Notice2025-14542
Self-Regulatory Organizations; Nasdaq ISE LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Permit the Trading of FLEX Options on Shares of the iShares Bitcoin Trust ETF
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Published
August 1, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 146 (Friday, August 1, 2025)</title>
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[Federal Register Volume 90, Number 146 (Friday, August 1, 2025)]
[Notices]
[Pages 36242-36244]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-14542]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103563; File No. SR-ISE-2025-12]
Self-Regulatory Organizations; Nasdaq ISE LLC; Order Approving a
Proposed Rule Change, as Modified by Amendment No. 1, To Permit the
Trading of FLEX Options on Shares of the iShares Bitcoin Trust ETF
July 29, 2025.
I. Introduction
On April 22, 2025, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend its
rules to permit the trading of FLEX equity options on shares of the
iShares Bitcoin Trust ETF (``IBIT'') to trade as cash-settled and
physically settled FLEX equity options.\3\ On May 2, 2025, the Exchange
filed Amendment No. 1 to the proposal, which replaced and superseded
the original filing in its entirety. The proposed rule change, as
modified by Amendment No. 1, was published for comment in the Federal
Register on May 9, 2025.\4\ The Commission received comments on the
proposed rule change.\5\ This order approves the proposed rule change,
as modified by Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange's rules use the term ``exchange-traded fund''
to refer to several types of investment products, including IBIT.
See ISE Options 4, Section 3(h). In its proposal to list and trade
shares of IBIT, The Nasdaq Stock Market LLC states that IBIT is not
an investment company registered under the Investment Company Act of
1940, and that shares of IBIT will be registered with the Commission
on Form S-1. See Securities Exchange Act Release No. 99295 (Jan. 8,
2024), 89 FR 2321, 2322 (Jan. 12, 2024) (File No. SR-Nasdaq-2023-
016) (notice of Filing of Amendment No. 1 to a Proposed Rule Change
to List and Trade Shares of the iShares Bitcoin Trust Under Nasdaq
Rule 5711(d)).
\4\ See Securities Exchange Act Release No. 102992 (May 5,
2025), 90 FR 19750 (``Notice'').
\5\ Comments received are available at <a href="https://www.sec.gov/comments/sr-ise-2025-12/srise202512.htm">https://www.sec.gov/comments/sr-ise-2025-12/srise202512.htm</a>.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
As described in detail in the Notice, the Exchange proposes to
amend its rules to permit the trading of FLEX equity options on
IBIT.\6\ The Commission approved ISE's proposal to list and trade
options on IBIT.\7\ The Exchange proposes to amend Options 3A, Section
3(a) to apply its position and exercise limits to the proposed FLEX
IBIT options and to provide that positions in FLEX IBIT options will be
aggregated with positions in non-FLEX IBIT options for purposes of
calculating position and exercise limits.\8\ Accordingly, the proposal
limits the position and exercise limits for all IBIT options--FLEX and
non-FLEX--to 25,000 contracts.\9\ The Exchange also proposes to amend
Options 3A, Section 18(b)(1) to add new subparagraph (C) which states,
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\6\ See supra note 4.
\7\ See Securities Exchange Act Release No. 101128 (Sept. 20,
2024), 89 FR 78942 (Sept. 26, 2024) (order approving File No. SR-
ISE-2024-03) (``IBIT Order'').
\8\ The Exchange also proposes a technical amendment to change a
semicolon to a comma.
\9\ See Notice, 90 FR at 19751.
Notwithstanding the foregoing, the position limit for FLEX
equity options on the iShares Bitcoin Trust ETF shall be subject to
the position limits set forth in Options 9, Section 13, and subject
to the exercise limits set forth in Options 9, Section 15 and shall
be aggregated with positions on the same non-FLEX underlying ETF for
the purpose of calculating the position limits set forth in Options
9, Section 13, and the exercise limits set forth in Options 9,
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Section 15.
The Exchange would also amend Options 3A, Section 18(b)(1)(A) to
provide, ``There shall be no position limits for FLEX Equity Options,
other than as set forth in subparagraphs (B) and (C) and paragraph (c)
below.'' Additionally, the Exchange would amend Options 3A, Section
18(c) to state, ``For purposes of the position limits and reporting
requirements set forth in this Section 18, FLEX Option positions shall
not be aggregated with positions in non-FLEX Options other than as
provided below and in subparagraphs (b)(1)(B) and (C) above, and
positions in FLEX Index Options on a given index shall not be
aggregated with options on any stocks included in the index or with
FLEX Index Option positions on another index.''
The Exchange states that the Commission has stated that ``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.'' \10\ The Exchange states that, 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.'' \11\ The Exchange further
states that based on its review of the data and analysis provided by
the Exchange, the Commission concluded that the 25,000-contract
position limit for non-FLEX IBIT options satisfied these
objectives.\12\
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\10\ See id. (citing the IBIT Order, 89 FR 78946).
\11\ See id.
\12\ See id.
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The Exchange states that the proposed aggregated limit effectively
restricts a market participant from holding positions that could result
in the receipt of more than 2,500,000 shares, aggregated for FLEX IBIT
and non-FLEX IBIT options (if that market participant exercised all its
IBIT options).\13\ The Exchange states that capping the aggregated
position limit at 25,000 contracts will be sufficient to address
concerns related to manipulation and the protection of investors, and
further, that the proposed position and exercise limits are
conservative for IBIT and therefore appropriate given its
liquidity.\14\ As described more fully in the Notice, the Exchange
states that although it proposes an aggregated position limit of 25,000
contracts for all IBIT options, there is evidence to support a higher
position limit.\15\
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\13\ See id.
\14\ See id.
\15\ See id. In the IBIT Order, the Commission stated that it
considered and reviewed the ISE's analysis that the exercisable risk
associated with a position limit of 25,000 contracts represented
only 0.4% of the outstanding shares of IBIT. The Commission stated
that it also considered and reviewed the ISE's statement that with a
position limit of 25,000 contracts on the same side of the market
and 611,040,00 shares of IBIT outstanding, 244 market participants
would have to simultaneously exercise their positions to place IBIT
under stress. See IBIT Order, 89 FR at 78946.
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The Exchange states that FLEX options on ETFs are currently traded
in the over-the-counter (``OTC'') market by a variety of market
participants, including hedge funds, proprietary trading firms, and
pension funds.\16\ The Exchange states that the proposed FLEX options
may provide a useful risk management and trading vehicle for market
participants and their
[[Page 36243]]
customers.\17\ The Exchange states that FLEX IBIT options traded on the
Exchange would have several advantages over contracts traded in the OTC
market, including the reduced counterparty credit risk because
exchange-traded contracts are issued and guaranteed by The Options
Clearing Corporation (``OCC'') and the price discovery and
dissemination provided by exchange trading, which would lead to more
transparent markets.\18\
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\16\ See id.
\17\ See id. at 19752-3.
\18\ See id. at 19752.
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The Exchange states that it and The Options Price Reporting
Authority have the necessary systems capacity to handle the additional
traffic associated with the listing of FLEX IBIT options.\19\ The
Exchange states that the same surveillance procedures applicable to
other options products listed and traded on the Exchange, including
non-FLEX IBIT options, will apply to the proposed FLEX IBIT options,
and that the Exchange has the necessary systems capacity to support the
proposed options.\20\ The Exchange further states that 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.\21\ The Exchange states
that its market surveillance staff (including staff of the Financial
Industry Regulatory Authority (``FINRA'') who perform surveillance and
investigative work on behalf of the Exchange pursuant to a regulatory
services agreement) conduct surveillances with respect to IBIT (the
underlying Exchange-traded product) and, as appropriate, would review
activity in IBIT when conducting surveillances for market abuse or
manipulation in IBIT options.\22\ In addition, the Exchange states that
it is a member of the Intermarket Surveillance Group (``ISG'') under
the Intermarket Surveillance Group Agreement, and that ISG members work
together to coordinate surveillance and investigative information
sharing in the stock, options, and futures markets.\23\ For
surveillance purposes, the Exchange states that it would therefore have
access to information regarding trading activity in the pertinent
underlying securities.\24\ The Exchange states that it does not believe
that allowing FLEX IBIT options would render the marketplace for equity
options more susceptible to manipulative practices.\25\ The Exchange
represents that its existing trading surveillances are adequate to
monitor the trading in IBIT (as well as FLEX IBIT options) on the
Exchange.\26\ In addition, the Exchange states that it has a regulatory
services agreement with FINRA, pursuant to which FINRA conducts certain
surveillances on behalf of the Exchange.\27\ The Exchange further
states that, pursuant to a multi-party 17d-2 joint plan, all options
exchanges allocate regulatory responsibilities to FINRA to conduct
certain options-related market surveillances.\28\ The Exchange states
that it will implement any additional surveillance procedures it deems
necessary to effectively monitor the trading of IBIT options.\29\
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\19\ See id. at 19753.
\20\ See id.
\21\ See id.
\22\ See id.
\23\ See id.
\24\ See id.
\25\ See id.
\26\ See id.
\27\ See id.
\28\ See id. The Exchange states that 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.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: receive regulatory reports from such
members; examine such members for compliance with the Act and the
rules and regulations thereunder, and the rules of the SRO; or carry
out other specified regulatory responsibilities with respect to such
members. See Notice, at 19753 at n.26.
\29\ See Notice, 90 FR at 19753.
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III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange,\30\ and, in particular,
the requirements of Section 6 of the Act.\31\ Specifically, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\32\
which requires, among other things, that an exchange have rules
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest.
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\30\ In approving this proposed rule change, as modified by
Amendment No. 1, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
\31\ 15 U.S.C. 78f.
\32\ 15 U.S.C. 78f(b)(5).
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The proposed FLEX IBIT options would permit the creation of
customized options on IBIT, which could help market participants
implement their hedging, risk management, and investment strategies. In
addition, the proposal will extend to FLEX IBIT options the benefits of
trading on the Exchange's options market, including a centralized
market center, an auction market with posted transparent market
quotations and transaction reporting, parameters and procedures for
clearance and settlement, and the guarantee of OCC for all contracts
traded on the Exchange.\33\
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\33\ See Securities Exchange Act Release No. 36841 (Feb. 14,
1996), 61 FR 6666, 6668 (Feb. 21, 1996) (File Nos. SR-Cboe-95-43 and
PSE-95-24) (order approving listing of FLEX options on specified
equity securities). In addition, the Exchange states that exchange-
traded FLEX options can be closed with a liquidating transaction,
while OTC FLEX contracts must be held until expiration. See Notice,
90 FR at 17952.
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The proposal provides for the trading of FLEX IBIT options without
changing the position and exercise limits for IBIT options and thus
does not raise new regulatory issues with respect to position and
exercise limits.\34\ The Commission finds that the proposed aggregation
of positions in FLEX and non-FLEX IBIT options when calculating
position and exercise limits is consistent with the Act, and in
particular, with the requirements in Section 6(b)(5) that the rules of
a national securities exchange be designed to prevent fraudulent and
manipulative acts and practices and to protect investors and the public
interest. Position and exercise limits serve as a regulatory tool
designed to deter manipulative schemes and adverse market impact
surrounding the use of options. Since the inception of standardized
options trading, the options exchanges have had rules limiting the
aggregate number of options contracts that a member or customer may
hold or exercise. Options 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
to benefit the options position.\35\ In addition, such limits serve to
reduce the possibility of disruption in the options market itself,
especially in illiquid classes.\36\
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\34\ See IBIT Order, 89 FR at 78946 (discussing the Commission's
approval of the 25,000-contract position and exercise limits for
IBIT options).
\35\ See Securities Exchange Act Release No. 39489 (Dec. 24,
1997), 63 FR 276, 279 (Jan 5. 1998) (order approving File No. SR-
Cboe-97-11).
\36\ See id.
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When the Commission approved the Exchange's proposal to list
options on IBIT, the Commission concluded that the proposed position
and exercise limits 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 could be used or might
create incentives to manipulate or disrupt the underlying market so as
to benefit the options position.\37\ At the same time, the Commission
has recognized that limits must not be established at levels that are
so low as to discourage participation in the options market by
institutions and other investors with substantial hedging needs or to
prevent specialists and market-makers from adequately meeting their
obligations to maintain a fair and orderly market.\38\ This analysis
applies to the proposed position and exercise limits for FLEX IBIT
options as well. By applying the existing IBIT option position and
exercise limits to FLEX IBIT options, and by requiring the aggregation
of positions in FLEX and non-FLEX options for position and exercise
limit purposes, the proposed position and exercise limits for IBIT FLEX
options are 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 could be used or might create
incentives to manipulate or disrupt the underlying market so as to
benefit the options position.
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\37\ See IBIT Order, 89 FR at 78946. See also Securities
Exchange Act Release Nos. 21907 (Mar. 29, 1985), 50 FR 13440, 13441
(Apr. 4, 1985).
\38\ See id.
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The Commission previously considered the surveillance procedures
that would apply to IBIT options when it approved the Exchange's
proposal to list and trade IBIT options.\39\ As described above, the
same surveillance procedures applicable to other options products
listed and traded on the Exchange, including non-FLEX IBIT options,
will apply to the proposed FLEX IBIT options.\40\ The Exchange states
that FLEX options products (and their respective symbols) are
integrated into the Exchange's existing surveillance system
architecture and thus are subject to the relevant surveillance
processes.\41\ The Exchange further states that it will implement any
additional surveillance procedures it deems necessary to effectively
monitor the trading of IBIT options.\42\ In addition, the Exchange
states that its market surveillance staff, including FINRA staff who
perform surveillance and investigative work on behalf of the Exchange
pursuant to a regulatory services agreement, conduct surveillances with
respect to IBIT and would review activity in IBIT when conducting
surveillances for market abuse or manipulation in IBIT options.\43\ The
Exchange also states that it is a member of ISG, that ISG members work
together to coordinate surveillance and investigative information
sharing in the stock, options, and futures markets, and therefore the
Exchange would have access to information regarding trading activity in
the pertinent underlying securities.\44\ Further, in approving
proposals to list bitcoin-based exchange-traded products (``ETPs''),
including IBIT, the Commission found that there were sufficient means
to prevent fraud and manipulation of bitcoin-based ETPs.\45\
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\39\ See IBIT Order, 89 FR at 78947 (discussing the surveillance
procedures that will apply to IBIT options.).
\40\ See Notice, 90 FR at 19753.
\41\ See id.
\42\ See id.
\43\ See id.
\44\ See id.
\45\ See Securities Exchange Act Release No. 99306 (Jan. 10,
2024), 89 FR 3008 (Jan. 17, 2024).
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The Commission received a comment regarding the proposal.\46\ The
commenter states that IBIT options are the ``primary source of Paper
Bitcoin in the system'' and that they are being used to manipulate
pricing.\47\ The commenter states that, as of June 19, 2025, there were
4,037,838 IBIT options outstanding, representing 403,783,800 IBIT
shares or 228,108.5 bitcoin.\48\ The commenter further states that
``228,108 Bitcoins would need to be delivered if all contracts were
exercised'' and that ``market makers simply cannot deliver the BTC.''
\49\
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\46\ See letter from Randy T., dated June 19, 2025.
\47\ Id. at 1.
\48\ See id.
\49\ Id.
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Options on IBIT shares are settled by delivery of IBIT shares, not
by the delivery of bitcoin. As of June 20, 2025, there were
1,197,720,000 shares of IBIT outstanding, which represents more than
twice the number of IBIT shares that would need to be delivered if
4,037,838 IBIT options were exercised.\50\ The Exchange has implemented
surveillance procedures to monitor trading in non-FLEX IBIT
options.\51\ In addition, as discussed above, the Exchange states that
FLEX IBIT options are integrated into the Exchange's existing
surveillance system architecture and that the Exchange will review, as
appropriate, activity in IBIT when conducting surveillances for market
abuse or manipulation in FLEX IBIT options.\52\ The Exchange's
surveillance procedures should allow the Exchange to investigate
suspected manipulations or other trading abuses involving FLEX and non-
FLEX IBIT options.
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\50\ See <a href="https://www.ishares.com/us/products/333011/ishares-bitcoin-trust-etf">https://www.ishares.com/us/products/333011/ishares-bitcoin-trust-etf</a>.
\51\ See IBIT Order, supra note 6 and Notice, 90 FR at 19753.
\52\ See id. In addition, the Exchange has stated that it will
apply its existing surveillance procedures to options on IBIT and
that it will review activity in IBIT when conducting surveillances
for market abuse or manipulation in options on IBIT. See IBIT Order,
89 FR at 78946-7.
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Together, the surveillance procedures described above should allow
the Exchange to investigate suspected manipulations or other trading
abuses in FLEX IBIT options. Accordingly, the Commission finds that the
Exchange's surveillance procedures for FLEX IBIT options are designed
to prevent fraudulent and manipulative acts and practices and to
protect investors and the public interest.
IV. Conclusion
For the reasons set forth above, the Commission finds that the
proposed rule change, as modified by Amendment No. 1, is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange and, in
particular, the requirements of Section 6(b)(5) of the Act.\53\
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\53\ 15 U.S.C. 78f(b)(5).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\54\ that the proposed rule change, as modified by Amendment No. 1,
(SR-ISE-2025-12) is approved.
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\54\ 15 U.S.C. 78s(b)(2)
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-14542 Filed 7-31-25; 8:45 am]
BILLING CODE 8011-01-P
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