Notice2025-15427
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Options 9, Section 13 (Position Limits) and Options 8, Section 34 (FLEX Index, Equity and Currency Options) Regarding Options on Certain Exchange-Traded Products Holding Bitcoin
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
August 14, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 155 (Thursday, August 14, 2025)</title>
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[Federal Register Volume 90, Number 155 (Thursday, August 14, 2025)]
[Notices]
[Pages 39233-39245]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-15427]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103678; File No. SR-PHLX-2025-34]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Options
9, Section 13 (Position Limits) and Options 8, Section 34 (FLEX Index,
Equity and Currency Options) Regarding Options on Certain Exchange-
Traded Products Holding Bitcoin
August 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 August 6, 2025, Nasdaq PHLX LLC (``Phlx'' 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
[[Page 39234]]
by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Options 9, Section 13, Position
Limits, and Options 8, Section 34, FLEX Index, Equity, and Currency
Options, with respect to options on the iShares Bitcoin Trust ETF
(``IBIT''), the Grayscale Bitcoin Mini Trust ETF (``BTC''), the Bitwise
Bitcoin ETF (``BITB'') and the Grayscale Bitcoin Trust ETF (``GBTC'').
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings">https://listingcenter.nasdaq.com/rulebook/phlx/rulefilings</a>
and at the principal office of the Exchange.
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 Options 9, Section 13, Position
Limits, and Options 8, Section 34, FLEX Index, Equity, and Currency
Options, with respect to options on the iShares Bitcoin Trust ETF
(``IBIT''), the Grayscale Bitcoin Mini Trust ETF (``BTC''), the Bitwise
Bitcoin ETF (``BITB'') and the Grayscale Bitcoin Trust ETF (``GBTC'').
Each change will be described below.
Position Limits
The Exchange proposes to amend its rules relating to position
limits at Options 9, Section 13 and exercise limits at Options 9,
Section 15.\3\ Recently, Nasdaq ISE, LLC (``ISE'') received approval to
eliminate the current 25,000 contract position and exercise limit for
options on IBIT.\4\ As a result, ISE would apply the position in ISE
Options 9, Section 13(d) to options on IBIT and exercise limits in ISE
Options 9, Section 15. Additionally, recently, NYSE Arca, Inc.
(``Arca'') received approval to eliminate the current 25,000 contract
position and exercise limit for options on BTC and BITB.\5\ As a
result, Arca would apply the position limits in Arca Rule 6.8-O,
Commentary .06(a)-(e) to options on BTC and BITB. Finally, Arca
recently received approval to eliminate the current 25,000 contract
position and exercise limit for options on GBTC.\6\ As a result, Arca
would apply the position limits in Arca Rule 6.8-O, Commentary .06(a)-
(e) to options on GBTC.
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\3\ The Exchange notes that Phlx's exercise limits at Options 3,
Section 15 refer to the position limits at Options 3, Section 13 so
they are not being separately amended.
\4\ See Securities Exchange Act Release No. 103564 (July 29,
2025) (SR-ISE-2024-62) (not yet noticed).
\5\ See Securities Exchange Act Release No. 103568 (July 29,
2025) (SR-NYSEArca-2025-10) (not yet noticed).
\6\ See Securities Exchange Act Release No. 103567 (July 29,
2025) (SR-NYSEArca-2025-07) (not yet noticed).
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The Exchange proposes to similarly amend its position limit rules
at Phlx Options 9, Section 13 and exercise limits at Options 9, Section
15 to likewise eliminate the current 25,000 contract position and
exercise limit for options on IBIT, BTC, BITB and GTBC. As a result,
IBIT, BTC, BITB and GTBC would be subject to the position limits
described in ISE Options 9, Section 13 and the corresponding exercise
limits in ISE Options 9, Section 15.
IBIT
IBIT is an Exchange-Traded Fund (``ETF'') that holds bitcoin and is
listed on The Nasdaq Stock Market LLC.\7\ On September 20, 2024, ISE
received approval to list options on IBIT.\8\ The current position and
exercise limits for IBIT options are 25,000 contracts as stated in
Options 9, Sections 13 and 15, the lowest limit available in
options.\9\
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\7\ Nasdaq received approval to list and trade Bitcoin-Based
Commodity-Based Trust Shares in IBIT pursuant to Rule 5711(d) of
Nasdaq. See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (SR-NASDAQ-2023-016) (Order
Granting Accelerated Approval of Proposed Rule Changes, as Modified
by Amendments Thereto, To List and Trade Bitcoin-Based Commodity-
Based Trust Shares and Trust Units). IBIT started trading on January
11, 2024.
\8\ See Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 (September 26, 2024) (SR-ISE-2024-03) (Notice
of Filing of Amendment Nos. 4 and 5 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1,
4, and 5, To Permit the Listing and Trading of Options on the
iShares Bitcoin Trust) (``IBIT Approval Order''). ISE began trading
IBIT options on November 19, 2024.
\9\ Options on Fidelity Wise Origin Bitcoin Fund, ARK 21Shares
Bitcoin ETF, Grayscale Bitcoin Trust (BTC), Grayscale Bitcoin Mini
Trust BTC, and Bitwise Bitcoin ETF are also subject to a 25,000
contract position and exercise limit.
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Per the Commission ``rules regarding position and exercise limits
are intended to prevent the establishment of options positions that can
be used or might create incentives to manipulate or disrupt the
underlying market so as to benefit the options positions.'' \10\ 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\ Based on its
review of the data and analysis provided by ISE, 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 Securities Exchange Act Release No. 101128 (September
20, 2024), 89 FR 78942 at 78946 (September 26, 2025) (SR-ISE-2024-
03) (Notice of Filing of Amendment Nos. 4 and 5 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment Nos. 1, 4, and 5, To Permit the Listing and Trading of
Options on the iShares Bitcoin Trust).
\11\ See id.
\12\ See id.
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While ISE proposed an aggregated 25,000 contract position limit for
IBIT options in its IBIT Approval Order, it nonetheless believed that
evidence existed to support a much higher position limit. Specifically,
the Commission has considered and reviewed the ISE's analysis in its
IBIT Approval Order that the exercisable risk associated with a
position limit of 25,000 contracts represented only 0.4% of the
outstanding shares of IBIT.\13\ The Commission also has considered and
reviewed the ISE's statement its IBIT Approval Order 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.\14\ Based on the Commission's review of this information and
analysis, the Commission concluded that the proposed position and
exercise limits of 25,000 contracts were designed to prevent investors
from disrupting the market for the underlying security by acquiring and
exercising a number of options contracts disproportionate to the
deliverable supply and average trading volume of the underlying
security, and to prevent the establishment of options positions that
can be used or might create incentives
[[Page 39235]]
to manipulate or disrupt the underlying market so as to benefit the
options position.\15\
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\13\ See id. ISE data represents figures from August 12, 2024.
\14\ See id. Data represents figures from August 12, 2024.
\15\ See id.
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IBIT currently qualifies for a 250,000 contract position limit
pursuant to the criteria in Options 9, Section 13, which requires that,
for the most recent six-month period, trading volume for the underlying
security be at least 100 million shares.\16\ As of November 25, 2024,
the market capitalization for IBIT was $46,783,480,800 \17\ with an
average daily volume (``ADV''), for the preceding three months prior to
November 25, 2024, of 39,421,877 shares. IBIT is well above the
requisite minimum of 100 million shares necessary to qualify for the
250,000 contract position limit. Also, as of November 25, 2024, there
are 19,787,762 bitcoins in circulation.\18\ At a price of $94,830,\19\
that equates to a market capitalization of greater than $1.876 trillion
US. If a position limit of 250,000 contracts were considered, the
exercisable risk would represent 2.89% \20\ of the outstanding shares
outstanding of IBIT. Given IBIT's liquidity, the current 25,000
position limit is extremely conservative.
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\16\ Phlx Options 9, Section 13(g) provides the various position
limits that are available and the criteria for qualifying for each
position limit.
\17\ ISE noted that the market capitalization was determined by
multiplying a settlement price of ($54.02) by the number of shares
outstanding (866,040,000). This figure was acquired as of November
25, 2024. 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>.
\18\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\19\ ISE noted that this was the approximate price of bitcoin
from 4:00 p.m. ET on November 25, 2024.
\20\ ISE noted that this percentage was arrived at with this
equation: (250,000 contract limit * 100 shares per option/
866,040,000 shares outstanding).
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Position limits, and exercise limits, are designed to limit the
number of options contracts traded on the exchange in an underlying
security that an investor, acting alone or in concert with others
directly or indirectly, may control. These limits, which are described
in Phlx Options 9, Sections 13 and 15, are intended to address
potential manipulative schemes and adverse market impacts surrounding
the use of options, such as disrupting the market in the security
underlying the options. Position and exercise limits must balance
concerns regarding mitigating potential manipulation and the cost of
inhibiting potential hedging activity that could be used for legitimate
economic purposes.
To achieve this balance, Phlx proposes to remove IBIT from the list
in Options 9, Section 13(a), regarding position limits, so that options
on IBIT may trade similar to all other options for purposes of position
and exercise limits. As a result of removing the limitation for options
in IBIT from Options 9, Sections 13(a), it would increase the position
and exercise limits for options on IBIT from 25,000 to 250,000
contracts based on the criteria in Phlx Options 9, Section 13(g). Like
other options, IBIT would be subject to subsequent six (6) month
reviews to determine future position and exercise limits similar to all
other options as noted in Options 9, Section 13(h).
In addition to IBIT's eligibility for 250,000 contracts, ISE
performed additional analysis with respect to IBIT. First, ISE
considered IBIT's market capitalization and Average Daily Volume
(``ADV''), and prospective position limit in relation to other
securities. In measuring IBIT against other securities, ISE aggregated
market capitalization and volume data for securities that have defined
position limits utilizing data from The Options Clearing Corporations
(``OCC'').\21\ This pool of data took into consideration 3,897 options
on single stock securities, excluding broad based ETFs.\22\ Next, the
data was aggregated by ISE based on market capitalization and ADV and
grouped by option symbol and position limit utilizing statistical
thresholds for ADV, based on ninety days, and market capitalization
that were one standard deviation above the mean for each position limit
category (i.e., 25,000, 50,000 to 65,000, 75,000, 100,000 to less than
250,000, and 250,000).\23\ This exercise was performed to demonstrate
IBIT's position limit relative to other options symbols in terms of
market capitalization and ADV. For reference, the market capitalization
for IBIT was $46,783,480,800 \24\ with an ADV, for the preceding three
months prior to November 25, 2024, of 39,421,877 shares.
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\21\ ISE noted that the computations are based on OCC data from
November 25, 2024. Data displaying zero values in market
capitalization or ADV were removed.
\22\ ISE noted that IBIT has one asset and therefore is not
comparable to a broad based ETF where there are typically multiple
components.
\23\ ISE noted that its Options 9, Section 13(d) sets out
position limits for various contracts. For example, a 25,000
contract limit applies to those options having an underlying
security that does not meet the requirements for a higher options
contract limit. ISE noted that position limits may also be higher
due to corporate actions in the underlying equities, such as a stock
split. See <a href="https://www.theocc.com/market-data/market-data-reports/series-and-trading-data/position-limits">https://www.theocc.com/market-data/market-data-reports/series-and-trading-data/position-limits</a>. As a result, ISE's pool of
data considered higher position limits than 250,000 contracts, where
applicable. Phlx has those same limits at Options 9, Section 13(g).
\24\ ISE noted that the market capitalization was determined by
multiplying a settlement price of ($54.02) by the number of shares
outstanding (866,040,000). This figure was acquired as of November
25, 2024. 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>.
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Market cap statistics 25k 50k 75k 100k-<250k 250k-<500k 500k-1mm >1mm
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# of observations........................................... 562 473 651 240 1934 27 10
average..................................................... 1,038,795,162 2,957,127,045 4,466,049,699 5,390,836,360 26,286,624,063 67,390,777,100 717,540,906,097
median...................................................... 360,130,143 889,627,570 1,445,831,231 1,643,123,279 3,535,963,213 27,063,940,966 90,047,209,478
min......................................................... 2,204,436 4,211,156 3,830,532 5,090,230 1,616,094 2,762,394,749 11,786,645,969
max......................................................... 36,120,249,097 70,846,805,916 174,820,296,591 106,971,594,180 3,573,884,443,220 733,972,714,698 3,358,647,600,000
IBIT % rank................................................. 100.00% 98.94% 98.77% 98.33% 88.57% 59.26% 20.00%
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90-Day ADV statistics 25k 50k 75k 100k-<250k 250k-<500k 500k-1mm >1mm
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# of observations........................................... 562 473 651 240 1934 27 10
average..................................................... 76,586 213,419 425,542 623,888 3,510,784 5,930,607 44,610,385
median...................................................... 67,231 206,402 409,177 625,882 1,620,931 4,724,248 18,017,607
min......................................................... 4,791 10,084 18,191 105,713 16,276 1,207,242 1,771,544
max......................................................... 244,499 564,451 989,341 1,339,553 88,351,060 22,397,311 271,230,790
IBIT % rank................................................. 100.00% 100.00% 100.00% 100.00% 99.43% 100.00% 80.00%
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[[Page 39236]]
Based on the above table, ISE noted that if IBIT were compared to
the 1,934 stocks that have position limits of 250,000 contracts to less
than 500,000 contracts it would rank in the 88th percentile for market
capitalization and the 99th percentile for ADV.
ISE also analyzed the position limits for IBIT by regressing the
market capitalization figures and 90-day ADV of all non-ETF equities,
against their respective position limit figures. From this regression,
ISE was able to determine the implied coefficients to create a
formulaic method for determining an appropriate position limit.\25\ In
this case, the modeled position limit is 565,796 contracts.\26\ The
results of the study are below.
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\25\ ISE utilized Excel's Data Analysis Package to model the
position limit.
\26\ ISE utilized this formula to arrive at the number of
contracts: ((46,783,380,800 mkt cap * 0.0000002630 market cap
coefficient) + (39,421,877 ADV * 0.0140402219 ADV coefficient)).
Regression Statistics
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Multiple R............................................ 0.496800597
R Square.............................................. 0.246810833
Adjusted R Square..................................... 0.246361643
Standard Error........................................ 202227.4271
Observations.......................................... 3905
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ANOVA
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df SS MS F
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Regression...................................... 2 5.2304E+13 2.6152E+13 639.482566
Residual........................................ 3903 1.5962E+14 4.0896E+10 ..............
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Total....................................... 3905 2.1192E+14 .............. ..............
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Coefficients Standard error t Stat P-value
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Intercept....................................... 0 #N/A #N/A #N/A
Market Cap...................................... 0.0000002630 3.3371E-08 7.88130564 4.1699E-15
90-day ADV...................................... 0.0140402219 0.00055818 25.1533643 1.613E-129
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Based on the aforementioned analysis, the Exchange believes that
removing the 25,000 cap and permitting a higher position and exercise
limits is appropriate.
Second, ISE reviewed IBIT's data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables. ISE noted that, as of November 25,
2024, there are 19,787,762 bitcoins in circulation.\27\ At a price of
$94,830,\28\ that equates to a market capitalization of greater than
$1.876 trillion US. ISE stated that if a position limit of 250,000
contracts were considered, the exercisable risk would represent 2.89%
\29\ of the outstanding shares outstanding of IBIT. Since IBIT has a
creation and redemption process managed through the issuer, ISE noted
that the position limit can be compared to the total market
capitalization of the entire bitcoin market and in that case, the
exercisable risk for options on IBIT would represent less than .072% of
all bitcoin outstanding.\30\ ISE concluded that assuming a scenario
where all options on IBIT shares were exercised given the proposed
250,000 contract position limit (and exercise limit), this would have a
virtually unnoticed impact on the entire bitcoin market. This analysis
demonstrates that the proposed effective 250,000 per same side position
and exercise limit is appropriate for options on IBIT given its
liquidity.
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\27\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\28\ ISE noted that this was the approximate price of bitcoin
from 4:00 p.m. ET on November 25, 2024.
\29\ ISE noted that this percentage was arrived at with this
equation: (250,000 contract limit * 100 shares per option/
866,040,000 shares outstanding).
\30\ ISE noted that this number was arrived at with this
calculation: ((250,000 limit * 100 shares per option * $54.02
settle)/(19,787,762 BTC outstanding * $94,830 BTC price)).
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Third, ISE reviewed the proposed position limit by comparing it to
position limits for derivative products regulated by the Commodity
Futures Trading Commission (``CFTC''). While the CFTC, through the
relevant Designated Contract Markets, only regulates options positions
based upon delta equivalents (creating a less stringent standard), ISE
examined equivalent bitcoin futures position limits. In particular, ISE
looked to the CME bitcoin futures contract \31\ that has a position
limit of 2,000 futures.\32\ On October 22, 2024, CME bitcoin futures
settled at $94,945.\33\ ISE noted that, on October 22, 2024, IBIT
settled at $54.02, which would equate to greater than 17,557,898 shares
of IBIT if the CME notional position limit was utilized. Since
substantial portions of any distributed options portfolio is likely to
be out of the money on expiration, ISE noted that an options position
limit equivalent to the CME position limit for bitcoin futures
(considering that all options deltas are <=1.00) should be a bit higher
than the CME implied 175,578 limit. Of note, unlike options contracts,
CME position limits are calculated on a net futures-equivalent basis by
contract and include contracts that aggregate into one or more base
contracts according to an aggregation ratio(s).\34\ 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.\35\ 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. Based on the aforementioned
analysis, the Exchange believes that the
[[Page 39237]]
proposed 250,000 contracts for position and exercise limits are
appropriate.
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\31\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\32\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
\33\ 2,000 futures at a 5 bitcoin multiplier (per the contract
specifications) equates to $949,450,000 (2,000 contracts * 5 BTC per
contract * $94,945 price of November BTC future) of notional value.
\34\ See <a href="https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm">https://www.cmegroup.com/education/courses/market-regulation/position-limits/position-limits-aggregation-of-contracts-and-table.htm</a>.
\35\ See id.
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Fourth, ISE analyzed a position and exercise limit of 250,000 for
IBIT options against other options on ETFs with an underlying
commodity, namely SPDR Gold Shares (``GLD''), iShares Silver Trust
(``SLV''), and ProShares Bitcoin ETF (``BITO'').\36\ ISE noted that GLD
has a float of 306.1 million shares \37\ and a position limit of
250,000 contracts. ISE noted that SLV has a float of 520.7 million
shares,\38\ and a position limit of 250,000 contracts. Finally, ISE
noted that BITO has 107.65 million shares outstanding \39\ and a
position limit of 250,000 contracts. As previously noted, position and
exercise limits are designed to limit the number of options contracts
traded on the exchange in an underlying security that an investor,
acting alone or in concert with others directly or indirectly, may
control. ISE noted that a position limit exercise in GLD would
represent 8.17% of the float of GLD; a position limit exercise in SLV
would represent 4.8% of the float of SLV, and a position limit exercise
of BITO would represent 23.22% of the float of BITO. In comparison, ISE
noted that a 250,000 contract position limit in IBIT would represent
2.89% of the float of IBIT. Consequently, ISE noted that the 250,000
proposed IBIT options position and exercise limit is more conservative
than the standard applied to GLD, SLV and BITO, and appropriate.
Additionally, the ISE noted that the Cboe Bitcoin U.S. ETF Index
Options (CBTX) and the Cboe Mini Bitcoin U.S. ETF Index Options
(MBTX),\40\ which trade exclusively on Cboe, are comprised of multiple
bitcoin ETFs of which IBIT is the highest weighted (at 20%) in the
index composition.\41\ ISE noted that these indices currently trade
pursuant to a 24,000 contract position and exercise limit.\42\
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\36\ GLD, SLV and BITO each hold one asset in trust similar to
IBIT.
\37\ See <a href="https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld">https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld</a>.
\38\ See <a href="https://www.ishares.com/us/products/239855/ishares-silver-trust-fund">https://www.ishares.com/us/products/239855/ishares-silver-trust-fund</a>.
\39\ See <a href="https://www.marketwatch.com/investing/fund/bito">https://www.marketwatch.com/investing/fund/bito</a>.
\40\ MBTX is based on 1/10th the value of the Cboe Bitcoin U.S.
ETF Index.
\41\ See <a href="https://www.cboe.com/tradable_products/bitcoin-etf-index-options?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch">https://www.cboe.com/tradable_products/bitcoin-etf-index-options?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch</a>. Cboe's website provides a product comparison chart
indicating that CBTX and MBTX are permitted to trade FLEX as
compared to spot bitcoin ETF options. See <a href="https://cdn.cboe.com/resources/membership/Cboe_Bitcoin_US_ETF_Options_Comparative_Overview.pdf?_gl=1*1xmm04c*_up*MQ..*_ga*MTc0MjU1NzU1Ni4xNzM0NTU2NTky*_ga_5Q99WB9X71*MTczNDU1NjU5MC4xLjAuMTczNDU1NjU5MC4wLjAuMA">https://cdn.cboe.com/resources/membership/Cboe_Bitcoin_US_ETF_Options_Comparative_Overview.pdf?_gl=1*1xmm04c*_up*MQ..*_ga*MTc0MjU1NzU1Ni4xNzM0NTU2NTky*_ga_5Q99WB9X71*MTczNDU1NjU5MC4xLjAuMTczNDU1NjU5MC4wLjAuMA</a>.
\42\ See Cboe Rule 8.32(a). ISE noted that given the multiplier
and notional value of CBTX, the index has a position and exercise
limit that equates to 1,000,000 contracts of in kind exposure to
IBIT, which is more than 40 times greater than the exposure for
options on IBIT at the current 25,000 contract position and exercise
limit.
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Fifth, ISE noted that IBIT began trading in penny increments as of
January 2, 2025 pursuant to the Penny Interval Program.\43\ The
Commission noted that evidence contained in both ISE's Report and the
Cornerstone analysis demonstrates that the Penny Pilot has benefitted
investors and other market participants in the form of narrower
spreads.\44\ The most actively traded options classes are included in
the Penny Program based on certain objective criteria (trading volume
thresholds and initial price tests). As noted in the Penny Approval
Order, the Penny Program reflects a certain level of trading interest
(either because the class is newly listed or a class that experience a
significant growth in investor interest) to quote in finer trading
increments, which in turn should benefit market participants by
reducing the cost of trading such options.\45\ IBIT options is among a
select group of products that have achieved a certain level of
liquidity that have garnered it the ability to trade in finer
increments. Failing to increase position and exercise limits for IBIT
options, now that it is trading in finer increments, may artificially
inhibit liquidity and create price inefficiency.
---------------------------------------------------------------------------
\43\ ISE noted that it may add to the Penny Program a newly
listed option class provided that (i) it is among the 300 most
actively traded multiply listed option classes, as ranked by
National Cleared Volume at OCC, in its first full calendar month of
trading and (ii) the underlying security is priced below $200 or the
underlying index is at an index level below $200. Any option class
added under this provision will be added on the first trading day of
the month after it qualifies and will remain in the Penny Program
for one full calendar year, after which it will be subject to the
Annual Review described in Supplementary Material .01(b) to Options
3, Section 3. The Exchange may add any option class to the Penny
Program, provided that (i) it is among the 75 most actively traded
multiply listed option classes, as ranked by National Cleared Volume
at OCC, in the past six full calendar months of trading and (ii) the
underlying security is priced below $200 or the underlying index is
at an index level below $200. Any option class added under this
provision will be added on the first trading day of the second full
month after it qualifies and will remain in the Penny Program for
the rest of the calendar year, after which it will be subject to the
Annual Review as described in ISE Supplementary Material .01(b) to
Options 3, Section 3. Phlx has the same rule at Supplementary
Material .01 to Options 3, Section 3.
\44\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 67 FR 19545, 19548 (April 7, 2020) (File No. 4-443) (Joint
Industry Plan; Order Approving Amendment No. 5 to the Plan for the
Purpose of Developing and Implementing Procedures Designed To
Facilitate the Listing and Trading of Standardized Options To Adopt
a Penny Interval Program) (``Penny Approval Order'').
\45\ See id. at 19548.
---------------------------------------------------------------------------
The Exchange believes that IBIT options has demonstrated that it
has more than sufficient liquidity to garner an increased position and
exercise limit of 250,000 contracts. The Exchange believes that any
concerns related to manipulation and protection of investors are
mollified by the significant liquidity provision in IBIT. The Exchange
states that, as a general principle, increases in active trading volume
and deep liquidity of the underlying securities do not lead to
manipulation and/or disruption.
The Exchange believes that increasing the position (and exercise)
limits for IBIT options would lead to a more liquid and competitive
market environment for IBIT options, which will benefit customers that
trade these options. Further, the reporting requirement for such
options would remain unchanged. Thus, the Exchange will still require
that each Participant that maintains positions in impacted options on
the same side of the market, for its own account or for the account of
a customer, report certain information to the Exchange. This
information includes, but would not be limited to, the options'
positions, whether such positions are hedged and, if so, a description
of the hedge(s). Market Makers would continue to be exempt from this
reporting requirement, however, the Exchange may access Market Maker
position information.\46\ Moreover, the Exchange's requirement that
Participants file reports with the Exchange for any customer who held
aggregate large long or short positions on the same side of the market
of 200 or more option contracts of any single class for the previous
day will remain at this level and will continue to serve as an
important part of the Exchange's surveillance efforts.\47\
---------------------------------------------------------------------------
\46\ OCC through the Large Option Position Reporting (``LOPR'')
system acts as a centralized service provider for member compliance
with position reporting requirements by collecting data from each
member, consolidating the information, and ultimately providing
detailed listings of each member's report to the Exchange, as well
as FINRA, acting as its agent pursuant to a regulatory services
agreement (``RSA'').
\47\ See Phlx Options 9, Section 13.
---------------------------------------------------------------------------
The Exchange also has no reason to believe that the growth in
trading volume in IBIT will not continue. Rather, the Exchange expects
continued options volume growth in IBIT as opportunities for investors
to participate in the options markets increase and evolve. The Exchange
believes that the current position and exercise limits in IBIT options
are restrictive and will
[[Page 39238]]
hamper the listed options markets from being able to compete fairly and
effectively with the over-the-counter (``OTC'') markets. OTC
transactions occur through bilateral agreements, the terms of which are
not publicly disclosed to the marketplace. As such, OTC transactions do
not contribute to the price discovery process on a public exchange or
other lit markets. The Exchange believes that without the proposed
changes to position and exercise limits for IBIT options, market
participants will find the 25,000 contract position limit an impediment
to their business and investment objectives as well as an impediment to
efficient pricing. As such, market participants may find the less
transparent OTC markets a more attractive alternative to achieve their
investment and hedging objectives, leading to a retreat from the listed
options markets, where trades are subject to reporting requirements and
daily surveillance. However, the Exchange notes that IBIT's position
limits would be reviewed on a six month basis pursuant to Options 9,
Section 13(h), pursuant the rules of other options exchange such as ISE
Options 9, Section 13(d), similar to other options.
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are capable of properly
identifying disruptive and/or manipulative trading activity. The
Exchange also represents that it has adequate surveillances in place to
detect potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. These
procedures monitor market activity via automated surveillance
techniques to identify unusual activity in both options and the
underlyings, as applicable. The Exchange also notes that large stock
holdings must be disclosed to the Commission by way of Schedules 13D or
13G,\48\ which are used to report ownership of stock which exceeds 5%
of a company's total stock issue and may assist in providing
information in monitoring for any potential manipulative schemes.
Further, the Exchange believes that the current financial requirements
imposed by the Exchange and by the Commission adequately address
concerns regarding potentially large, unhedged positions in equity
options. Current margin and risk-based haircut methodologies serve to
limit the size of positions maintained by any one account by increasing
the margin and/or capital that a member organization must maintain for
a large position held by itself or by its customer.\49\ In addition,
Rule 15c3-1 \50\ imposes a capital charge on member organizations to
the extent of any margin deficiency resulting from the higher margin
requirement.
---------------------------------------------------------------------------
\48\ 17 CFR 240.13d-1.
\49\ See Phlx Options 6C, Section 3 regarding margin
requirements.
\50\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------
BTC and BITB \51\
---------------------------------------------------------------------------
\51\ The Exchange refers to BTC and BITB as ``ETFs'' in the BTC
and BITB sections.
---------------------------------------------------------------------------
On October 18, 2024, the Commission approved the listing and
trading of BTC and BITB.\52\ On November 22, 2024, Arca obtained rule
authority to trade options on BTC and BITB.\53\ The current position
and exercise limits for BTC and BITB options are 25,000 contracts, the
lowest limit available in options.\54\ Arca proposed to remove its
25,000 position and exercise limit cap which resulted in an increase to
IBIT options position and exercise limits for each ETF to 250,000
contracts. Arca noted that BTC and BITB currently qualify for this
increased limit pursuant to Arca Rule 6.8-O Commentary .06(e), which
requires that, for the most recent six-month period, trading volume for
the underlying security is at least 100,000,000 shares.\55\ Arca noted
that, as of November 25, 2024, during the most recent six-month period,
trading volume for BTC was 163,712,700 shares. Arca noted that during
the same period, trading volume for BITB was 288,800,860 shares. In
addition, Arca noted that, as of November 25, 2024, the market
capitalization for BTC was $3,496,748,882 \56\ with an average daily
volume (``ADV'') for the preceding three months of 2,036,369 shares,
and the market capitalization of BITB was 4,095,157,000 \57\ with an
ADV for the three prior months of 2,480.478. BTC and BITB are well
above the requisite minimum of 100,000,000 shares necessary to qualify
for the 250,000 contract position and exercise limit. Also, Arca noted
that, as of November 25, 2024, there were 19,787,762 bitcoins in
circulation.\58\ At a price of $94,830 per bitcoin,\59\ that equates to
a market capitalization of greater than $1.876 trillion. Arca noted
that if a position limit of 250,000 contracts were considered for each
ETF, the exercisable risk would represent 30.14% \60\ of BTC shares
outstanding; and 31.27% \61\ of BITB shares outstanding. Given the
liquidity of BTC and BITB, the current 25,000 position limit appears
extremely conservative.
---------------------------------------------------------------------------
\52\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (order
approving rules to permit the listing and trading of options on BTC
and BITB, among others) (the ``ETF Options Approval Order'').
\53\ See Securities Exchange Act Release No. 101713 (November
22, 2024), 89 FR 94839 (November 29, 2024) (SR-NYSEARCA-2024-101)
(notice of immediately effective rule change to permit BTC and BITB
options trading, based on the already-approved NYSE American rules)
(the ``Arca ETF Options Notice'').
\54\ See Phlx Options 9, Section 13.
\55\ See Phlx Options 9, Section 13(g) providing that the
position limit shall be 250,000 contracts for options: (i) on
underlying stock or Exchange-Traded Fund Share that had trading
volume of at least 100,000,000 shares during the most recent six-
month trading period; or (ii) on an underlying stock or Exchange-
Traded Fund Share that had trading volume of at least 75,000,000
shares during the most recent six-month trading period and has at
least 300,000,000 shares currently outstanding).
\56\ Arca noted that the market capitalization of BTC was
determined by multiplying a settlement price ($42.16) by the number
of shares outstanding (82,939,964). Data represents figures from
FactSet as of November 25, 2024.
\57\ Arca noted that the market capitalization of BITB was
determined by multiplying a settlement price ($51.70) by the number
of shares outstanding (79,950,100). Data represents figures from
FactSet as of November 25, 2024.
\58\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\59\ Arca noted that this is the approximate price of bitcoin
from 4:00 p.m. ET on November 25, 2024.
\60\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/82,939,964
BTC shares outstanding).
\61\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/79,950,100
BITB shares outstanding).
---------------------------------------------------------------------------
First, Arca reviewed the ETFs' data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables. Arca noted that, as noted above, as
of November 25, 2024, there were 19,787,762 bitcoins in
circulation.\62\ Arca noted that at a price of $94,830 per bitcoin,\63\
that equates to a market capitalization of greater than $1.876
trillion. Arca noted that if the proposed aggregated position limit of
250,000 contracts were considered, the exercisable risk would represent
30.14% of BTC shares outstanding \64\ and 31.27% of BITB shares
outstanding.\65\ Arca noted that since each ETF has a creation and
redemption process managed through the issuer (whereby bitcoin is used
to create BTC or BITB shares, as applicable), the position limit can be
compared to the total market capitalization of the entire bitcoin
[[Page 39239]]
market, and in that case, the exercisable risk for options on each ETF
would represent less than 0.06% (BTC) or 0.07% (BITB) of all bitcoin
outstanding.\66\
---------------------------------------------------------------------------
\62\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\63\ Arca noted that is the approximate price of bitcoin from
4:00 p.m. ET on November 25, 2024.
\64\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/82,939,964
BTC shares outstanding).
\65\ Arca noted that his percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/79,950,100
BITB shares outstanding).
\66\ Arca noted that for BTC, this number was arrived at with
this calculation: ((250,000 limit * 100 shares per option * $42.16
settle)/(19,787,762 bitcoin outstanding * $94,830 bitcoin price));
and for BITB, this number was arrived at with this calculation:
((250,000 limit * 100 shares per option * $51.70 settle)/(19,787,762
bitcoin outstanding * $94,830 bitcoin price)).
---------------------------------------------------------------------------
Next, Arca reviewed the proposed position limit by comparing it to
position limits for derivative products regulated by the CFTC. While
the CFTC, through the relevant Designated Contract Markets, only
regulates options positions based upon delta equivalents (creating a
less stringent standard), the Exchange examined equivalent bitcoin
futures position limits. In particular, the Exchange looked to the CME
bitcoin futures contract \67\ that has a position limit of 8,000
futures. Arca noted that, on October 22, 2024, CME bitcoin futures
settled at $94,945.\68\ Arca noted that, on October 22, 2024, BTC
settled at $29.90, and BITB settled at $36.74, which would equate to
approximately 31,754,181 and 25,842,406 shares of BTC and BITB,
respectively, if the CME notional position limit was utilized. Since
substantial portions of any distributed options portfolio are likely to
be out of the money on expiration, an options position limit equivalent
to the CME position limit for bitcoin futures (considering that all
options deltas are <=1.00) should be a bit higher than the CME implied
limit of 317,541 (BTC) and 258,424 (BITB).
---------------------------------------------------------------------------
\67\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\68\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
---------------------------------------------------------------------------
Of note, unlike options contracts, CME position limits are
calculated on a net futures-equivalent basis by contract and include
contracts that aggregate into one or more base contracts according to
an aggregation ratio(s).\69\ 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.\70\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position shall not constitute a position limit
violation. Considering CME's position limits on bitcoin futures, the
Exchange believes a 250,000 contract limit for options on each ETF
would be appropriate.
---------------------------------------------------------------------------
\69\ See <a href="https://www.cmegroup.com/education/courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm">https://www.cmegroup.com/education/courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm</a>.
\70\ See id.
---------------------------------------------------------------------------
Finally, Arca analyzed a position and exercise limit of 250,000 for
BTC and BITB against other options on commodity ETFs, namely SPDR Gold
Shares (``GLD'') and iShares Silver Trust (``SLV'').\71\ Arca noted
that GLD has a float of 306.1 million shares and a position limit of
250,000 contract.\72\ As previously noted, position and exercise limits
are designed to limit the number of options contracts traded on the
exchange in an underlying security that an investor, acting alone or in
concert with others directly or indirectly, may control. Arca noted
that a position limit exercise in GLD would represent 8.17% of the
float of GLD. In comparison, Arca noted that a 250,000 contract
position limit in each of BTC and BITB, would represent 30.14% of the
BTC float and 31.27% of the BITB float. While less conservative than
the standard applied to options on GLD, the Exchange nonetheless
believes that subjecting options on BTC and BITB to a 250,000 contract
position and exercise limit would be appropriate.\73\
---------------------------------------------------------------------------
\71\ Like BTC and BITB, GLD and SLV each hold one asset in
trust.
\72\ See <a href="https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld">https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld</a>.
\73\ See Phlx Options 9, Section 13(g).
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes that it has
demonstrated that BTC and BITB each have more than sufficient liquidity
to garner an increased position and exercise limit of 250,000 same-side
contracts. The Exchange believes that the significant liquidity present
in each ETF mitigates against the potential for manipulation.
The Exchange believes that allowing options on each ETF to have
increased aggregated position and exercise limits would lead to a more
liquid and competitive market environment for such options, which will
benefit customers that trade these options. Further, the reporting
requirement for such options would remain unchanged. Thus, the Exchange
will still require that each Participant that maintains positions in
options on BTC or BITB, on the same side of the market, for its own
account or for the account of a customer, report certain information to
the Exchange. This information includes, but would not be limited to,
the options positions, whether such positions are hedged and, if so, a
description of the hedge(s). Market Makers \74\ would continue to be
exempt from this reporting requirement, however, the Exchange may
access Market Maker position information.\75\ Moreover, the Exchange's
requirement that Participants file reports with the Exchange for any
customer who held aggregate large long or short positions on the same
side of the market of 200 or more option contracts of any single class
for the previous day will remain at this level.\76\
---------------------------------------------------------------------------
\74\ A ``Market Maker: means a Streaming Quote Trader or a
Remote Streaming Quote Trader who enters quotations for his own
account electronically into the System. See Phlx Options 1, Section
1(b)(28).
\75\ OCC through the Large Option Position Reporting (``LOPR'')
system acts as a centralized service provider for member compliance
with position reporting requirements by collecting data from each
member, consolidating the information, and ultimately providing
detailed listings of each member's report to the Exchange, as well
as FINRA, acting as its agent pursuant to a regulatory services
agreement (``RSA'').
\76\ See Phlx Options 9, Section 13.
---------------------------------------------------------------------------
GBTC \77\
---------------------------------------------------------------------------
\77\ GBTC is also referred to as ``ETF'' in the GBTC sections.
---------------------------------------------------------------------------
On October 18, 2024, the Commission approved the listing and
trading of GBTC options.\78\ On November 22, 2024, Arca obtained rule
authority to trade GBTC options with a 25,000 contract position limit,
the lowest limit available in options.\79\ Arca noted that GBTC
currently qualifies for a 250,000 limit on same-side contracts pursuant
to Arca Rule 6.8-O Commentary .06(e)(i), which requires that trading
volume for the underlying security in the most recent six months be at
least 100,000,000 shares.\80\ Arca noted that,
[[Page 39240]]
as of November 25, 2024, during the most recent six-month period,
trading volume for GBTC was 550,687,400 shares. In addition, Arca noted
that, as of November 25, 2024, the market capitalization for GBTC was
$20,661,316,542,\81\ with an average daily volume (``ADV'') for the
preceding three months of 3,829,597 shares. GBTC is well above the
requisite minimum of 100,000,000 shares necessary to qualify for the
250,000 contract position and exercise limit. Also, Arca noted that, as
of November 25, 2024, there were 19,787,762 bitcoins in
circulation.\82\ At a price of $94,830 per bitcoin,\83\ that equates to
a market capitalization of greater than $1.876 trillion. If an
aggregated position and exercise limit of 250,000 contracts were
considered, Arca noted that the exercisable risk would represent 9.13%
\84\ of GBTC shares outstanding. Given GBTC's liquidity, the current
25,000-contract position (and exercise) limit is extremely
conservative.
---------------------------------------------------------------------------
\78\ See Securities Exchange Act Release No. 101386 (October 18,
2024), 89 FR 84960 (October 24, 2024) (SR-NYSEAMER-2024-49) (order
approving rules to permit the listing and trading of GBTC options,
among others) (the ``GBTC Options Approval Order'').
\79\ See Securities Exchange Act Release No. 101713 (November
22, 2024), 89 FR 94839 (November 29, 2024) (SR-NYSEARCA-2024-101)
(notice of immediately effective rule change to permit GBTC options
trading, based on the already-approved NYSE American rules) (the
``Arca GBTC Options Notice'').
\80\ See Phlx Options 9, Section 13(g)(1) providing that the
position limit shall be 250,000 contracts for options: (a) on
underlying stock or Exchange-Traded Fund Share that had trading
volume of at least 100,000,000 shares during the most recent six-
month trading period; or (b) on an underlying stock or Exchange-
Traded Fund Share that had trading volume of at least 75,000,000
shares during the most recent six-month trading period and has at
least 300,000,000 shares currently outstanding.
\81\ Arca noted that the market capitalization of GBTC was
determined by multiplying a settlement price ($75.42) by the number
of shares outstanding (273,950,100) and that the data represents
figures from FactSet as of November 25, 2024.
\82\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\83\ Arca noted that this is the approximate price of bitcoin
from 4:00 p.m. ET on November 25, 2024.
\84\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/
273,950.100 shares outstanding).
---------------------------------------------------------------------------
First, Arca reviewed GBTC's data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables. As noted above, as of November 25,
2024, Arca noted that there were 19,787,762 bitcoins in
circulation.\85\ At a price of $94,830 per bitcoin,\86\ Arca noted that
equates to a market capitalization of greater than $1.876 trillion. If
an aggregated position (and exercise) limit of 250,000 contracts were
considered, Arca noted that the exercisable risk would represent 9.13%
\87\ of the outstanding shares outstanding of GBTC. Since GBTC has a
creation and redemption process managed through the issuer (whereby
bitcoin is used to create GBTC shares), the position limit can be
compared to the total market capitalization of the entire bitcoin
market, and in that case, the exercisable risk for options on GBTC
would represent less than 0.10% of all bitcoin outstanding.\88\ Arca
noted that if GBTC options were subject to a 250,000 contract position
and exercise limit (based on GBTC trading volume) and if all options on
GBTC shares were exercised at once, this occurrence would have a
virtually unnoticed impact on the entire bitcoin market. This analysis
demonstrates that a 250,000 contract position (and exercise) limit for
GBTC options would be appropriate given GBTC's liquidity.
---------------------------------------------------------------------------
\85\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\86\ Arca noted that this is the approximate price of bitcoin
from 4:00 p.m. ET on November 25, 2024.
\87\ Arca noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/
273,950,100 shares outstanding).
\88\ Arca noted that this number was arrived at with this
calculation: ((250,000 limit * 100 shares per option * $75.42
settle)/(19,787,762 BTC outstanding * $94,830 BTC price)).
---------------------------------------------------------------------------
Next, Arca reviewed the proposed position limit by comparing it to
position limits for derivative products regulated by the CFTC. While
the CFTC, through the relevant Designated Contract Markets, only
regulates options positions based upon delta equivalents (creating a
less stringent standard), Arca examined equivalent bitcoin futures
position limits. In particular, Arca looked to the CME bitcoin futures
contract,\89\ which has a position limit of 2,000 futures (for the
initial spot month).\90\ Arca noted that, on October 22, 2024, CME
bitcoin futures settled at $94,945.\91\ Arca noted that on October 22,
2024, GBTC settled at $53.64, which would equate to greater than
17,700,410 shares of GBTC if the CME notional position limit was
utilized. Since substantial portions of any distributed options
portfolio are likely to be out of the money on expiration, Arca noted
that an options position limit equivalent to the CME position limit for
bitcoin futures (considering that all options deltas are <=1.00) should
be a bit higher than the CME implied limit of 177,004.
---------------------------------------------------------------------------
\89\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\90\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook. Each CME bitcoin futures contract is valued at five
bitcoins as defined by the CME CF Bitcoin Reference Rate (``BRR'').
See CME Rule 35001.
\91\ Arca noted that 2,000 futures at a 5-bitcoin multiplier
(per the contract specifications) equates to $949,450,000 (2,000
contracts * 5 BTC per contract * $94,945 price of November BTC
future) of notional value.
---------------------------------------------------------------------------
Of note, unlike options contracts, CME position limits are
calculated on a net futures-equivalent basis by contract and include
contracts that aggregate into one or more base contracts according to
an aggregation ratio(s).\92\ 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.\93\ If a position exceeds position limits because of an option
assignment, CME permits market participants to liquidate the excess
position within one business day without being considered in violation
of its rules. Additionally, if at the close of trading, a position that
includes options exceeds position limits for futures contracts, when
evaluated using the delta factors as of that day's close of trading but
does not exceed the limits when evaluated using the previous day's
delta factors, then the position shall not constitute a position limit
violation. Considering CME's position limits on bitcoin futures, the
Exchange believes a 250,000 contract limit for GBTC options would be
appropriate.
---------------------------------------------------------------------------
\92\ See <a href="https://www.cmegroup.com/education/courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm">https://www.cmegroup.com/education/courses/market-regulation/position-limits/positionlimits-aggregation-of-contracts-and-table.htm</a>.
\93\ See id.
---------------------------------------------------------------------------
Finally, Arca analyzed a position and exercise limit of 250,000 for
GBTC against options on SPDR Gold Shares (``GLD''), which (like GBTC),
is a commodity-backed ETF.\94\ Arca noted that GLD has a float of 306.1
million shares and a position limit of 250,000 contracts.\95\ As
previously noted, position and exercise limits are designed to limit
the number of options contracts traded on the exchange in an underlying
security that an investor, acting alone or in concert with others
directly or indirectly, may control. Arca noted that a position limit
exercise in GLD would represent 8.17% of the float of GLD. In
comparison, Arca noted that a 250,000 contract position limit in GBTC
would represent 9.13% of the float of GBTC. While less conservative
than the standard applied to options on GLD, the Exchange nonetheless
believes that subjecting GBTC options to a 250,000 contract position
and exercise limit would be appropriate.\96\
---------------------------------------------------------------------------
\94\ GLD, like GBTC, holds one asset in trust.
\95\ See <a href="https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld">https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld</a>.
\96\ See, e.g., Phlx Options 9, Section 13.
---------------------------------------------------------------------------
Based on the foregoing, the Exchange believes that it has
demonstrated that GBTC has more than sufficient liquidity to garner an
increased position and exercise limit of 250,000 same-side contracts.
The Exchange believes that the significant liquidity present in GBTC
mitigates against the potential for manipulation.
The Exchange also has no reason to believe that the growth in
trading volume in IBIT, BTC, BITB, and GBTC options will not continue.
Rather, the Exchange expects continued options volume growth in IBIT,
BTC, BITB, and GBTC as opportunities for investors to
[[Page 39241]]
participate in the options markets increase and evolve. The Exchange
believes that the current position and exercise limits in IBIT, BTC,
BITB, and GBTC options are restrictive and will hamper the listed
options markets from being able to compete fairly and effectively with
the over-the-counter (``OTC'') markets. OTC transactions occur through
bilateral agreements, the terms of which are not publicly disclosed to
the marketplace. As such, OTC transactions do not contribute to the
price discovery process on a public exchange or other lit markets. The
Exchange believes that without the proposed changes to position and
exercise limits for IBIT, BTC, BITB, and GBTC options, market
participants will find the 25,000-contract position limit an impediment
to their business and investment objectives as well as an impediment to
efficient pricing. As a result, market participants may find the less
transparent OTC markets a more attractive alternative to achieve their
investment and hedging objectives, leading to a retreat from the listed
options markets, where trades are subject to reporting requirements and
daily surveillance.
The Exchange believes that the existing surveillance procedures and
reporting requirements at the Exchange are capable of properly
identifying disruptive and/or manipulative trading activity. The
Exchange also represents that it has adequate surveillances in place to
detect potential manipulation, as well as reviews in place to identify
continued compliance with the Exchange's listing standards. These
procedures monitor market activity to identify unusual activity in both
options and the underlying equities.
FLEX
Arca recently received approval to permit BTC, BITB and GTBC to
trade as ``FLEX Options.'' \97\ Identical to approval received by Arca,
Phlx proposes to permit, BTC, BITB and GTBC to trade as FLEX Options
and would require the aggregation of any FLEX and non-FLEX positions in
the same underlying ETF for purposes of calculating position and
exercise limits on such ETF. Thus, for example, assuming a 250,000
contract position limit for options on BTC, the Exchange would restrict
a market participant from holding positions that could result in the
receipt of more than 250,000,000 shares (if that market participant
exercised all its BTC options). The share creation and redemption
process available to each ETF is designed to ensure that an ETF's price
closely tracks the value of its underlying asset. For example, if a
market participant exercised a long call position for 25,000 contracts
and purchased 2,500,000 shares of BTC and this purchase resulted in the
value of BTC shares to trade at a premium to the value of the
(underlying) bitcoin held by BTC, the Exchange believes that other
market participants would attempt to arbitrage this price difference by
selling short BTC shares while concurrently purchasing bitcoin. Those
market participants (arbitrageurs) would then deliver cash to BTC and
receive shares of BTC, which would be used to close out any previously
established short position in BTC. Thus, this creation and redemptions
process would significantly reduce the potential risk of price
dislocation between the value of BTC shares and the value of bitcoin
holdings.
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\97\ See Securities Exchange Act Release Nos. 103568 (July 29,
2025) (SR-NYSEArca-2025-10) (not yet noticed); and 103567 (July 29,
2025) (SR-NYSEArca-2025-07) (not yet noticed).
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The Exchange understands that FLEX Options on ETFs are currently
traded in the OTC market by a variety of market participants, e.g.,
hedge funds, proprietary trading firms, and pension funds, to name a
few. The Exchange believes there is room for significant growth if a
comparable product were introduced for trading on a regulated market.
The Exchange expects that users of these OTC products would be among
the primary users of FLEX options on BTC, BITB and GTBC. The Exchange
also believes that the trading of FLEX Options would allow these same
market participants to better manage the risk associated with the
volatility of BTC, BITB or GTBC (the underlying ETF) positions given
the enhanced liquidity that an exchange-traded product would bring.
Additionally, the Exchange believes that FLEX Options traded on the
Exchange would have three important advantages over the contracts that
are traded in the OTC market. First, because of greater standardization
of contract terms, exchange-traded contracts should develop more
liquidity. Second, counter-party credit risk would be mitigated by the
fact that the contracts are issued and guaranteed by OCC. Finally, the
price discovery and dissemination provided by the Exchange and its
members would lead to more transparent markets. The Exchange believes
that its ability to offer FLEX Options would aid it in competing with
the OTC market and at the same time expand the universe of products
available to interested market participants. The Exchange believes that
an exchange-traded alternative may provide a useful risk management and
trading vehicle for market participants and their customers.
The Exchange has analyzed its capacity and represents that it and
The Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle the additional traffic associated with the
listing of FLEX Options. The Exchange believes any additional traffic
that would be generated from the trading of FLEX Options would be
manageable. The Exchange believes OTP Holders will not have a capacity
issue as a result of this proposed rule change. The Exchange also
represents that it does not believe this proposed rule change will
cause fragmentation of liquidity. The Exchange will monitor the trading
volume associated with the additional options series listed as a result
of this proposed rule change and the effect (if any) of these
additional series on market fragmentation and on the capacity of the
Exchange's automated systems.
The Exchange represents that the same surveillance procedures
applicable to the Exchange's other options products listed and traded
on the Exchange, including non-FLEX Options, will apply to FLEX
Options, and that it has the necessary systems capacity to support such
options. FLEX options products (and their respective symbols) are
integrated into the Exchange's existing surveillance system
architecture and are thus subject to the relevant surveillance
processes. The Exchange's market surveillance staff (including staff of
Financial Industry Regulatory Authority, Inc. (``FINRA'') who perform
surveillance and investigative work on behalf of the Exchange pursuant
to a regulatory services agreement) conducts surveillances with respect
to BTC, BITB and GTBC (the underlying ETFs) and, as appropriate, would
review activity in BTC, BITB and GTBC when conducting surveillances for
market abuse or manipulation in the FLEX options on each ETF.\98\ The
Exchange does not believe that allowing FLEX Options would render the
marketplace for non-FLEX Options, or equity options in general, more
susceptible to manipulative practices.
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\98\ See ETF Options Approval Order, 89 FR at 84966-68
(regarding surveillance procedures applicable to BTC, BITB and GTBC,
and other funds that hold bitcoin).
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The Exchange represents that its existing trading surveillances are
adequate to monitor the trading in BTC, BITB and GTBC as well as any
subsequent trading of FLEX Options on
[[Page 39242]]
the Exchange. Additionally, the Exchange is a member of the Intermarket
Surveillance Group (``ISG'') under the ISG Agreement. ISG members work
together to coordinate surveillance and investigative information
sharing in the stock, options, and futures markets. In addition to the
surveillance that is conducted by the Exchange's market surveillance
staff, the Exchange would also be able to obtain information regarding
trading in shares of BTC, BITB and GTBC on other exchanges through ISG.
In addition, and as referenced above, the Exchange has a regulatory
services agreement with FINRA, pursuant to which FINRA conducts certain
surveillances on behalf of the Exchange. Further, pursuant to a multi-
party 17d-2 joint plan, all options exchanges allocate regulatory
responsibilities to FINRA to conduct certain options-related market
surveillances.\99\ The Exchange will implement any additional
surveillance procedures it deems necessary to effectively monitor the
trading of BTC, BITB and GTBC options.
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\99\ Section 19(g)(1) of the Act, among other things, requires
every SRO registered as a national securities exchange or national
securities association to comply with the Act, the rules and
regulations thereunder, and the SRO's own rules, and, absent
reasonable justification or excuse, enforce compliance by its
members and persons associated with its members. See 15 U.S.C.
78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows
the Commission to relieve an SRO of certain responsibilities with
respect to members of the SRO who are also members of another SRO.
Specifically, Section 17(d)(1) allows the Commission to relieve an
SRO of its responsibilities to: (i) receive regulatory reports from
such members; (ii) examine such members for compliance with the Act
and the rules and regulations thereunder, and the rules of the SRO;
or (iii) carry out other specified regulatory responsibilities with
respect to such members.
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The proposed rule change is designed to allow investors seeking to
trade options on each ETF to utilize FLEX Options. The Exchange
believes that offering innovative products flows to the benefit of the
investing public. A robust and competitive market requires that
exchanges respond to member's evolving needs by constantly improving
their offerings. Such efforts would be stymied if exchanges were
prohibited from offering innovative products such as the proposed FLEX
Options. The Exchange believes that introducing FLEX Options would
further broaden the base of investors that use FLEX Options (and
options on BTC, BITB and GTBC, in general) to manage their trading and
investment risk, including investors that currently trade in the OTC
market for customized options. The proposed rule change is also
designed to encourage Market Makers to shift liquidity from the OTC
market on the Exchange, which, it believes, will enhance the process of
price discovery conducted on the Exchange through increased order flow.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\100\ in general, and furthers the objectives of
Section 6(b)(5) of the Act,\101\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in 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.
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\100\ 15 U.S.C. 78f(b).
\101\ 15 U.S.C. 78f(b)(5).
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Position Limits
IBIT
The Exchange believes that removing the limitation of 25,000
contracts for options on IBIT in Options 9, Sections 13(a) would
increase the position and exercise limits for options on IBIT from
25,000 to 250,000 contracts based on Options 9, Section 13(g), so its
position limit would be reviewed similar to all other options is
consistent with the Act. 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 and the public interest,
because it will provide market participants with the ability to more
effectively execute their trading and hedging activities. Also, based
on current trading volume, the resulting increase in the position (and
exercise) limits for IBIT options may allow Market Makers to maintain
their liquidity in these options in amounts commensurate with the
continued high consumer demand in IBIT options. Subjecting options on
IBIT to the position limits in Options 9, Sections 13 and corresponding
exercise limits in Options 9, Section 15 may also encourage other
liquidity providers to continue to trade on the Exchange rather than
shift their volume to OTC markets, which will enhance the process of
price discovery conducted on the Exchange through increased order flow.
Further, this amendment would allow institutional investors to utilize
IBIT options for prudent risk management purposes. The Exchange notes
that IBIT's position limits would be reviewed on a six month basis,
based on the rules of other options markets such as ISE Options 9,
Section 13(h), similar to other options.
In addition, the Exchange believes that the current liquidity in
IBIT will mitigate concerns regarding potential manipulation of IBIT
options and/or disruption of IBIT upon amending Options 9, Sections 13
and 15 to remove the 25,000 position and exercise limit for options on
IBIT.
Additionally, the regression model performed by ISE demonstrates
that the proposed position limit is half of the modeled limit given the
liquidity of IBIT. Comparing IBIT's data relative to the market
capitalization of the entire bitcoin market in terms of exercise risk
and availability of deliverables, ISE was able to conclude that if a
position limit of 250,000 contracts were considered, the exercisable
risk would represent 2.89% \102\ of the shares outstanding of IBIT. ISE
noted that since IBIT has a creation and redemption process managed
through the issuer (whereby Bitcoin is used to create IBIT shares), the
position limit can be compared to the total market capitalization of
the entire bitcoin market and in that case, the exercisable risk for
options on IBIT would represent less than .072% of all bitcoin
outstanding.\103\ ISE also noted that comparing the proposed position
limit to position limits for equivalent bitcoin futures position
limits, the analysis demonstrated that a 250,000 contracts position and
exercise limits would be appropriate.
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\102\ ISE noted that this percentage is arrived at with this
equation: (250,000 contract limit * 100 shares per option/
866,040,000 shares outstanding).
\103\ ISE noted that this number was arrived at with this
calculation: ((250,000 limit * 100 shares per option * $54.02
settle)/(19,787,762 BTC outstanding * $94,830 BTC price)).
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Comparing a position limit of 250,000 for IBIT options against
other options on ETFs with an underling commodity, namely GLD, SLV and
BITO, ISE noted that a position limit exercise in GLD represents 8.17%
of the float of GLD, a position limit exercise in SLV represents 4.8%
of the float of SLV, and a position limit exercise of BITO represents
23.22% of the float of BITO. In comparison, ISE noted that a 250,000
contract position limit in IBIT options would represent 2.89% of the
float of IBIT. Consequently, a 250,000 IBIT options position limit is
more conservative than the standard applied to GLD, SLV and BITO, and
appropriate. Also, ISE noted that Cboe's proprietary CBTX and MBTX
indices weight IBIT the highest (at 20%) in its index composition among
the other ETFs that
[[Page 39243]]
comprise the index.\104\ The Exchange notes that today, these indexes
have a position of 24,000 contracts which is much higher than the
current position limits for IBIT options when considering the notional
value of the indices.\105\ These indexes are already trading with
position and exercise limits that are higher than the lowest position
limit for an industry index option.\106\
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\104\ See <a href="https://www.cboe.com/tradable_products/bitcoin-etf-index-options?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch">https://www.cboe.com/tradable_products/bitcoin-etf-index-options?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch</a>.
\105\ See Cboe Rule 8.32(a). ISE noted that given the multiplier
and notional value of CBTX, the index has a position and exercise
limit that equates to 1,000,000 contracts of in kind exposure to
IBIT, which is more than 40 times greater than the exposure for
options on IBIT at the current 25,000 contract position and exercise
limit.
\106\ ISE noted that 18,000 contracts is the lowest position
limit for industry index options. Further, Cboe Rule 8.32(a)(3)
permits a limit of 31,500 contracts if the Exchange determines that
the conditions specified in Rule 8.32(a)(1) and (2), which would
require the establishment of a lower limit, have not occurred.
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ISE noted that IBIT began trading in penny increments on January 2,
2025 pursuant to the Penny Interval Program.\107\ The Commission noted
that evidence contained in both ISE's Report and the Cornerstone
analysis demonstrated that the Penny Pilot has benefitted investors and
other market participants in the form of narrower spreads.\108\ The
most actively traded options classes are included in the Penny Program
based on certain objective criteria (trading volume thresholds and
initial price tests). As noted in the Penny Approval Order, the Penny
Program reflects a certain level of trading interest (either because
the class is newly listed or a class that experience a significant
growth in investor interest) to quote in finer trading increments,
which in turn should benefit market participants by reducing the cost
of trading such options.\109\ IBIT options are among a select group of
products that have achieved a certain level of liquidity that have
garnered it the ability to trade in finer increments pursuant to the
Penny Interval Program. Failing to permit IBIT options to potentially
increase position and exercise limits given the trading in finer
increments, may artificially inhibit liquidity and create price
inefficiency for IBIT options.
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\107\ The Exchange may add to the Penny Program a newly listed
option class provided that (i) it is among the 300 most actively
traded multiply listed option classes, as ranked by National Cleared
Volume at OCC, in its first full calendar month of trading and (ii)
the underlying security is priced below $200 or the underlying index
is at an index level below $200. Any option class added under this
provision will be added on the first trading day of the month after
it qualifies and will remain in the Penny Program for one full
calendar year, after which it will be subject to the Annual Review
described in Supplementary Material .01(b) to Options 3, Section 3.
The Exchange may add any option class to the Penny Program, provided
that (i) it is among the 75 most actively traded multiply listed
option classes, as ranked by National Cleared Volume at OCC, in the
past six full calendar months of trading and (ii) the underlying
security is priced below $200 or the underlying index is at an index
level below $200. Any option class added under this provision will
be added on the first trading day of the second full month after it
qualifies and will remain in the Penny Program for the rest of the
calendar year, after which it will be subject to the Annual Review
as described in Supplementary Material .01(b) to Phlx Options 3,
Section 3. See Supplementary Material .01 to Phlx Options 3, Section
3.
\108\ See Securities Exchange Act Release No. 88532 (April 1,
2020), 85 FR 19545, 19548 (April 7, 2020) (File No. 4-443) (Joint
Industry Plan; Order Approving Amendment No. 5 to the Plan for the
Purpose of Developing and Implementing Procedures Designed To
Facilitate the Listing and Trading of Standardized Options To Adopt
a Penny Interval Program) (``Penny Approval Order'').
\109\ See id. at 19548.
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Finally, as discussed above, the Exchange's surveillance and
reporting safeguards continue to be designed to deter and detect
possible manipulative behavior that might arise from increasing or
eliminating position and exercise limits in certain classes. The
Exchange believes that the current financial requirements imposed by
the Exchange and by the Commission adequately address concerns
regarding potentially large, unhedged positions in the options on the
underlying securities, further promoting just and equitable principles
of trading, the maintenance of a fair and orderly market, and the
protection of investors.
BTC and BITB
The Exchange believes the proposed rule change to remove the
25,000-contract position (and exercise) limit on BTC and BITB options
thus allowing such options to qualify for higher aggregated limits will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest as it will provide market participants with the
ability to more effectively execute their trading and hedging
activities. In addition, this proposed change may allow Market Makers
to maintain their liquidity in these options in amounts commensurate
with the continued demand for BTC and BITB options. Further, an
increased aggregated position (and exercise) limit on BTC and BITB
options may encourage other liquidity providers to continue to trade on
the Exchange rather than shift their volume to OTC markets, which will
enhance the process of price discovery conducted on the Exchange
through increased order flow. The Exchange notes that permitting a
higher aggregated position (and exercise) limit on BTC and BITB options
would further allow institutional investors to utilize such options for
prudent risk management purposes.
As noted herein, Arca analyzed several data points that support the
appropriateness of an aggregated position (and exercise) limit of
250,000 contracts for BTC and BITB options based on recent trading
volume in each ETF. Specifically, Arca noted that a comparison of each
ETF's market capitalization to the bitcoin market in terms of exercise
risk and availability of deliverables revealed that the exercisable
risk of an aggregated limit of 250,000 contracts represented 30.14% and
31.27% of BTC and BITB shares outstanding. Further, Arca noted that
since each ETF has a creation and redemption process managed through
the issuer (whereby bitcoin is used to create BTC or BITB shares, as
applicable), a 250,000-contract position (and exercise) limit as
compared to the market capitalization of the bitcoin market indicated
that the exercisable risk for options on each ETF represented less than
0.06% (BTC) or 0.07% (BITB) of all bitcoin outstanding as noted by
Arca. Moreover, a comparison of a 250,000-contract position limit for
options on each ETF to the (actual) position limits for equivalent
bitcoin futures revealed that a 250,000-contract limit for each ETF
would be appropriate. Finally, Arca compared an aggregated position
limit of 250,000 contracts for each ETF against GLD, another commodity-
backed ETF. Arca noted that a position limit exercise in GLD represents
8.17% of the float of GLD. By comparison, Arca noted that a position
limit exercise in each ETF (assuming a 250,000-contract limit would
represent 30.14% (BTC) and 31.27% (BITB) of that ETF's float. Although
a 250,000-contract position (and exercise) limit on BTC and BITB
options would not be as conservative as the standard applied to GLD, it
is comparable and therefore appropriate.
GBTC
The Exchange believes the proposed rule change to remove the
25,000-contract position (and exercise) limit on GBTC options thus
allowing such options to qualify for higher aggregated limits will
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, protect investors
and the public interest as it will provide market participants with the
ability to more effectively execute their trading and hedging
activities. In
[[Page 39244]]
addition, this proposed change may allow Market Makers to maintain
their liquidity in these options in amounts commensurate with the
continued demand for GBTC options. Further, an increased aggregated
position (and exercise) limit on GBTC options may encourage other
liquidity providers to continue to trade on the Exchange rather than
shift their volume to OTC markets, which will enhance the process of
price discovery conducted on the Exchange through increased order flow.
The Exchange notes that permitting a higher aggregated position (and
exercise) limit on GBTC options would further allow institutional
investors to utilize such options for prudent risk management purposes.
As noted herein, Arca analyzed several data points that support the
appropriateness of an aggregated position (and exercise) limit of
250,000 contracts for GBTC options based on recent trading volume in
GBTC. Specifically, Arca noted that a comparison of GBTC's market
capitalization to the bitcoin market in terms of exercise risk and
availability of deliverables revealed that the exercisable risk of an
aggregated limit of 250,000 contracts represented 9.13% of GBTC shares
outstanding. Further, since GBTC has a creation and redemption process
managed through the issuer (whereby bitcoin is used to create GBTC
shares), Arca noted that a 250,000-contract position (and exercise)
limit as compared to the market capitalization of the bitcoin market
indicated that the exercisable risk for GBTC options represented less
than 0.10% of all bitcoin outstanding as noted by Arca. Moreover, a
comparison of a 250,000-contract position limit for GBTC options to the
(actual) position limits for equivalent bitcoin futures revealed that a
250,000-contract limit would be appropriate. Finally, Arca compared an
aggregated position limit of 250,000 contracts for GBTC options against
GLD, another commodity backed ETF. Arca noted that a position limit
exercise in GLD represents 8.17% of the float of GLD. By comparison,
Arca noted that a position limit exercise in GBTC options (assuming a
250,000-contract limit) would represent 9.13% of the GBTC float.
Although a 250,000-contract position (and exercise) limit on GBTC
options would not be as conservative as the standard applied to GLD, it
is comparable and therefore appropriate.
FLEX
The Exchange believes that the proposal to permit FLEX Options and
to require aggregation of any FLEX and non-FLEX positions in the same
underlying ETF for purpose of calculating position and exercise limits
would remove impediments to and perfect the mechanism of a free and
open market for several reasons. First, the Exchange believes that
offering FLEX Options will benefit investors by providing them with an
additional, relatively lower cost investing tool to gain exposure to
the price of bitcoin and provide a hedging vehicle to meet their
investment needs in connection with a bitcoin-related product.
Moreover, the proposal would broaden the base of investors that use
FLEX Options to manage their trading and investment risk, including
investors that currently trade in the OTC market for customized
options. By trading a product in an exchange-traded environment (that
is currently being used in the OTC market), the Exchange would be able
to compete more effectively with the OTC market. The Exchange believes
the proposed rule change is designed to prevent fraudulent and
manipulative acts and practices in that it would lead to the migration
of options currently trading in the OTC market to trading to the
Exchange. Also, any migration to the Exchange from the OTC market would
result in increased market transparency and enhance the process of
price discovery conducted on the Exchange through increased order flow.
The Exchange also believes that offering FLEX Options may open up the
market for options on these ETFs to more retail investors.
Additionally, the Exchange believes the proposed rule change is
designed to remove impediments to and to perfect the mechanism for a
free and open market and a national market system, and, in general, to
protect investors and the public interest because FLEX Options are
designed to create greater trading and hedging opportunities and
flexibility. The proposed rule change should also result in enhanced
efficiency in initiating and closing out positions and heightened
contra-party creditworthiness due to the role of OCC as issuer and
guarantor of FLEX Options. Further, the proposed rule change would
result in increased competition by permitting the Exchange to offer
products that are currently used in the OTC market.
The Exchange believes that offering innovative products flows to
the benefit of the investing public. A robust and competitive market
requires that exchanges respond to member's evolving needs by
constantly improving their offerings. Such efforts would be stymied if
exchanges were prohibited from offering innovative products such as the
proposed FLEX Options. The Exchange does not believe that allowing FLEX
Options would render the marketplace for equity options more
susceptible to manipulative practices.
Finally, the Exchange represents that it has an adequate
surveillance program in place to detect manipulative trading in FLEX
Options. Regarding the proposed FLEX Options, the Exchange would use
the same surveillance procedures currently utilized for FLEX Options
listed on the Exchange (as well as for non-FLEX Options). In light of
surveillance measures related to both options trading on each ETF the
underlying ETFs, the Exchange believes that existing surveillance
procedures are designed to deter and detect possible manipulative
behavior which might potentially arise from listing and trading the
proposed FLEX Options.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Position Limits
The Exchange's proposal does not burden intra-market competition
because all Participants would be subject to the position limits in
Options 9, Sections 13 and corresponding exercise limits in Options 9,
Section 15. The Exchange believes that the proposed rule change will
also provide additional opportunities for market participants to
continue to efficiently achieve their investment and trading objectives
for equity options on the Exchange.
The Exchange does not believe that the proposed rule change will
impose any burden on inter-market competition. The Exchange expects
that all option exchanges will adopt substantively similar proposals,
such that the Exchange's proposal would benefit competition. For these
reasons, the Exchange does not believe that the proposed rule change
will impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
FLEX
The Exchange believes that the proposal to permit FLEX Options will
not impose any burden on intra-market competition as all market
participants can opt to utilize this product or not. The proposed rule
change is designed to allow investors seeking option exposure to
bitcoin to trade FLEX Options. Moreover, the Exchange believes that the
proposal to permit FLEX Options
[[Page 39245]]
would broaden the base of investors that use FLEX Options to manage
their trading and investment risk, including investors that currently
trade in the OTC market for customized options. The Exchange believes
that the proposed FLEX Options will not impose any burden on inter-
market competition but will instead encourage competition by increasing
the variety of options products available for trading on the Exchange,
which products will provide a valuable tool for investors to manage
risk. Should this proposal be approved, competing options exchanges
will be free to offer products like the proposed FLEX Options.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \110\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\111\
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\110\ 15 U.S.C. 78s(b)(3)(A)(iii).
\111\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \112\ 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),\113\ 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 removal of the 25,000 contract
position and exercise limit for IBIT, BTC, GBTC, and BITB, such that
those funds will be subject to the position and exercise limits as
determined for equity options for which no set limit has been otherwise
established on that exchange.\114\ The Exchange is proposing similarly
to remove of the 25,000 contract position and exercise limit for IBIT,
BTC, GBTC, and BITB, such that those funds will be subject to the
position and exercise limits as determined by the position limit rules
at Phlx Options 9, Section 13 and exercise limits at Options 9, Section
15. In addition, the Exchange proposes to permit BTC, GTBC, and BITB to
trade as FLEX Options and would require the aggregation of any FLEX and
non-FLEX positions in the same underlying ETF for purposes of
calculating position and exercise limits on such ETF, substantively
identical to approval received by another exchange.\115\ The Exchange
has provided information regarding IBIT, BTC, GBTC, and BITB,
including, among other things, information regarding trading volume,
and the market capitalization of IBIT, BTC, GBTC, and BITB and
surveillance procedures that will apply. The Commission notes that this
proposal raises no new or novel legal issues and would simply provide
an additional venue for trading IBIT, BTC, GBTC, and BITB with position
and exercise limits that may be higher than 25,000 contracts, as well
as FLEX trading on BTC, GBTC, and BITB. Therefore, the Commission
believes that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Accordingly, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change as operative upon filing.\116\
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\112\ 17 CFR 240.19b-4(f)(6).
\113\ 17 CFR 240.19b-4(f)(6)(iii).
\114\ See supra notes 4, 5, and 6.
\115\ See supra note 97.
\116\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#8bf9fee7eea6e8e4e6e6eee5fff8cbf8eee8a5ece4fd"><span class="__cf_email__" data-cfemail="780a0d141d551b1715151d160c0b380b1d1b561f170e">[email protected]</span></a>. Please include
file number SR-PHLX-2025-34 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-PHLX-2025-34. 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 filing 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-PHLX-2025-34 and should be submitted on
or before September 4, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\117\
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\117\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-15427 Filed 8-13-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on August 14, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.