Notice2025-10976
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Allow the Exchange To List and Trade Options on the Fidelity Ethereum Fund, the Grayscale Ethereum Trust ETF, the Grayscale Ethereum Mini Trust ETF, and the Bitwise Ethereum ETF
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 17, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 115 (Tuesday, June 17, 2025)</title>
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[Federal Register Volume 90, Number 115 (Tuesday, June 17, 2025)]
[Notices]
[Pages 25710-25721]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-10976]
[[Page 25710]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103223; File No. SR-MEMX-2025-15]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Allow the Exchange
To List and Trade Options on the Fidelity Ethereum Fund, the Grayscale
Ethereum Trust ETF, the Grayscale Ethereum Mini Trust ETF, and the
Bitwise Ethereum ETF
June 11, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 29, 2025, MEMX LLC (``MEMX'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend Rule 19.3, Criteria for Underlying Securities to allow the
Exchange to list and trade options on the Fidelity Ethereum Fund, the
Grayscale Ethereum Trust ETF, the Grayscale Ethereum Mini Trust ETF,
and the Bitwise Ethereum ETF as Fund Shares deemed appropriate for
options trading on the Exchange. The text of the proposed rule change
is provided in Exhibit 5 and is available on the Exchange's website at
<a href="https://info.memxtrading.com/regulation/rules-and-filings/">https://info.memxtrading.com/regulation/rules-and-filings/</a>.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the 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 Rule 19.3 regarding the criteria for
underlying securities. Specifically, the Exchange proposes to amend
Rule 19.3(i) to allow the Exchange to list and trade options on shares
or other securities (``Fund Shares'') that are principally traded on a
national securities exchange and are defined as an ``NMS stock'' under
Rule 600 of Regulation NMS and that represent interests in the Fidelity
Ethereum Fund (the ``Fidelity Fund'' or ``FETH''), the Grayscale
Ethereum Trust ETF (the ``Grayscale Fund'' or ``ETHE''), the Grayscale
Ethereum Mini Trust ETF (the ``Grayscale Mini Fund'' or ``ETH''), and
the Bitwise Ethereum ETF (the ``Bitwise Fund'' or ``ETHW'' and,
collectively, the ``Ethereum Funds'').\5\ Options on each Ethereum Fund
were approved for trading on other options exchanges.\6\
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\5\ See Securities Exchange Act Release Nos. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (SR-NYSEArca-2023-70; SR-NYSEArca-
2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023-069; SR-CboeBZX-2023-
070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095; and SR-CboeBZX-2024-
018) (Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, to List and Trade Shares of
Ether-Based Exchange-Traded Products) (``Ethereum ETP Approval
Order''); and 100541 (July 17, 2024), 89 FR 59786 (July 23, 2024)
(SR-NYSEArca-2024-44; and SR-NYSEArca-2024-53) (Order Granting
Approval of Proposed Rule Changes To List and Trade Shares of the
Grayscale Ethereum Mini Trust and ProShares Ethereum ETF).
\6\ See Securities Exchange Act Release Nos. 102797 (April 9,
2025), 90 FR 15746 (Order Approving SR-Cboe-2024-036, as modified by
Amendment No. 1) (``Cboe Approval Order''); Securities Exchange Act
Release No. 102799 (April 9, 2025), (Order Approving SR-NYSEAMER-
2024-45, as modified by Amendment No. 2), 90 FR 15764 (``NYSE
American Approval'').
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Current Rule 19.3(i) provides that, subject to certain other
criteria set forth in that Rule, securities deemed appropriate for
options trading include Fund Shares that represent certain types of
interests,\7\ including interests in certain specific trusts that hold
financial instruments, money market instruments, precious metals (which
are deemed commodities), or Bitcoin (which is another crypto currency
and deemed a commodity). In addition, Rule 19.3(i) requires that Fund
Shares (1) meet the criteria and standards set forth in Rule 19.3(a)
and (b),\8\ or (2) be available for creation or redemption each
business day from or through the issuer in cash or in kind at a price
related to net asset value, and the issuer must be obligated to issue
Fund Shares even if some or all of the investment assets required to be
deposited have not been received by the issuer, subject to the
condition that the person obligated to deposit the investments has
undertaken to deliver the investment assets as soon as possible and
such undertaking is secured by the delivery and maintenance of
collateral consisting of cash or cash equivalents satisfactory to the
issuer, as provided in the respective prospectus.
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\7\ See Rule 19.3(i), which permits options trading on Fund
Shares that (1) represent interests in registered investment
companies (or series thereof) organized as open-end management
investment companies, unit investment trusts or similar entities,
and that hold portfolios of securities comprising or otherwise based
on or representing investments in indexes or portfolios of
securities (or that hold securities in one or more other registered
investment companies that themselves hold such portfolios of
securities) (``Funds'') and/or financial instruments including, but
not limited to, stock index futures contracts, options on futures,
options on securities and indexes, equity caps, collars and floors,
swap agreements, forward contracts, repurchase agreements and
reverse repurchase agreements (the ``Financial Instruments''), and
money market instruments, including, but not limited to, U.S.
government securities and repurchase agreements (the ``Money Market
Instruments'') constituting or otherwise based on or representing an
investment in an index or portfolio of securities and/or Financial
Instruments and Money Market Instruments, or (2) represent commodity
pool interests principally engaged, directly or indirectly, in
holding and/or managing portfolios or baskets of securities,
commodity futures contracts, options on commodity futures contracts,
swaps, forward contracts and/or options on physical commodities and/
or non-U.S. currency (``Commodity Pool ETFs'') or (3) represent
interests in a trust or similar entity that holds a specified non-
U.S. currency or currencies deposited with the trust or similar
entity when aggregated in some specified minimum number may be
surrendered to the trust by the beneficial owner to receive the
specified non-U.S. currency or currencies and pays the beneficial
owner interest and other distributions on the deposited non-U.S.
currency or currencies, if any, declared and paid by the trust
(``Currency Trust Shares''), or (4) represent interests in the SPDR
Gold Trust or are issued by the iShares COMEX Gold Trust, the
iShares Silver Trust, abrdn Standard Physical Silver Trust, abrdn
Standard Physical Gold Trust, abrdn Standard Physical Palladium
Trust, abrdn Standard Physical Platinum Trust, Sprott Physical Gold
Trust, Goldman Sachs Physical Gold ETF, Fidelity Wise Origin Bitcoin
Fund, ARK 21Shares Bitcoin ETF, iShares Bitcoin Trust, Grayscale
Bitcoin Trust, Grayscale Bitcoin Mini Trust, Bitwise Bitcoin ETF, or
iShares Ethereum Trust.
\8\ Rule 19.3(a) and (b) sets forth the criteria that underlying
securities must satisfy for option contracts on those underlying
securities to be eligible for listing and trading on the Exchange.
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The Exchange proposes to expand the list of Funds that are
appropriate for
[[Page 25711]]
options trading on the Exchange in Rule 19.3(i) to include the Ethereum
Funds.\9\
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\9\ Specifically, the Exchange proposes to amend Rule 19.3(i) to
include the name of each Ethereum Fund to enable options to be
listed on the Ethereum Funds on the Exchange.
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The Ethereum Funds are Ethereum-backed commodity ETFs structured as
trusts. Similar to any Fund Share currently deemed appropriate for
options trading under Rule 19.3(i), the investment objective of each
Ethereum Fund is for its shares to reflect the performance of Ethereum
(less the expenses of the trust's operations), offering investors an
opportunity to gain exposure to Ethereum without the complexities of
Ethereum delivery. As is the case for Fund Shares currently deemed
appropriate for options trading, an Ethereum Fund's shares represent
units of fractional undivided beneficial interest in the trust, the
assets of which consist principally of Ethereum and are designed to
track Ethereum or the performance of the price of Ethereum and offer
access to the Ethereum market.\10\ The Ethereum Funds provide investors
with cost-efficient alternatives that allow a level of participation in
the Ethereum market through the securities market.
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\10\ The trust may include minimal cash.
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The Exchange's initial listing standards for Fund Shares on which
options may be listed and traded on the Exchange will apply to the
Ethereum Funds. Pursuant to Rule 19.3(a), a security (which includes a
Fund Share) on which options may be listed and traded on the Exchange
must be registered (with the Commission) and be an NMS stock (as
defined in Rule 600 of Regulation NMS under the Securities Exchange Act
of 1934, as amended (the ``Act'')), and be characterized by a
substantial number of outstanding shares that are widely held and
actively traded.\11\ Additionally, Rule 19.3(i)(1) requires that Fund
Shares either (1) meet the criteria and standards set forth in Rule
19.3(a) and (b),\12\ or (2) are available for creation or redemption
each business day in cash or in kind from the investment company,
commodity pool or other entity at a price related to net asset value,
and the investment company, commodity pool or other entity is obligated
to provide that Fund Shares may be created even if some or all of the
securities and/or cash required to be deposited have not been received
by the Fund, the unit investment trust or the management investment
company, provided the authorized creation participant has undertaken to
deliver the securities and/or cash as soon as possible and such
undertaking is secured by the delivery and maintenance of collateral
consisting of cash or cash equivalents satisfactory to the Fund, all as
described in the Fund's or unit trust's prospectus. Each Ethereum Fund
satisfies Rule 19.3(i)(1)(B), as each is subject to this creation and
redemption process.
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\11\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Rule 19.3(b),
subject to exceptions.
\12\ Rule 19.3(a) and (b) sets forth the criteria an underlying
security must meet for the Exchange to be able to list options on
the underlying.
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While not required by the Rules for purposes of options listings,
the Exchange believes the Ethereum Funds satisfy the criteria and
guidelines set forth in Rule 19.3(a) and (b). Pursuant to Rule 19.3(a),
a security (which includes a Fund Share) on which options may be listed
and traded on the Exchange must be duly registered (with the
Commission) and be an NMS stock (as defined in Rule 600 of Regulation
NMS under the Act, and be characterized by a substantial number of
outstanding shares that are widely held and actively traded.\13\ Each
of the Ethereum Funds is an NMS Stock as defined in Rule 600 of
Regulation NMS under the Act.\14\ Further, the Exchange believes each
Ethereum Fund is characterized by a substantial number of outstanding
shares that are widely held and actively traded.
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\13\ The criteria and guidelines for a security to be considered
widely held and actively traded are set forth in Rule 19.3(b),
subject to exceptions.
\14\ An ``NMS stock'' means any NMS security other than an
option, and an ``NMS security'' means any security or class of
securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting
plan (or an effective national market system plan for reporting
transaction in listed options). See 17 CFR 242.600(b)(64)
(definition of ``NMS security'') and (65) (definition of ``NMS
stock'').
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Fidelity Fund
Based on data in the Cboe Approval Order, as of December 23, 2024,
the Fidelity Fund had 41,700,000 shares outstanding, which is nearly
six times more than the minimum number of shares of a corporate stock
(i.e., 7,000,000 shares) that is generally required to list options on
that stock pursuant to Rule 19.3(b)(1). The Cboe Approval Order noted
that it believed that this demonstrates that the Fidelity Fund is
characterized by a substantial number of outstanding shares. Further,
the Cboe Approval Order noted that as of November 26, 2024, there were
38,170 beneficial holders of shares of the Fidelity Fund, which is
significantly more than 2,000 beneficial holders (approximately 19
times more), which is the minimum number of holders generally required
for corporate stock in order to list options on that stock pursuant to
Rule 19.3(b)(2). Therefore, the Cboe Approval Order noted that it
believed the shares of the Fidelity Fund were widely held and actively
traded. Further, the Cboe Approval Order noted that as of December 23,
2024, the total trading volume (by shares) and the approximate average
daily volume (``ADV'') (in shares and notional) from July 23, 2024 (the
date on which shares of the Fidelity Fund began trading) to December
23, 2024 for the Fidelity Fund was as follows:
------------------------------------------------------------------------
Trading volume (shares) ADV (shares) ADV (notional $)
------------------------------------------------------------------------
115,589,047........................ 1,070,269 33,864,193
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The Cboe Approval Order noted that, as demonstrated above, despite
the fact that the Fidelity Fund has been trading for approximately five
months as of December 23, 2024, its total trading volume as of that
date was substantially higher than 2,400,000 shares (more than 48 times
that amount), which is the minimum 12-month volume generally required
for a corporate stock in order to list options on that security as set
forth in Exchange Rule 19.3(b). Additionally, as of December 23, 2024,
the trading volume for the Fidelity Fund was in the top 5% of all ETFs
that are currently trading. The Cboe Approval Order noted that this
data demonstrates the Fidelity Fund is characterized as having shares
that are actively traded.
Grayscale Fund, Grayscale Mini Fund, or Bitwise Fund (``NYSE Ethereum
Funds'')
With respect to the NYSE Ethereum Funds, the Exchange reviewed the
data presented by NYSE American in its filing with respect to shares
outstanding (and corresponding market capitalization), number of
beneficial holders, and trading volume. As of
[[Page 25712]]
November 29, 2024, the NYSE Ethereum Funds had the following number of
shares outstanding (and corresponding market capitalization):
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NYSE Ethereum Fund Shares outstanding Market value (11/29/24)
----------------------------------------------------------------------------------------------------------------
Grayscale Fund................................................ 177,838,500 $5,425,852,635
Grayscale Mini Fund........................................... 45,220,787 1,547,003,157
Bitwise Fund.................................................. 16,600,000 430,886,200
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As shown above, each of the NYSE Ethereum Funds had significantly
more than 7,000,000 shares outstanding, which is the minimum number of
shares of a corporate stock that the Exchange generally requires to
list options on that stock pursuant to Rule 19.3(b).\15\ The Exchange
believes this demonstrates that each NYSE Ethereum Fund is
characterized by a substantial number of outstanding shares. Further,
the below table contains information regarding the number of beneficial
holders of the NYSE Ethereum Funds as of December 31, 2024.
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\15\ The Exchange notes that on November 19, 2024, the Grayscale
Mini Fund underwent a reverse stock split, reducing the number of
shares outstanding--and increasing the share price--tenfold.
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Beneficial
NYSE Ethereum Fund holders (as of 12/
31/24)
------------------------------------------------------------------------
Grayscale Fund....................................... 112,320
Grayscale Mini Fund.................................. 17,396
Bitwise Fund......................................... 5,992
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As this table shows, each NYSE Ethereum Fund has significantly more
than 2,000 beneficial holders (approximately 56, 9, and 3 times more,
respectively), which is the minimum number of holders the Exchange
generally requires for corporate stock in order to list options on that
stock pursuant to pursuant to Rule 19.3(b).\16\ Therefore, the Exchange
believes the shares of each NYSE Ethereum Fund are widely held.
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\16\ The number of beneficial holders of the Grayscale Mini Fund
may have been impacted by the 10:1 reverse stock split, as investors
with fewer than 10 shares would have received a cash payout. See id.
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The Exchange also believes that, based on trading volume since the
NYSE Ethereum Funds began trading on July 23, 2024, shares of the NYSE
Ethereum Funds are actively traded. In particular, the table below sets
forth the total trading volume (by shares and notional) from the
inception of trading through either November 29, 2024 (for the
Grayscale Fund and the Grayscale Mini Fund) or December 31, 2024 (for
the Bitwise Fund). In addition, the below table illustrates the ADV
over the 30-day period of either October 29, 2024--through November 29,
2024 (for the Grayscale Fund and the Grayscale Mini Fund) or November
29, 2024--through December 31, 2024 (for the Bitwise Fund).\17\
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\17\ See FactSet, 11/29/2024 and 12/31/24, <a href="https://www.factset.com/data-attribution">https://www.factset.com/data-attribution</a>.
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Trading volume Trading volume
NYSE Ethereum Fund (shares) (notional $) ADV (shares)
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Grayscale Fund............................................ 427,312,540 $10,289,781,199 4,237,811
Grayscale Mini Fund....................................... 172,400,020 4,614,428,230 3,065,796
Bitwise Fund.............................................. 44,477,060 959,491,343 291,627
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As demonstrated above, even though the NYSE Ethereum Funds have
been trading for less than one year, the trading volume for each NYSE
Ethereum Fund is substantially higher than 2,400,000 shares (roughly
178, 72, and 16 times that amount), which is the minimum 12-month
volume the Exchange generally requires for a security in order to list
options on that security as set forth in Rule 19.3(b). The Exchange
believes this data demonstrates each NYSE Ethereum Fund is
characterized by a substantial number of outstanding shares that are
actively traded.
Options on the Ethereum Funds will be subject to the Exchange's
continued listing standards set forth in Rule 19.4(g) for Fund Shares
deemed appropriate for options trading pursuant to Rule 19.3(i).
Specifically, 19.4(g) provides that Fund Shares that were initially
approved for options trading pursuant to Rule 19.3 will not be deemed
to meet the requirements for continued approval, and the Exchange shall
not open for trading any additional series of option contracts of the
class covering such Fund Shares if the security ceases to be an NMS
stock (see Rule 19.4(b)(4)). Additionally, the Exchange will not open
for trading any additional series of option contracts of the class
covering Fund Shares in any of the following circumstances: (1) in the
case of options covering Fund Shares approved for trading under Rule
19.3(i)(1)(A), in accordance with the terms of Rule 19.4(b)(1), (2) and
(3); (2) in the case of options covering Fund Shares approved pursuant
to Rule 19.3(i)(1)(B), following the initial 12-month period beginning
upon the commencement of trading in the Fund Shares on a national
securities exchange and are defined as NMS stock under Rule 600 of
Regulation NMS, there were fewer than 50 record and/or beneficial
holders of such Fund Shares for 30 consecutive days; (3) the value of
the index, non-U.S. currency, portfolio of commodities including
commodity futures contracts, options on commodity futures contracts,
swaps, forward contracts and/or options on physical commodities and/or
Financial Instruments or Money Market Instruments, or portfolio of
securities on which the Fund Shares are based is no longer calculated
or available; or (4) such other event occurs or condition exists that
in the opinion of the Exchange makes further dealing in such options on
the Exchange inadvisable.
Options on each Ethereum Fund will be physically settled contracts
with American-style exercise.\18\ Consistent with current Rule 19.5,
which governs the opening of options series on a
[[Page 25713]]
specific underlying security (including Fund Shares), the Exchange will
open at least one expiration month for options on Ethereum Funds \19\
at the commencement of trading on the Exchange and may also list series
of options on any Ethereum Fund for trading on a weekly,\20\
monthly,\21\ or quarterly \22\ basis. The Exchange may also list long-
term equity option series (``LEAPS'') that expire from 12 to 39 months
from the time they are listed.\23\
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\18\ See Rule 19.2, which provides that the rights and
obligations of holders and writers are set forth in the Rules of the
Options Clearing Corporation (``OCC''); see also OCC Rules, Chapters
VIII (which governs exercise and assignment) and Chapter IX (which
governs the discharge of delivery and payment obligations arising
out of the exercise of physically settled stock option contracts).
\19\ See Rule 19.5(b) and (e). The monthly expirations are
subject to certain listing criteria for underlying securities
described within Rule 19.3. Monthly listings expire the third Friday
of the month. The term ``expiration date'' (unless separately
defined elsewhere in the OCC By-Laws), when used in respect of an
option contract (subject to certain exceptions), means the third
Friday of the expiration month of such option contract, or if such
Friday is a day on which the exchange on which such option is listed
is not open for business, the preceding day on which such exchange
is open for business. See OCC By-Laws Article I, Section 1. Pursuant
to Rule 19.5(c), additional series of options of the same class may
be opened for trading on the Exchange when the Exchange deems it
necessary to maintain an orderly market, to meet customer demand or
when the market price of the underlying stock moves more than five
strike prices from the initial exercise price or prices. New series
of options on an individual stock may be added until the beginning
of the month in which the options contract will expire. Due to
unusual market conditions, the Exchange, in its discretion, may add
a new series of options on an individual stock until the close of
trading on the business day prior to expiration.
\20\ See Rule 19.5, Interpretation and Policy .05.
\21\ See Rule 19.5, Interpretation and Policy .08.
\22\ See Rule 19.5, Interpretation and Policy .04.
\23\ See Rule 19.7.
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Pursuant to Rule 19.5, Interpretation and Policy .01, which governs
strike prices of series of options on Fund Shares, the interval of
strike prices for series of options on the Trust will be $1 or greater
when the strike price is $200 or less and $5 or greater where the
strike price is over $200.\24\ Additionally, the Exchange may list
series of options pursuant to the $1 Strike Price Interval Program,\25\
the $0.50 Strike Program,\26\ the $2.50 Strike Price Program,\27\ and
the $5 Strike Program.\28\ Pursuant to Rule 21.5, where the price of a
series of a Trust option is less than $3.00, the minimum increment will
be $0.05, and where the price is $3.00 or higher, the minimum increment
will be $0.10.\29\ Any and all new series of Ethereum Fund options that
the Exchange lists will be consistent and comply with the expirations,
strike prices, and minimum increments set forth in Rules 19.5 and 21.5,
as applicable.
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\24\ The Exchange notes that for options listed pursuant to the
Short Term Option Series Program, the Monthly Options Series
Program, and the Quarterly Options Series Program, Rule 19.5,
Interpretations and Policies .05, .08, and .04, specifically sets
forth intervals between strike prices on Quarterly Options Series,
Short Term Option Series, and Monthly Options Series, respectively.
\25\ See Rule 19.5, Interpretations and Policies .01 and .02.
\26\ See Rule 19.5, Interpretation and Policy .06.
\27\ See Rule 19.5, Interpretation and Policy .03.
\28\ See Rule 19.5(d)(5).
\29\ If options on an Ethereum Fund are eligible to participate
in the Penny Interval Program, the minimum increment will be $0.01
for series with a price below $3.00 and $0.05 for series with a
price at or above $3.00. See Rule 21.5(d) (which describes the
requirements for the Penny Interval Program).
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The Ethereum Fund options will trade in the same manner as any
other Fund Share options on the Exchange. The Exchange Rules that
currently apply to the listing and trading of all Fund Share options on
the Exchange, including, for example, Rules that govern listing
criteria, expirations, exercise prices, minimum increments, margin
requirements, customer accounts, and trading halt procedures will apply
to the listing and trading of Ethereum Funds options on the Exchange in
the same manner as they apply to other options on all other Fund Shares
that are listed and traded on the Exchange, including the precious-
metal and Bitcoin-backed commodity Fund Shares already deemed
appropriate for options trading on the Exchange pursuant to current
Rule 19.3(i).
Position and exercise limits for options on ETFs, including options
on the Ethereum Funds, are determined pursuant to Exchange Rules 18.7
and 18.9, respectively. Position and exercise limits for ETF options
vary according to the number of outstanding shares and the trading
volumes of the underlying ETF over the past six months, where the
largest in capitalization and the most frequently traded ETFs have an
option position and exercise limits of 250,000 contracts (with
adjustments for splits, re-capitalizations, etc.) on the same side of
the market; and smaller capitalization ETFs have position and exercise
limits of 200,000, 75,000, 50,000 or 25,000 contracts (with adjustments
for splits, re-capitalizations, etc.) on the same side of the
market.\30\
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\30\ See Exchange Rule 18.7. For an option to be eligible for
the 50,000-contract limit, the security underlying the option must
have most recent six-month trading volume of at least 20,000,000
shares, or most recent six-month trading volume of at least
15,000,000 shares and at least 40,000,000 shares currently
outstanding. For an option to be eligible for the 75,000-contract
limit, the underlying security must have most recent six-month
trading volume of at least 40,000,000 shares, or most recent six-
month trading volume of at least 30,000,000 shares and at least
120,000,000 shares currently outstanding. For an option to be
eligible for the 200,000-contract limit, the underlying security
must have most recent six-month trading volume of at least
80,000,000 shares, or most recent six-month trading volume of at
least 60,000,000 shares and at least 240,000,000 shares currently
outstanding. For an option to be eligible for the 250,000-contract
limit, the security underlying the option must have most recent six-
month trading volume of at least 100,000,000 shares, or most recent
six-month trading volume of at least 75,000,000 shares and at least
300,000,000 shares currently outstanding. The 25,000-contract limit
applies to options on underlying securities that do not qualify for
a higher contract limit. See Exchange Rule 18.7. In addition,
Interpretation and Policy .01 to Exchange Rule 18.7 establishes
higher position limits for options on certain ETFs.
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Position 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. The purpose of position limits, which are set
forth in Exchange Rule 18.7, is to address potential manipulative
schemes and adverse market impacts surrounding the use of options, such
as disrupting the market in the security underlying the options. As
such, position limits must balance concerns regarding mitigating
potential manipulation and the cost of inhibiting potential hedging
activity that investors may use for legitimate economic purposes. To
achieve this balance, the Exchange proposes to set the position and
exercise limits for the options on the Ethereum Funds at 25,000
contracts. Capping the position limit at 25,000 contracts, the lowest
limit available in options, would address concerns related to
manipulation and protection of investors as this number is conservative
for the Ethereum Funds and therefore appropriate given their liquidity.
While the Exchange believes that the proposed 25,000-contract position
limit is conservative for options on the Ethereum Funds, it nonetheless
believes that, for the reasons set forth below, evidence exists to
support a much higher position limit.\31\
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\31\ The Exchange may file a subsequent rule change to amend the
position and exercise limit for options on any or all the Ethereum
Funds based on additional data regarding trading activity, to
continue to balance any concerns regarding manipulation. A higher
position limit would allow institutional investors to utilize
options on the Ethereum Funds for prudent risk management purposes.
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Fidelity Fund
As provided in the Cboe Approval Order, the proposed position and
exercise limits were determined considering, among other things, the
ADV (since trading of the Fidelity Fund began on July 23, 2024) and
outstanding shares of the Fidelity Fund (which as discussed above
demonstrate that the Fidelity Fund is widely held and actively traded
and thus justify these conservatively proposed position limits), as set
forth below, along with
[[Page 25714]]
market capitalization (as of December 23, 2024):
------------------------------------------------------------------------
Market
ADV (shares) Outstanding shares capitalization ($)
------------------------------------------------------------------------
1,070,269....................... 41,700,000 1,433,229,000
------------------------------------------------------------------------
As provided in the Cboe Approval Order, the number of outstanding
shares of the Fidelity Fund were compared to those of other ETFs. The
approximate average position (and exercise limit) of ETF options with
similar outstanding shares (as of December 31, 2024) was approximately
102,703 contracts, which is significantly higher (approximately 4
times) than the proposed position and exercise limit of 25,000
contracts for Fidelity Fund options.\32\ As discussed above, shares of
the Fidelity Fund are actively held and widely traded: (1) the Fidelity
Fund (as of December 23, 2024) had significantly more than 7,000,000
shares outstanding, which is the minimum number of shares of a
corporate stock that the Exchange generally requires to list options on
that stock pursuant to Rule 19.3(b)(1); (2) the Fidelity Fund (as of
November 26, 2024) had significantly more than 2,000 beneficial
holders, which is the minimum number of holders the Exchange generally
requires for corporate stock in order to list options on that stock
pursuant to Rule 19.3(b)(2); and (3) the Fidelity Fund had a trading
volume in the approximately five-month time period since it began
trading substantially higher than 2,400,000 shares, which is the
minimum 12-month volume the Exchange generally requires for a security
in order to list options on that security as set forth in Rule
19.3(b)(4).
---------------------------------------------------------------------------
\32\ The position limits for those ETF options for which the
underlying ETFs had similar outstanding shares were all 50,000 or
above, and nearly half of them had position limits of 200,000 or
250,000 contracts.
---------------------------------------------------------------------------
As provided in the Cboe Approval Order, if a market participant
held the maximum number of positions possible pursuant to the proposed
position and exercise limits, the equivalent shares represented by the
proposed position/exercise limit would represent approximately 6.0% of
the 41,700,000 current outstanding shares of the Fidelity Fund.
Therefore, if a market participant held the maximum permissible options
positions in Fidelity Fund options and exercised all of them at the
same time, that market participant would control a small percentage of
the outstanding shares of the Fidelity Fund.
Rule 18.7(d) provides two methods of qualifying for a position
limit tier above 25,000 option contracts. The first method is based on
six-month trading volume in the underlying security, and the second
method is based on slightly lower six-month trading volume and number
of shares outstanding in the underlying security. An underlying stock
or ETF that qualifies for method two based on trading volume and number
of shares outstanding would be required to have the minimum number of
outstanding shares as shown in middle column of the table below. The
table below, which provides the equivalent shares of the position
limits applicable to equity options, including ETFs, further represents
the percentages of the minimum number of outstanding shares that an
underlying stock or ETF must have to qualify for that position limit
(under the second method described above).
------------------------------------------------------------------------
Minimum Percentage of
Position/exercise limit (in outstanding outstanding
equivalent shares) shares shares
------------------------------------------------------------------------
2,500,000......................... 6,300,000 40
5,000,000......................... 40,000,000 12.5
7,500,000......................... 120,000,000 6.3
20,000,000........................ 240,000,000 8.3
25,000,000........................ 300,000,000 8.3
------------------------------------------------------------------------
The equivalent shares represented by the proposed position and
exercise limits for the Fidelity Fund as a percentage of outstanding
shares of the Fidelity Fund is significantly lower than the percentage
for the lowest possible position limit for equity options of 25,000,
which is the position limit the Exchange is proposing for Fidelity Fund
options.\33\
---------------------------------------------------------------------------
\33\ As these percentages are based on the minimum number of
outstanding shares an underlying security must have to qualify for
the applicable position limit, these are the highest possible
percentages that would apply to any option subject to that position
and exercise limit. 6,300,000 is the minimum number of outstanding
shares an underlying security must have for the Exchange to continue
to list options on that security, so this would be the smallest
number of outstanding shares permissible for any corporate option
that would have a position limit of 25,000 contract. See Rule
19.4(b)(1). This rule applies to corporate stock options but not ETF
options, which currently have no requirement regarding outstanding
shares of the underlying ETF for the Exchange to continue listing
options on that ETF. Therefore, there may be ETF options trading for
which the 25,000 contract position limit represents an even larger
percentage of outstanding shares of the underlying ETF than set
forth above.
---------------------------------------------------------------------------
Further, the proposed position and exercise limits for Fidelity
Fund options are equal to the lowest position and exercise limits
available in the options industry for equity options, are extremely
conservative and more than appropriate given the market capitalization,
average daily volume, and high number of outstanding shares of the
Fidelity Fund.
All of the above information demonstrates that the proposed
position and exercise limits for Fidelity Fund options are more than
reasonable and appropriate. The trading volume, ADV, and outstanding
shares of the Fidelity Fund demonstrate that its shares are actively
traded and widely held, and the proposed position and exercise limits
are well below those of options on other ETFs with similar market
characteristics. The proposed position and exercise limits would be the
lowest position and exercise limit available for equity options in the
industry, are extremely conservative, and are more than appropriate
given the Fidelity Fund's market capitalization, ADV, and high number
of outstanding shares.
[[Page 25715]]
NYSE Ethereum Funds
As noted above, the Exchange believes that the trading volume in
each NYSE Ethereum Fund is sufficient to qualify each Fund for position
limits in excess of the proposed 25,000-contract limit,\34\ as shown in
the table below, provided in the NYSE American Approval.\35\
---------------------------------------------------------------------------
\34\ See FactSet, 11/29/2024 and 12/31/24, <a href="https://www.factset.com/data-attribution">https://www.factset.com/data-attribution</a>.
\35\ See supra note 6.
------------------------------------------------------------------------
NYSE Ethereum Fund Total volume
------------------------------------------------------------------------
ETHE...................................... 427,312,540 (7/23/24-11/29/
24).
ETH....................................... 172,400,020 (7/23/24-11/29/
24).
ETHW...................................... 44,477,060 (7/23/24-12/31/
24).
------------------------------------------------------------------------
Specifically, the trading volume referenced in the table above in
ETHE and ETH well exceeds the requisite minimum of 100,000,000 shares
necessary to qualify for the 250,000-contract position and exercise
limits.\36\ By comparison, other options symbols with less trading
volume for six months than ETHE and ETH are eligible for position and
exercise limits of at least 250,000.\37\ Further, the trading volume
referenced in the table above for ETHW well exceeded the requisite
minimum of 40,000,000 shares necessary to qualify for the 75,000-
contract position (and exercise) limit, which is three times the
proposed 25,000-contract limit.\38\ Finally, the proposed 25,000-
contract position limit is the default for options that do not
otherwise qualify for a higher limit and is therefore an adequate limit
for each NYSE Ethereum Fund.\39\ With respect to the outstanding shares
of each NYSE Ethereum Fund, if a market participant held the maximum
number of contracts possible pursuant to the proposed position and
exercise limits (25,000 contracts), the equivalent shares represented
by the proposed position/exercise limit (2,500,000 shares) would
represent the following approximate percentage of current outstanding
shares according to the data presented in the NYSE American Approval:
\40\
---------------------------------------------------------------------------
\36\ Exchange Rule 18.7(d)(5) states that to be eligible for the
250,000 option contract limit, either the most recent six-month
trading volume of the underlying security must have totaled at least
100,000,000 shares; or the most recent six-month trading volume of
the underlying security must have totaled at least 75,000,000 shares
and the underlying security must have at least 300,000,000 currently
outstanding.
\37\ See <a href="https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search">https://www.theocc.com/Market-Data/Market-Data-Reports/Series-and-Trading-Data/Series-Search</a> (including the following
symbols that have a position limit of 250,000: GLD, IAU, SLV, SIVR,
SGOL).
\38\ Exchange Rule 18.7(d)(3) states that to be eligible for the
75,000 contract limit, either the most recent six (6) month trading
volume of the underlying security must have totaled at least forty
(40) million shares or the most recent six (6) month trading volume
of the underlying security must have totaled at least thirty (30)
million shares and the underlying security must have at least 120
million shares currently outstanding
\39\ Exchange Rule 18.7(d)(1) states that a 25,000 contract
limit applies to those options having an underlying security that
does not meet the requirements for a higher option contract limit.
\40\ See supra note 6.
----------------------------------------------------------------------------------------------------------------
Proposed position/ Percentage of
NYSE Ethereum Fund exercise limits in Outstanding outstanding
equivalent shares shares shares
----------------------------------------------------------------------------------------------------------------
ETHE.................................................. 2,500,000 177,838,500 1.4
ETH................................................... 2,500,000 45,220,787 5.5
ETHW.................................................. 2,500,000 16,600,000 15.1
----------------------------------------------------------------------------------------------------------------
As this table demonstrates, if a market participant held the
maximum permissible options positions in one of the NYSE Ethereum Fund
options and exercised all of them at the same time, that market
participant would control a small percentage of the outstanding shares
of the underlying NYSE Ethereum Fund. For example, as noted above, a
position limit of 25,000 same side contracts effectively restricts a
market participant from holding positions that could result in the
receipt of no more than 2,500,000 shares of the applicable NYSE
Ethereum Fund (if that market participant exercised all its options).
Based on the number of shares outstanding for each NYSE Ethereum Fund
as of November 29, 2024, as presented in the NYSE American
Approval,\41\ the table below sets forth the approximate number of
market participants that could hold the maximum of 25,000 same side
positions in each NYSE Ethereum Fund that would equate to the number of
shares outstanding of that NYSE Ethereum Fund:
---------------------------------------------------------------------------
\41\ See supra note 6.
----------------------------------------------------------------------------------------------------------------
Number of market
NYSE Ethereum Fund Outstanding participants with 25,000
shares same side positions
----------------------------------------------------------------------------------------------------------------
ETHE............................................................... 177,838,500 71
ETH................................................................ 45,220,787 18
ETHW............................................................... 16,600,000 7
----------------------------------------------------------------------------------------------------------------
This means if 71 market participants had 25,000 same side positions
in options on ETHE, each of them would have to simultaneously exercise
all of those options to create a scenario that may put the underlying
security under stress. Similarly, this means if 18 market participants
had 25,000 same side positions in options on the ETH, each of them
would have to simultaneously exercise all of those options to create a
scenario that may put the underlying security under stress. Finally,
this means if 7 market participants had 25,000 same side positions in
options on ETHW, each of them would have to simultaneously exercise all
of those options to create a scenario that may put
[[Page 25716]]
the underlying security under stress. The Exchange believes it is
highly unlikely for this to occur for any of these scenarios; however,
even if such event did occur, the Exchange would not expect any of the
NYSE Ethereum Funds to be under stress because such an event would
merely induce the creation of more shares through the trust's creation
and redemption process.
Further, given that the issuer of each NYSE Ethereum Fund may
create and redeem shares that represent an interest in ether, the
Exchange believes it is relevant to compare the size of a position
limit to the market capitalization of the ether market. As of November
29, 2024, based on data presented in the NYSE American Approval,\42\
the global supply of ether was approximately 120.44 million, and the
price of one ether was approximately $3,593.49,\43\ which equates to a
market capitalization of approximately $439.78 billion. Consider the
proposed position and exercise limit of 25,000 option contracts for
each NYSE Ethereum Fund option. A position and exercise limit of 25,000
same side contracts effectively restricts a market participant from
holding positions that could result in the receipt of no more than
2,500,000 shares of ETHE, ETH, and ETHW, as applicable (if that market
participant exercised all its options). The following table from the
NYSE American Approval \44\ shows the share price of each NYSE Ethereum
Fund on November 29, 2024, the value of 2,500,000 shares of the NYSE
Ethereum Fund at that price, and the approximate percentage of that
value of the size of the ether market:
---------------------------------------------------------------------------
\42\ See supra note 6.
\43\ See <a href="https://finance.yahoo.com/quote/ETH-USD/history">https://finance.yahoo.com/quote/ETH-USD/history</a>.
\44\ See supra note 6.
----------------------------------------------------------------------------------------------------------------
Nov. 29th share Value of 2,500,000 Percentage of
NYSE Ethereum Fund price ($) shares ether market
----------------------------------------------------------------------------------------------------------------
ETHE................................................... $30.15 $75,250,000 0.017
ETH.................................................... 33.84 84,600,000 0.020
ETHW................................................... 25.80 64,500,000 0.015
----------------------------------------------------------------------------------------------------------------
Therefore, if a market participant with the maximum 25,000 same
side contracts in options on any of ETHE, ETH, ETHW exercised all
positions at one time, such an event would have no practical impact on
the ether market. The Exchange also reviewed data presented in the NYSE
American Approval \45\ regarding the market capitalization of each of
the NYSE Ethereum Funds relative to the market capitalization of the
entire ether market, as of November 29, 2024:
---------------------------------------------------------------------------
\45\ See supra note 6.
----------------------------------------------------------------------------------------------------------------
Market
Ether/shares capitalization ($) Percent of total
outstanding (11/29/2024) ether market
----------------------------------------------------------------------------------------------------------------
Total Ethereum Market.................................. 120,440,000 $432,799,935,600 100
ETHE................................................... 177,838,500 5,425,852,635 1.25
ETH.................................................... 45,220,787 1,547,003,157 0.36
ETHW................................................... 16,600,000 430,886,200 0.10
----------------------------------------------------------------------------------------------------------------
As this data gathered by NYSE American demonstrates, the NYSE
Ethereum Funds collectively represent approximately 1.71% of the global
supply of ether (120,440,000).\46\ Based on the $30.15 price of an ETHE
share on November 29, 2024, a market participant could have redeemed
one ether for approximately 119 ETHE shares. Another 14,354,890,070
ETHE shares could be created before the supply of ether was exhausted.
As a result, 5,742 market participants would have to simultaneously
exercise 25,000 same side positions in ETHE options to receive shares
of the ETHE holding the entire global supply of ether. Similarly, based
on the $33.84 price of an ETH share on November 29, 2024, a market
participant could have redeemed one ether for approximately 106 ETH
shares. Another 12,789,596,206 ETH shares could be created before the
supply of ether was exhausted. As a result, 5,116 market participants
would have to simultaneously exercise 25,000 same side positions in ETH
options to receive shares of ETH holding the entire global supply of
ether. Similarly, based on the $25.80 price of an ETHW share on
November 29, 2024, a market participant could have redeemed one ether
for approximately 139 ETHW shares. Another 16,775,191,302 ETHW shares
could be created before the supply of ether was exhausted. As a result,
6,710 market participants would have to simultaneously exercise 25,000
same side positions in ETHW options to receive shares of ETHW holding
the entire global supply of ether. Unlike the NYSE Ethereum Funds, the
number of shares that corporations may issue is limited. However, like
corporations, which authorize additional shares, repurchase shares, or
split their shares, the NYSE Ethereum Funds may create, redeem, or
split shares in response to demand. The supply of ether is larger than
the available supply of most securities.\47\ Given the significant
unlikelihood of any of these events ever occurring, the Exchange does
not believe options on the NYSE Ethereum Funds should be subject to
position and exercise limits even lower than those proposed (which are
already equal to the lowest available limit for equity options in the
industry) to protect the supply of ether.
---------------------------------------------------------------------------
\46\ See <a href="https://finance.yahoo.com/quote/ETH-USD/history">https://finance.yahoo.com/quote/ETH-USD/history</a>.
\47\ The market capitalization of ether would rank in the top 20
among securities. See <a href="https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/">https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/</a>.
---------------------------------------------------------------------------
The Exchange also believes the proposed limits are appropriate
given position limits for ether futures. The NYSE American Approval
presented data \48\ that compared the proposed position limits to the
position limit of Chicago Mercantile Exchange (``CME'') Ethereum
futures. CME imposes a position limit of 8,000 futures (for the
[[Page 25717]]
initial spot month) on its ether futures contract.\49\ On November 29,
2024, CME Jan 25 ether futures settled at $3,629.69. A position of
8,000 CME Ethereum futures, therefore, would have a notional value of
$1,451,876,000. The following table, as presented in the NYSE American
Approval \50\ shows the share price of each NYSE Ethereum Fund on
November 29, 2024, and the approximate number of option contracts that
equates to that notional value:
---------------------------------------------------------------------------
\48\ See supra note 6.
\49\ See CME Rulebook Chapter 349 (description of CME ether
futures) and Chapter 5, Position Limit, Position Accountability and
Reportable Level Table in the Interpretations & Special Notices.
Each CME ether futures contract is valued at fifty ethers as defined
by the CME CF Ether Reference Rate (``ERR''). See CME Rulebook
Chapter 349.
\50\ See supra note 6.
----------------------------------------------------------------------------------------------------------------
Nov. 29th share price
NYSE Ether Fund ($) Number of option contracts
----------------------------------------------------------------------------------------------------------------
ETHE.................................................... $30.15 481,551
ETH..................................................... 33.84 429,041
ETHW.................................................... 25.80 562,743
----------------------------------------------------------------------------------------------------------------
The approximate number of option contracts for each NYSE Ethereum
Fund that would equate to the notional value of CME ether futures is
significantly higher than the proposed limit of 25,000 options
contracts for each NYSE Ethereum Fund option. The fact that many
options ultimately expire out-of-the-money and thus are not exercised
for shares of the underlying, while the delta of an ether future is 1,
the NYSE American Approval further demonstrates how conservative the
proposed limits of 25,000 options contracts are for the NYSE Ethereum
Fund options.
The Exchange notes, unlike options contracts, CME position limits
are calculated on a net futures-equivalent basis by contract and
include contracts that aggregate into one or more base contracts
according to an aggregation ratio(s).\51\ 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.\52\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position shall not constitute a position limit
violation. Considering CME's position limits on futures for ether, the
Exchange believes that that the proposed same side position limits are
more than appropriate for the NYSE Ethereum Fund options.
---------------------------------------------------------------------------
\51\ See supra note 6.
\52\ See CME Rulebook Chapter 5, Position Limit, Position
Accountability and Reportable Level Table in the Interpretations &
Special Notices.
---------------------------------------------------------------------------
Consistent with its position regarding the irrelevance of bitcoin
supply to position limits for options on bitcoin ETPs, the Exchange
likewise believes the available supply of ether is not relevant to the
determination of position and exercise limits for Ethereum Fund
options.\53\ Position and exercise limits are not a tool that should be
used to address a potential limited supply of the underlying of an
underlying. Position and exercise limits do not limit the total number
of options that may be held, but rather they limit the number of
positions a single customer may hold or exercise at one time.\54\
``Since the inception of standardized options trading, the options
exchanges have had rules imposing limits on the aggregate number of
options contracts that a member or customer could hold or exercise.''
\55\ Position and exercise limit rules are intended ``to prevent the
establishment of options positions that can be used or might create
incentives to manipulate or disrupt the underlying market so as to
benefit the options position. In particular, position and exercise
limits are designed to minimize the potential for mini-manipulations
and for corners or squeezes of the underlying market. In addition, such
limits serve to reduce the possibility for disruption of the options
market itself, especially in illiquid options classes.'' \56\
---------------------------------------------------------------------------
\53\ See BTC Approval Order, 89 FR at 105148, n. 33 (asserting
that, outside of the bitcoin context, the Exchange is unaware of any
proposed rule change related to position and exercise limits for any
equity option (including commodity ETF options) for which the
Commission required consideration of whether the available supply of
an underlying (whether it be a corporate stock or an ETF) or the
contents of an ETF (commodity or otherwise) should be considered
when an exchange proposed to establish those limits). See, e.g.,
Securities Exchange Act Release No. 57894 May 30, 2008, 73 FR 32061
(June 5, 2008) (SR-CBOE-2005-11) (approval order in which the
Commission stated that the ``listing and trading of Gold Trust
Options will be subject to the exchanges' rules pertaining to
position and exercise limits and margin''). The Exchange notes the
position limits in Exchange Rule 18.7 are the same as when the
Commission approved this filing. For reference, the current position
and exercise limits for options on SPDR Gold Shares ETF (``GLD'')
and options on iShares Silver Trust (``SLV'') are 250,000 contracts,
or 10 times that proposed position and exercise limit for the
Ethereum Fund options.
\54\ For example, suppose an option has a position limit of
25,000 option contracts and there are a total of 10 investors
trading that option. If all 10 investors max out their positions,
that would result in 250,000 option contracts outstanding at that
time. However, suppose 10 more investors decide to begin trading
that option and also max out their positions. This would result in
500,000 option contracts outstanding at that time. An increase in
the number of investors could cause an increase in outstanding
options even if position limits remain unchanged.
\55\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\56\ Id.
---------------------------------------------------------------------------
The Exchange notes that a Registration Statement on Form S-1 was
filed with the Commission for each NYSE Ethereum Fund, each of which
described the supply of ether as being unlimited.\57\ Each Registration
Statement permits an unlimited number of shares of the applicable NYSE
Ethereum Fund to be created. Further, the Commission approved proposed
rule changes that permitted the listing and trading of shares of each
NYSE Ethereum Fund, which approval did not comment on the sufficient
supply of ether or address whether there was a risk that permitting an
unlimited number of shares for a NYSE Ethereum Fund would impact the
supply of ether.\58\ Therefore, the Exchange believes the Commission
had ample time and opportunity to consider whether the supply of ether
was sufficient to permit the creation of unlimited NYSE Ethereum Fund
shares, and does not believe considering this
[[Page 25718]]
supply with respect to the establishment of position and exercise
limits is appropriate given its lack of relevance to the purpose of
position and exercise limits. However, given the significant size of
the ether supply, the proposed positions limits are more than
sufficient to protect investors and the market.
---------------------------------------------------------------------------
\57\ See, e.g., ETHE Form S-1 Registration Statement, at p. 77,
<a href="https://www.sec.gov/Archives/edgar/data/2020455/000119312524106957/d756153ds1.htm">https://www.sec.gov/Archives/edgar/data/2020455/000119312524106957/d756153ds1.htm</a>; ETH Amendment No. 5 to Form S-1 Registration
Statement, at p. 79, <a href="https://www.sec.gov/Archives/edgar/data/2020455/000119312524181081/d756153ds1a.htm">https://www.sec.gov/Archives/edgar/data/2020455/000119312524181081/d756153ds1a.htm</a>; and ETHW Form S-1
Registration Statement 1, at p. 17, <a href="https://www.sec.gov/Archives/edgar/data/2013744/000199937124007581/bitwise-s1a_061824.htm">https://www.sec.gov/Archives/edgar/data/2013744/000199937124007581/bitwise-s1a_061824.htm</a>
(``Ether Funds Reg. Stmts.'').
\58\ See Ethereum ETP Approval Order.
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes the proposal to list
options on the NYSE Ethereum Funds with position and exercise limits of
25,000 on the same side, the lowest position limit available in the
options industry, is conservative and appropriate given the market
capitalization, ADV, and high number of outstanding shares for each of
the NYSE Ethereum Funds. The proposed position and exercise limits
reasonably and appropriately balance the liquidity provisioning in the
market against the prevention of manipulation. The Exchange believes
these proposed limits are effectively designed to prevent an individual
customer or entity from establishing options positions that could be
used to manipulate the market of the underlying NYSE Ethereum Funds as
well as the ether market.
Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply those same program
procedures to options on the Ethereum Funds that it applies to the
Exchange's other options products, including options on Fund
Shares.\59\ The Exchange's market surveillance staff would have access
to the surveillances conducted by the Exchange's affiliated equities
exchange, MEMX, LLC, with respect to the Ethereum Funds and would
review activity in the underlying Ethereum Funds when conducting
surveillances for market abuse or manipulation in the options on the
Ethereum Funds. Additionally, the Exchange is a member of the
Intermarket Surveillance Group (``ISG'') under the Intermarket
Surveillance Group Agreement. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. In addition to obtaining information from
its affiliated market, the Exchange would be able to obtain information
regarding trading in shares of the Ethereum Funds from their primary
listing markets and from other markets that trade shares of the
Ethereum Funds through ISG. In addition, the Exchange has a Regulatory
Services Agreement with the Financial Industry Regulatory Authority
(``FINRA'') for certain market surveillance, investigation and
examinations functions. Pursuant to a multi-party 17d-2 joint plan, all
options exchanges allocate amongst themselves and FINRA
responsibilities to conduct certain options-related market surveillance
that are common to rules of all options exchanges.\60\
---------------------------------------------------------------------------
\59\ The surveillance program includes surveillance patterns for
price and volume movements as well as patterns for potential
manipulation (e.g., spoofing and marking the close).
\60\ Section 19(g)(1) of the Act, among other things, requires
every self-regulatory organization (``SRO'') registered as a
national securities exchange or national securities association to
comply with the Act, the rules and regulations thereunder, and the
SRO's own rules, and, absent reasonable justification or excuse,
enforce compliance by its members and persons associated with its
members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section
17(d)(1) of the Act allows the Commission to relieve an SRO of
certain responsibilities with respect to members of the SRO who are
also members of another SRO (``common members''). Specifically,
Section 17(d)(1) allows the Commission to relieve an SRO of its
responsibilities to: (i) receive regulatory reports from such
members; (ii) examine such members for compliance with the Act and
the rules and regulations thereunder, and the rules of the SRO; or
(iii) carry out other specified regulatory responsibilities with
respect to such members.
---------------------------------------------------------------------------
The underlying shares of spot Ethereum ETPs, including the Ethereum
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in its order approving
proposals of several exchanges to list and trade shares of spot
Ethereum-based ETPs,\61\ ``[e]ach Exchange has a comprehensive
surveillance-sharing agreement with the [CME] via their common
membership in ISG. This facilitates the sharing of information that is
available to the CME through its surveillance of its markets, including
its surveillance of the CME Ether futures market.'' \62\ The Exchange
states that, given the consistently high correlation between the CME
Ethereum futures market and the spot Ethereum market, as confirmed by
the Commission through robust correlation analysis, the Commission was
able to conclude that such surveillance sharing agreements could
reasonably be ``expected to assist in surveilling for fraudulent and
manipulative acts and practices in the specific context of the
[Ethereum ETPs].'' \63\
---------------------------------------------------------------------------
\61\ See Ethereum ETP Approval Order.
\62\ See Ethereum ETP Approval Order, at 46938 (footnotes
excluded).
\63\ See Ethereum ETP Approval Order, at 46941 (footnote
excluded).
---------------------------------------------------------------------------
In light of surveillance measures related to both options and
futures as well as the underlying Ethereum Funds,\64\ the Exchange
believes that existing surveillance procedures are designed to deter
and detect possible manipulative behavior which might potentially arise
from listing and trading the proposed options on the Ethereum Funds.
Further, the Exchange will implement any new surveillance procedures it
deems necessary to effectively monitor the trading of options on the
Ethereum Funds.
---------------------------------------------------------------------------
\64\ See Ethereum ETP Approval Order.
---------------------------------------------------------------------------
Finally, quotation and last sale information for ETFs is available
via the Consolidated Tape Association (``CTA'') high speed line.
Quotation and last sale information for such securities is also
available from the exchange on which such securities are listed.
Quotation and last sale information for options on the Ethereum Funds
will be available via Options Price Reporting Authority (``OPRA'') and
major market data vendors. The Exchange has also analyzed its capacity
and represents that it believes the Exchange and OPRA have the
necessary systems capacity to handle the additional traffic associated
with the listing of new series that may result from the introduction of
options on the Ethereum Funds up to the number of expirations currently
permissible under the Rules.
The Exchange believes that offering options on Ethereum Funds will
benefit investors by providing them with an additional, relatively
lower cost investing tool to gain exposure to the price of Ethereum and
hedging vehicle to meet their investment needs in connection with
Ethereum-related products and positions. The Exchange expects investors
will transact in options on the Ethereum Funds in the unregulated over-
the-counter (``OTC'') options market,\65\ but may prefer to trade such
options in a listed environment to receive the benefits of trading
listing options, including (1) enhanced efficiency in initiating and
closing out positions; (2) increased market transparency; and (3)
heightened contra-party creditworthiness due to the role of OCC as
issuer and guarantor of all listed options. The Exchange believes that
listing Ethereum Fund options may cause investors to bring this
liquidity to the Exchange, would increase market transparency and
enhance the process of price discovery conducted on the Exchange
through increased order flow. The Fund Shares that hold financial
instruments, money market instruments, precious metal commodities, or
Bitcoin on which the Exchange may already list and trade options are
trusts structured in substantially the same manner as the Ethereum
Funds and essentially offer the same objectives and benefits to
investors, just with respect to different
[[Page 25719]]
assets. The Exchange notes that it has not identified any issues with
the continued listing and trading of any Fund Share options, including
Fund Shares that hold commodities (i.e., precious metals and Bitcoin)
that it currently lists and trades on the Exchange.
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\65\ The Exchange understands from customers that investors have
historically transacted in options on Fund Shares in the OTC options
market if such options were not available for trading in a listed
environment.
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Finally, the Exchange notes that applicable Exchange rules will
require that customers receive appropriate disclosure before trading
options in Ethereum Funds.\66\ Further, brokers opening accounts and
recommending options transactions must comply with relevant customer
suitability standards.\67\
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\66\ See Rules 26.2(b) and (e).
\67\ See Rule 26.4.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\68\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \69\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \70\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\68\ 15 U.S.C. 78f(b).
\69\ 15 U.S.C. 78f(b)(5).
\70\ Id.
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In particular, the Exchange believes that the proposal to list and
trade options on the Ethereum Funds will remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, protect investors because offering options on
the Ethereum Funds will provide investors with a greater opportunity to
realize the benefits of utilizing options on an ETF based on spot
Ethereum, including cost efficiencies and increased hedging strategies.
The Exchange believes that offering options on a competitively
priced ETF based on spot Ethereum will benefit investors by providing
them with an additional, relatively lower-cost risk management tool,
allowing them to manage, more easily, their positions and associated
risks in their portfolios in connection with exposure to spot Ethereum.
Today, the Exchange lists options on other commodity (including
Ethereum) ETFs structured as trusts, which essentially offer the same
objectives and benefits to investors, and for which the Exchange has
not identified any issues with the continued listing and trading of
options on those ETFs.
The Exchange also believes the proposal to permit options on the
Ethereum Funds will remove impediments to and perfect the mechanism of
a free and open market and a national market system, because options on
the Ethereum Funds will comply with current Exchange Rules as discussed
herein. Options on the Ethereum Funds must satisfy the initial listing
standards and continued listing standards currently in the Rules,
applicable to options on all ETFs, including options on other commodity
ETFs already deemed appropriate for options trading on the Exchange
pursuant to Rule 19.3(i). Additionally, as demonstrated above, the
Ethereum Funds are characterized by a substantial number of shares that
are widely held and actively traded. Further, Rules that currently
govern the listing and trading of options on ETFs, including
permissible expirations, strike prices, minimum increments, position
and exercise limits (as proposed herein), and margin requirements, will
govern the listing and trading of options on the Ethereum Funds.
The proposed position and exercise limits for options on each of
the Ethereum Funds is 25,000 contracts. These position and exercise
limits are the lowest position and exercise limits available in the
options industry, are extremely conservative and more than appropriate
given each Ethereum Fund's market capitalization, ADV, number of
beneficial holders, and high number of outstanding shares as described
herein. The proposed position and exercise limits are consistent with
the Act as they address concerns related to manipulation and protection
of investors because, as demonstrated above, the position and exercise
limits are extremely conservative and more than appropriate given the
Ethereum Funds are actively traded.
The Exchange represents that it has the necessary systems capacity
to support the new Ethereum Fund options. As discussed above, the
Exchange believes that its existing surveillance and reporting
safeguards are designed to deter and detect possible manipulative
behavior which might arise from listing and trading Fund Share options,
including Ethereum Fund options. The Exchange's existing surveillance
and reporting safeguards are designed to deter and detect possible
manipulative behavior which might arise from listing and trading
options on ETFs and ETPs, such as (existing) precious metal-commodity
backed ETP options as well as the proposed options on the Ethereum
Funds. The Exchange believes that its surveillance procedures are
adequate to properly monitor the trading of options on the Ethereum
Funds in all trading sessions and to deter and detect violations of
Exchange rules. Specifically, the Exchange's market surveillance staff
will have access to surveillances that it and its affiliated equities
market conduct, as well as those which FINRA conducts on its behalf,
with respect to the Ethereum Funds and, as appropriate, would review
activity in the underlying Ethereum Funds when conducting surveillances
for market abuse or manipulation in the options on the Ethereum Funds.
Additionally, the Exchange is a member of the ISG under the Intermarket
Surveillance Group Agreement. ISG members work together to coordinate
surveillance and investigative information sharing in the stock,
options, and futures markets. In addition, the Exchange has a
Regulatory Services Agreement with the FINRA and as noted herein,
pursuant to a multi-party 17d-2 joint plan, all options exchanges
allocate regulatory responsibilities to FINRA to conduct certain
options-related market surveillances. Further, the Exchange will
implement any new surveillance procedures it deems necessary to
effectively monitor the trading of options on the Ethereum Funds.
The underlying shares of spot Ethereum ETPs, including the Ethereum
Funds, are also subject to safeguards related to addressing market
abuse and manipulation. As the Commission stated in its order approving
proposals of several exchanges to list and trade shares of spot
Ethereum-based ETPs, ``[e]ach Exchange has a comprehensive
surveillance-sharing agreement with the CME via their common membership
in the Intermarket Surveillance Group. This facilitates the sharing of
information that is available to the CME through its surveillance of
its markets, including its surveillance of the CME
[[Page 25720]]
ether futures market.'' \71\ The Exchange states that, given the
consistently high correlation between the CME Ethereum futures market
and the spot Ethereum market, as confirmed by the Commission through
robust correlation analysis, the Commission was able to conclude that
such surveillance sharing agreements could reasonably be ``expected to
assist in surveilling for fraudulent and manipulative acts and
practices in the specific context of the [Ether ETPs].'' \72\ In light
of the foregoing, the Exchange believes that existing surveillance
procedures are designed to deter and detect possible manipulative
behavior which might potentially arise from listing and trading the
proposed options on the Ethereum Funds.
---------------------------------------------------------------------------
\71\ See Ethereum ETP Approval Order, 89 FR at 46938
\72\ See Ethereum ETP Approval Order, 89 FR at 46941.
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Finally, the Exchange notes that this proposal will remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, protect investors because
applicable Exchange rules will require that customers receive
appropriate disclosure before trading options in the Ethereum Funds
\73\ and will require that brokers opening accounts and recommending
options transactions must comply with relevant customer suitability
standards.\74\
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\73\ See Rules 26.2(b) and (e).
\74\ See Rule 26.4.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange does not
believe that the proposed rule change will impose any burden on
intramarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act as Ethereum Fund options will be
equally available to all market participants who wish to trade such
options and will trade generally in the same manner as other options.
The Rules that currently apply to the listing and trading of all Fund
Share options on the Exchange, including, for example, Rules that
govern listing criteria, expirations, exercise prices, minimum
increments, margin requirements, customer accounts, and trading halt
procedures will apply to the listing and trading of the Ethereum Fund
options on the Exchange in the same manner as they apply to other
options on all other Fund Shares that are listed and traded on the
Exchange. Also, and as stated above, the Exchange already lists options
on other commodity-based Fund Shares (including Bitcoin-based).\75\
Further, the Ethereum Funds would need to satisfy the maintenance
listing standards set forth in the Exchange Rules in the same manner as
any other Fund Share for the Exchange to continue listing options on
them.
---------------------------------------------------------------------------
\75\ See Rule 19.3(i).
---------------------------------------------------------------------------
The Exchange does not believe that the proposal to list and trade
options on the Ethereum Funds will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. To the extent that the advent of the Ethereum
Funds options trading on the Exchange may make the Exchange a more
attractive marketplace to market participants at other exchanges, such
market participants are free to elect to become market participants on
the Exchange. The Exchange notes that listing and trading Ethereum Fund
options on the Exchange will subject such options to transparent
exchange-based rules as well as price discovery and liquidity, as
opposed to alternatively trading such options in the OTC market.
The Exchange believes that the proposed rule change may relieve any
burden on, or otherwise promote, competition, as it is designed to
increase competition for order flow on the Exchange in a manner that is
beneficial to investors by providing them with a lower-cost option to
hedge their investment portfolios. The Exchange notes that it operates
in a highly competitive market in which market participants can readily
direct order flow to competing venues that offer similar products.
Ultimately, the Exchange believes that offering Ethereum Fund options
for trading on the Exchange will promote competition by providing
investors with an additional, relatively low cost means to hedge their
portfolios and meet their investment needs in connection with Ethereum
prices and Ethereum-related products and positions on a listed options
exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \76\ and Rule 19b-4(f)(6) thereunder.\77\
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \78\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\79\
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\76\ 15 U.S.C. 78s(b)(3)(A)(iii).
\77\ 17 CFR 240.19b-4(f)(6).
\78\ 15 U.S.C. 78s(b)(3)(A)(iii).
\79\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \80\ under the
Act does not normally become operative prior to 30 days after the date
of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\81\ the
Commission may designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has requested that the Commission waive the 30-day operative delay so
that the proposal may become operative immediately upon filing. The
Commission previously approved the listing of options on the Ethereum
Funds.\82\ The Exchange has provided information regarding the
underlying Ethereum Funds, including, among other things, information
regarding trading volume, the number of beneficial holders, and the
market capitalization of the Ethereum Funds. The proposal also
establishes position and exercise limits for options on the Ethereum
Funds and provides information regarding the surveillance procedures
that will apply to options on the Ethereum Funds. The Commission
believes that waiver of the operative delay could benefit investors by
providing an additional venue for trading options on the Ethereum
Funds. Therefore, the Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest.
[[Page 25721]]
Accordingly, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\83\
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\80\ 17 CFR 240.19b-4(f)(6).
\81\ 17 CFR 240.19b-4(f)(6)(iii).
\82\ See supra note 6.
\83\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7c0e091019511f1311111912080f3c0f191f521b130a"><span class="__cf_email__" data-cfemail="1b696e777e36787476767e756f685b687e78357c746d">[email protected]</span></a>. Please include
file number SR-MEMX-2025-15 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-MEMX-2025-15. 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-MEMX-2025-15 and should be
submitted on or before July 8, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\84\
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\84\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-10976 Filed 6-16-25; 8:45 am]
BILLING CODE 8011-01-P
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