
calculating position and exercise limits for that ETF, 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 Mini Trust BTC'' and ``the Bitwise Bitcoin
ETF'' with their respective ticker symbol (i.e., BTC and BITB).
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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 BTC and BITB (each a
``Fund'' and, collectively, the ``Funds'') and to permit options on the
Funds to trade as FLEX Equity Options (``FLEX Fund options'') 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 BTC and BITB options thus allowing such
limits for each Fund 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
trading of Fund options and to require the aggregation of any FLEX and
non-FLEX positions in the same underlying Fund for purposes of
calculating position and exercise limits for such Fund.\10\
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\9\ As discussed herein, the removal of BTC and BITB (and
associated 25,000-contact limits) from Commentary .06(f) means the
position limit for options on BTC an [sic] BITB will be determined
based on trading in each Fund during the most recent six-month
period. See Rule 6.8-O, Commentary .06(a)-(e). As discussed herein,
BTC and BITB currently qualify for options position (and exercise)
limits of 250,000 contracts per Rule 6.8-O, Commentary .06(e)(i).
\10\ The Exchange notes that it recently submitted a
substantively identical filing to increase the aggregated position
and exercise limits for, and to permit FLEX trading of options on,
the Grayscale Bitcoin Trust (BTC) (``GBTC''), which filing is
pending with the Commission. See SR-NYSEARCA-2025-07, filed Jan. 29,
2025. Like the Funds, GBTC is currently subject to a 25,000-contract
position and exercise limit and is not eligible for FLEX trading.
See Rules 6.8-O, Commentary .06(f); and 5.32-O(f)(1).
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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'').\11\
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\11\ 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 BTC and BITB, IBIT is an ETF that
holds bitcoin.
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Background
Each Fund is an ETF that holds bitcoin and is listed on the
Exchange.\12\
[[Page 22133]]
On October 18, 2024, the Commission approved the listing and trading of
Fund options on NYSE American, LLC (``NYSE American'').\13\ On November
22, 2024, the Exchange obtained rule authority to trade options on BTC
and BITB.\14\ The position (and exercise) \15\ limits for options on
each Fund are 25,000 contracts, as set forth in Rule 6.8-O, Commentary
.06(f), the lowest limit available in options.\16\
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\12\ NYSE Arca received approval to list and trade Bitcoin-Based
Commodity-Based Trust Shares in BTC and BITB pursuant to NYSE Arca
Rule 8.201-E(c)(1). See Securities Exchange Act Release Nos. 100610
(July 26, 2024) (order approving listing and trading of Commodity-
Based Trust Shares of BTC, among other ETFs), 89 FR 62821 (August 1,
2024) (SR-NYSEARCA-2023-45); 99306 (January 10, 2024), 89 FR 3008
(January 17, 2024) (order approving listing and trading of
Commodity-Based Trust Shares of BITB, among other ETFs) (SR-
NYSEARCA-2021-90).
\13\ 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 options on BTC
and BITB, among others) (the ``Fund Options Approval Order'').
\14\ 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 BTC and BITB
options trading, based on the already-approved NYSE American rules)
(the ``Arca Fund Options Notice'').
\15\ The Exchange notes that the exercise limit for options on
each Fund are based on, and are always the same as, the position
limit for such options. See Rule 6.9-O (Exercise Limits).
\16\ Pursuant to Rule 6.8-O, Commentary .06(f), options on the
following ETFs--all of which, like BTC and BITB, hold bitcoin--are
also subject to a 25,000-contract position and exercise limit: GBTC,
IBIT, 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.\17\ Today, pursuant to Rule 5.32-O(f)(1), Fund options
are not approved for FLEX trading.\18\ Therefore, the 25,000-contract
limit applicable to each Fund currently applies solely to non-FLEX Fund
options.
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\17\ See Rule 5.35-O(b) (subject to the exceptions enumerated in
the rule ``there shall be no position limits'' for FLEX Equity
Options).
\18\ Pursuant to Rule 5.32-O(f)(1), FLEX trading is also not
available for options on GBTC, IBIT, 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.'' \19\ 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.'' \20\ 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 options on BTC and BITB satisfied these
objectives.\21\ The Exchange adopted the already-approved 25,000-
contract limit for options on BTC and options on BITB.\22\
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\19\ See Fund Options Approval Order, 89 FR at 84971.
\20\ See id.
\21\ See id.
\22\ See Arca Fund 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 options on BTC and BITB, it nonetheless
believed that evidence existed to support a much higher position
limit.\23\ Specifically, in approving Fund 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 0.7% and 3.6% of
the outstanding shares of BTC and BITB, respectively.\24\ The
Commission also considered and reviewed NYSE American's arguments that
with a 25,000-contract limit for each Fund: (i) the 366,950,100 BTC
shares outstanding, meant that 147 market participants would have to
simultaneously exercise their same-side positions to place BTC under
stress; and (ii) the 68,690,000 BITB shares outstanding, meant that 27
market participants would have to simultaneously exercise their same-
side positions to place BITB under stress.\25\ 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 market so as to
benefit the options position.\26\
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\23\ See Fund Options Approval Order, 89 FR, at 84970 (referring
to NYSE American's argument that, as of Sept. 30, 2024, BTC traded
335,492,930 shares and BITB traded 263,965,870 shares in the most
recent six months of trading, which would qualify each Fund 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)). The Exchange notes that, as of September 30, 2024, BTC had
been trading for only two months. See id.
\24\ See id. Data represents figures from FactSet as of August
30, 2024.
\25\ See Fund Options Approval Order, 89 FR at 84971.
\26\ Id.
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Currently, BTC and BITB each qualify 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.\27\ As of November
25, 2024, during the most recent six-month period, trading volume for
BTC was 163,712,700 shares. During the same period, trading volume for
BITB was 288,800,860 shares. In addition, as of November 25, 2024, the
market capitalization for BTC was $3,496,748,882,\28\ with an average
daily volume (``ADV'') for the preceding three months of 2,036,369
shares. During this same period, the market capitalization of BITB was
4,095,157,000,\29\ with an ADV for the three prior months of 2,480,478.
Each Fund 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.\30\ At a price of $94,830 per bitcoin,\31\ 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 for each Fund, the exercisable risk would represent 30.14%
\32\ of BTC shares outstanding; and 31.27% \33\ of BITB shares
outstanding. Given the liquidity of BTC and BITB, the current 25,000-
contract
[[Page 22134]]
position (and exercise) limit is extremely conservative.
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\27\ 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).
\28\ The market capitalization of BTC was determined by
multiplying a settlement price ($42.16) by the number of shares
outstanding (82,939,964). Data represents figures from FactSet as of
November 25, 2024.
\29\ The market capitalization of BITB was determined by
multiplying a settlement price ($51.70) by the number of shares
outstanding (79,950,100). Data represents figures from FactSet as of
November 25, 2024.
\30\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\31\ This is the approximate price of bitcoin from 4 p.m. ET on
November 25, 2024.
\32\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/82,939,964 BTC shares
outstanding).
\33\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/79,950,100 BITB 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 BTC and
BITB (and the associated 25,000-contract limits) from Commentary
.06(f), which would enable options on BTC and BITB to trade in the same
manner as options on other ETFs not included in this Commentary.\34\
Specifically, for each Fund, this proposal would result in an increased
position (and exercise) limit from 25,000 to 250,000 same-side
contracts, pursuant to Commentary .06(e)(i). In addition, like options
on other ETFs not listed in Commentary .06(f), position limits for
options on BTC or BITB would be subject to subsequent six (6) month
reviews to determine future position (and exercise) limits.\35\
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\34\ See proposed Rule 6.8-O, Commentary .06(f). The Exchange
notes that the ETFs included in Commentary .06(f) (other than ETFs
like BTC and BITB that hold bitcoin) have significantly higher
position limits than are authorized by Rule, which increases were
subject to Exchange rule filings.
\35\ 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 each Fund's eligibility for a 250,000-
contract position (and exercise) limit per Commentary .06(e)(i), the
Exchange performed additional analyses regarding BTC and BITB in
support of this proposal. First, the Exchange reviewed the Funds' 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.\36\ At a price of $94,830 per bitcoin,\37\ 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 for each Fund, the exercisable risk would represent 30.14%
of BTC shares outstanding \38\ and 31.27% of BITB shares
outstanding.\39\ Since each Fund has a creation and redemption process
managed through the issuer (whereby bitcoin is used to create shares of
BTC or BITB, as applicable), the position (and exercise) limit can be
compared to the total market capitalization of the entire bitcoin
market, and in that case, the exercisable risk for options on each Fund
would represent less than 0.06% (BTC) or 0.07% (BITB) of all bitcoin
outstanding.\40\
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\36\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\37\ This is the approximate price of bitcoin from 4 p.m. ET on
November 25, 2024.
\38\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/82,939,964 BTC shares
outstanding).
\39\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/79,950,100 BITB shares
outstanding).
\40\ For BTC, this number was arrived at with this calculation:
((250,000 limit * 100 shares per option * $42.16 settle)/(19,787,762
bitcoin outstanding * $94,830 bitcoin price)); and for BITB, this
number was arrived at with this calculation: ((250,000 limit * 100
shares per option * $51.70 settle)/(19,787,762 bitcoin outstanding *
$94,830 bitcoin price)).
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The Exchange notes that if options on each Fund were subject to a
250,000-contract position and exercise limit (based on underlying
trading volume) and if all options on each Fund 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 options on each Fund would be
appropriate given the liquidity of BTC and BITB.
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,\41\ which has a
position limit of 2,000 futures (for the initial spot month).\42\ On
October 22, 2024, CME bitcoin futures settled at $94,945.\43\ On
October 22, 2024, BTC settled at $29.90 and BITB settled at $36.74,
which would equate to approximately 31,754,181 and 25,842,406 shares of
BTC and BITB, respectively, 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 317,541 (BTC) and 258,424 (BITB).
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\41\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\42\ 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.
\43\ 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).\44\ 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.\45\ 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 options on each Fund
would be appropriate.
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\44\ 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>.
\45\ Id.
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Finally, the Exchange analyzed a position and exercise limit of
250,000 for BTC and BITB against options on SPDR Gold Shares (``GLD''),
which (like BTC and BITB), is a commodity-backed ETF.\46\ The Exchange
notes that GLD has a float of 306.1 million shares and a
[[Page 22135]]
position limit of 250,000 contracts.\47\ 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 each of BTC and BITB, would represent 30.14% of the
BTC float and 31.27% of the BITB float. While less conservative than
the standard applied to options on GLD, the Exchange nonetheless
believes that subjecting options on BTC and BITB to a 250,000-contract
position and exercise limit would be appropriate.\48\
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\46\ Like BTC and BITB, GLD holds one asset in trust.
\47\ 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>.
\48\ 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 BTC and BITB each have 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 each Fund mitigates against the potential for manipulation.
The Exchange believes that allowing options on each Fund 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 options
on BTC or BITB, 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 \49\ would continue to be
exempt from this reporting requirement, however, the Exchange may
access Market Maker position information.\50\ 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.\51\
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\49\ 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.
\50\ 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'').
\51\ 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 options on BTC and BITB will not continue. Rather,
the Exchange expects continued volume growth in Fund options as
opportunities for investors to participate in the options markets
increase and evolve. The Exchange believes that the current position
and exercise limits in Fund 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 options on BTC and BITB,
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 Fund Options
The Exchange also proposes to permit BTC and BITB to trade as
``FLEX Fund options,'' and would require the aggregation of any FLEX
and non-FLEX positions in the same underlying Fund for purposes of
calculating position and exercise limits on such Fund.\52\ Thus, for
example, assuming a 250,000-contract position limit for options on BTC,
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 BTC options).
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\52\ See proposed Rules 5.32-O(f)(1) (excluding options on BTC
and BITB from prohibition against FLEX trading); and 5.35-O(b)(iii)
(adopting requirement that FLEX and non-FLEX positions in the same
underlying Fund must be aggregated for purposes of calculating
position and exercise limits on that Fund as set forth in Rules 6.8-
O and 6.9-O).
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The share creation and redemption process available to each Fund 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
BTC and this purchase resulted in the value of BTC shares to trade at a
premium to the value of the (underlying) bitcoin held by BTC, the
Exchange believes that other market participants would attempt to
arbitrage this price difference by selling short BTC shares while
concurrently purchasing bitcoin. Those market participants
(arbitrageurs) would then deliver cash to BTC and receive shares of
BTC, which would be used to close out any previously established short
position in BTC. Thus, this creation and redemptions process would
significantly reduce the potential risk of price dislocation between
the value of BTC 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 options on BTC and BITB. The Exchange also
believes that the trading of FLEX Fund options would allow these same
market participants to better manage the risk associated with the
volatility of BTC or BITB (the underlying ETF) positions given the
enhanced liquidity that an exchange-traded product would bring.
Additionally, the Exchange believes that FLEX Fund options traded on
the Exchange would have three important advantages over the contracts
that are
[[Page 22136]]
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 Fund 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 Fund options. The Exchange believes any additional
traffic that would be generated from the trading of FLEX Fund 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 Fund options, will apply to FLEX
Fund 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 BTC and BITB (the underlying ETFs) and,
as appropriate, would review activity in BTC and BITB when conducting
surveillances for market abuse or manipulation in the FLEX options on
each Fund.\53\ The Exchange does not believe that allowing FLEX Fund
options would render the marketplace for non-FLEX Fund options, or
equity options in general, more susceptible to manipulative practices.
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\53\ See Fund Options Approval Order, 89 FR at 84966-68
(regarding surveillance procedures applicable to BTC, BITB, 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 BTC and BITB as well as any
subsequent trading of FLEX Fund 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 BTC and BITB 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.\54\ The
Exchange will implement any additional surveillance procedures it deems
necessary to effectively monitor the trading of BTC and BITB options.
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\54\ 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 each Fund to utilize FLEX Fund 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 members' 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
Fund options. The Exchange believes that introducing FLEX Fund options
would further broaden the base of investors that use FLEX Options (and
options on BTC or BITB, 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''),\55\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\56\
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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\55\ 15 U.S.C. 78f(b).
\56\ 15 U.S.C. 78f(b)(5).
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Position Limits
The Exchange believes the proposed rule change to remove the
25,000-contract position (and exercise) limit on BTC and BITB 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 BTC and BITB options. Further, an
increased aggregated position (and exercise) limit on BTC and BITB
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
[[Page 22137]]
discovery conducted on the Exchange through increased order flow. The
Exchange notes that permitting a higher aggregated position (and
exercise) limit on BTC and BITB 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 BTC and BITB options based on recent
trading volume in each Fund. Specifically, a comparison of each Fund'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 30.14% and 31.27%
of BTC and BITB shares outstanding. Further, since each Fund has a
creation and redemption process managed through the issuer (whereby
bitcoin is used to create BTC or BITB shares, as applicable), a
250,000-contract position (and exercise) limit as compared to the
market capitalization of the bitcoin market indicated that the
exercisable risk for options on each Fund represented less than 0.06%
(BTC) or 0.07% (BITB) of all bitcoin outstanding.
Moreover, a comparison of a 250,000-contract position limit for
options on each Fund to the (actual) position limits for equivalent
bitcoin futures revealed that a 250,000-contract limit for each Fund
would be appropriate. Finally, the Exchange compared an aggregated
position limit of 250,000 contracts for each Fund 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 each
Fund (assuming a 250,000-contract limit would represent 30.14% (BTC)
and 31.27% (BITB) of that Fund's float. Although a 250,000-contract
position (and exercise) limit on BTC and BITB options would not be as
conservative as the standard applied to GLD, it is comparable and
therefore appropriate.
FLEX Fund Options
The Exchange believes that the proposal to permit FLEX Fund options
and to require aggregation of any FLEX and non-FLEX positions in the
same underlying Fund 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 Fund 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 Fund options may open up
the market for options on these Funds 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 Fund 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 Fund 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 Fund options. The Exchange does not believe that allowing
FLEX Fund 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
Fund options. Regarding the proposed FLEX Fund options, the Exchange
would use the same surveillance procedures currently utilized for FLEX
Options listed on the Exchange (as well as for non-FLEX Fund options).
For surveillance purposes, the Exchange would have access to
information regarding trading activity in BTC and BITB (the underlying
ETFs).\57\ In light of surveillance measures related to both options
trading on each Fund the underlying Funds, 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 Fund options.
---------------------------------------------------------------------------
\57\ See Fund Options Approval Order, 89 FR at 84966-68
(regarding surveillance procedures applicable to BTC, BITB, 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 BTC and BITB
options, thus allowing such limits for each Fund to increase, will not
burden intra-market competition because it applies to all market
participants that trade (or want to trade) BTC and BITB 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 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 Fund Options. The Exchange believes that the proposal to
permit FLEX Fund 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 Fund options. Moreover, the
Exchange believes that the proposal to permit FLEX Fund options would
[[Page 22138]]
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 Fund 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 Fund 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-2025-10, as Modified by Amendment No. 2, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \58\ to determine whether the proposed rule
change, as modified by Amendment No. 2, 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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\58\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\59\ 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.\60\
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\59\ Id.
\60\ 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.'' \61\ 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,\62\ 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.\63\ 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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\61\ 17 CFR 201.700(b)(3).
\62\ See id.
\63\ 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. 2. 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.\64\
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\64\ 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#3240475e571f515d5f5f575c4641724157511c555d44"><span class="__cf_email__" data-cfemail="6210170e074f010d0f0f070c1611221107014c050d14">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2025-10 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2025-10. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEARCA-2025-10 and should
be submitted on or before June 13, 2025.
[[Page 22139]]
Rebuttal comments should be submitted by June 27, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\65\
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\65\ 17 CFR 200.30-3(a)(12), (57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-09259 Filed 5-22-25; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.