Notice2025-16179
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend BOX Rule 3120 To Increase the Position and Exercise Limits for the iShares Bitcoin Trust ETF
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 25, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 162 (Monday, August 25, 2025)</title>
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[Federal Register Volume 90, Number 162 (Monday, August 25, 2025)]
[Notices]
[Pages 41442-41448]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-16179]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103747; File No. SR-BOX-2025-22]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend BOX Rule
3120 To Increase the Position and Exercise Limits for the iShares
Bitcoin Trust ETF
August 20, 2025.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on August 15, 2025, BOX Exchange LLC (``BOX'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 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 BOX Rule 3120 (Position Limits) to
increase the position and exercise limits for iShares Bitcoin Trust ETF
(``IBIT''). The text of the proposed rule change is available from the
principal office of the Exchange, at the Commission's Public Reference
Room and also on the Exchange's internet website at <a href="https://rules.boxexchange.com/rulefilings">https://rules.boxexchange.com/rulefilings</a>.
[[Page 41443]]
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 self-regulatory organization
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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 3120, Position Limits,\4\ to
permit IBIT to increase its position and exercise limits for options on
IBIT from 25,000 contracts by removing IBIT from IM-3120-2. This is a
competitive filing based on a similar proposal submitted by Nasdaq ISE,
LLC (``ISE'') and approved by the Securities and Exchange Commission
(``Commission'').\5\
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\4\ The Exchange notes that Rule 3140(c) Exercise Limits
provides that limits shall be determined in the manner described in
Rule 3120 (Position Limits). Additionally, IM-3140-1 provides the
exercise limits established under Rule 3140, in respect to options
on shares or other securities that represent interests in registered
investment companies (or series thereof) organized as open-end
management investment companies, unit investment trusts or similar
entities that satisfy the criteria set forth in Rule 5020 shall be
equivalent to the position limits prescribed for such options in IM-
3120-2, subject to any exemptions granted in respect to such
position limits.
\5\ See Securities Exchange Act Release No. 103564 (July 29,
2025) (SR-ISE-2024-62) (Self-Regulatory Organizations; Nasdaq ISE,
LLC; Order Approving a Proposed Rule Change, as Modified by
Amendment Nos. 2 and 3, Regarding Position and Exercise Limits for
Options on the iShares Bitcoin Trust ETF) (``ISE Approval Order'').
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IBIT is an Exchange-Traded Fund (``ETF'') that holds bitcoin and is
listed on the Nasdaq Stock Market LLC.\6\ In November 2024, the
Exchange received approval to list options on IBIT.\7\ The position and
exercise limits for IBIT options are 25,000 contracts as stated in IM-
3120-2, the lowest limit available in options.\8\ 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.'' \9\ 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.'' \10\ Based on its review of the data and
analysis provided by ISE, the Commission concluded that the 25,000
contract position limit for IBIT options satisfied these
objectives.\11\
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\6\ 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.
\7\ See Securities Exchange Act Release No. 101735 (November 25,
2024), 89 FR 95264 (December 2, 2024) (SR-BOX-2024-27) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To
Amend Rules 3120 (Position Limits) and 5020 (Criteria for Underlying
Securities) To Permit Trading of iShares Bitcoin ETF Options)
(``IBIT Filing'').
\8\ 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.
\9\ See supra note 4.
\10\ See id.
\11\ See id.
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While the Exchange proposed an aggregated 25,000 contract position
limit for IBIT options in its IBIT Filing, it nonetheless believed that
evidence existed to support a much higher position limit. Specifically,
the Commission has considered and reviewed ISE's analysis as it was
presented by the Exchange in the IBIT Filing that the exercisable risk
associated with a position limit of 25,000 contracts represented only
0.4% of the outstanding shares of IBIT.\12\ The Commission also has
considered and reviewed the Exchange's statement in its IBIT Filing
that with a position limit of 25,000 contracts on the same side of the
market and 611,040,000 shares of IBIT outstanding, 244 market
participants would have to simultaneously exercise their positions to
place IBIT under stress.\13\ Based on the Commission's review of this
information and analysis, the Commission concluded that the proposed
position and exercise limits of 25,000 contracts were designed to
prevent investors from disrupting the market for the underlying
security by acquiring and exercising a number of options contracts
disproportionate to the deliverable supply and average trading volume
of the underlying security, and to prevent the establishment of options
positions that can be used or might create incentives to manipulate or
disrupt the underlying market so as to benefit the options
position.\14\ IBIT currently qualifies for a 250,000 contract position
limit pursuant to the criteria in Rule 3120(d)(5), which requires that,
for the most recent six-month period, trading volume for the underlying
security be at least 100 million shares.\15\ As of November 25, 2024,
the market capitalization for IBIT was $46,783,480,800 \16\ 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.\17\ According to calculations
done by ISE as presented in Amendment No. 2,\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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\12\ See supra note 6. Data represents figures from August 12,
2024.
\13\ See id. Data represents figures from August 12, 2024.
\14\ See id.
\15\ BOX Rule 3120, Position Limits, provides at subparagraph
(d)(5) that to be eligible for the 250,000 contract limit, either
the most recent six (6) month trading volume of the underlying
security must have totaled at least 100 million shares or the most
recent six (6) month trading volume of the underlying security must
have totaled at least seventy-five (75) million shares and the
underlying security must have at least 300 million shares currently
outstanding.
\16\ 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>.
\17\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\18\ See Amendment No. 2 to Proposed Rule Change to modify the
position and exercise limits for IBIT options to the applicable
position and exercise limits as determined by Options 9, Sections 13
and 15 (SR-ISE-2024-62), filed Mar. 26, 2025, available at <a href="https://www.sec.gov/comments/srise-2024-62/srise202462-593575-1721782.pdf">https://www.sec.gov/comments/srise-2024-62/srise202462-593575-1721782.pdf</a>
(``Amendment No. 2'').
\19\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\20\ This percentage is 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
[[Page 41444]]
with others directly or indirectly, may control. These limits, which
are described in Rules 3120 and 3140, are intended to address potential
manipulative schemes and adverse market impacts surrounding the use of
options, such as disrupting the market in the security underlying the
options. Position and exercise limits must balance concerns regarding
mitigating potential manipulation and the cost of inhibiting potential
hedging activity that could be used for legitimate economic purposes.
To achieve this balance, the Exchange proposes to remove IBIT from
the table of position limits in IM-3120-2 so that options on IBIT may
trade similar to all other options for which the Exchange has not filed
to otherwise increase the position limits to levels outside of the
limits of Rule 3120(d). As a result of removing IBIT from the
aforementioned table, it would increase the position and exercise
limits for options on IBIT from 25,000 to 250,000 contracts based on
the parameters of Rule 3120(d). By removing IBIT from the
aforementioned table, IBIT would be subject to subsequent six (6) month
reviews to determine future position and exercise limits similar to all
other options subject to Rules 3120 and 3140. In addition to IBIT's
Rule 3120(d) eligibility for 250,000 contracts, ISE performed
additional analysis relying on data presented in Amendment No. 2, with
respect to IBIT. First, in Amendment No. 2, ISE considered IBIT's
market capitalization and 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, ISE aggregated the data based on market
capitalization and ADV and grouped option symbols by 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\ Rule 3120 sets
out position limits for various contracts. For example, on ISE like on
the Exchange, 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 performed an exercise 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.\25\
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\21\ The computations are based on OCC data from November 25,
2024. Data displaying zero values in market capitalization or ADV
were removed.
\22\ IBIT has one asset and therefore is not comparable to a
broad based ETF where there are typically multiple components.
\23\ BOX Rule 3120 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. The Exchange notes
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, the Exchange's pool of data
considered higher position limits than 250,000 contracts, where
applicable.
\24\ 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>.
\25\ See Amendment No. 2 at 8-9.
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As presented in Amendment No. 2,\26\ 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, in Amendment No.
2, 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.\27\ From this regression, ISE
was able to determine the implied coefficients to create a formulaic
method for determining an appropriate position limit.\28\ In this case,
the modeled position limit is 565,796 contracts.\29\ The results of
ISE's study are provided in Amendment No. 2.
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\26\ See Amendment No. 2 at 9.
\27\ Id.
\28\ ISE utilized Excel's Data Analysis Package to model the
position limit.
\29\ 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)).
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Based on the aforementioned analysis, as performed by ISE in
Amendment No. 2, the Exchange believes that the proposed 250,000
contracts for 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. As of November 25, 2024, there were 19,787,762 bitcoins
in circulation.\30\ At a price of $94,830,\31\ 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%\32\ of the outstanding shares outstanding of IBIT.
Since IBIT has a creation and redemption process managed through the
issuer, additionally it can be compared the position limit sought to
the total market capitalization of the entire bitcoin market and in
that case, the exercisable risk for options on IBIT would be less than
0.072% of all bitcoin outstanding. Assuming a scenario where all
options on IBIT shares were exercised given the proposed 250,000 per
same side position and exercise limits, this would have a virtually
unnoticed impact on the entire bitcoin market. This analysis
demonstrates that the proposed 250,000 per same side position and
exercise limits are appropriate for options on IBIT given its
liquidity.
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\30\ See <a href="https://www.coingecko.com/en/coins/bitcoin">https://www.coingecko.com/en/coins/bitcoin</a>.
\31\ This is the approximate price of bitcoin from 4:00 p.m. ET
on November 25, 2024.
\32\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/866,040,000 shares
outstanding).
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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 at the CME bitcoin futures contract \33\ that has a position
limit of 2,000 futures.\34\ On October 22, 2024, CME bitcoin futures
settled at $94,945.\35\ 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 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 175,578 limit. Of
note, unlike options contracts, CME position
[[Page 41445]]
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).\36\ 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.\37\ 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 proposed 250,000 contracts for position and exercise limits is
appropriate.
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\33\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\34\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
\35\ 2,000 futures at a 5 bitcoin multiplier (per the contract
specifications) equates to $949,450,000 (2000 contracts * 5 BTC per
contract * $94,945 price of November BTC future) of notional value.
\36\ 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>.
\37\ 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 underling commodity,
namely SPDR Gold Shares (``GLD'') ETF, iShares Silver Trust (``SLV'')
ETF, and ProShares Bitcoin ETF (``BITO'').\38\ GLD has a float of 306.1
million shares \39\ and a position limit of 250,000 contract. SLV has a
float of 520.7 million shares,\40\ and a position limit of 250,000
contracts. Finally, BITO has 107.65 million shares outstanding \41\ 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. 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, a
250,000 contract position limit in IBIT would represent 2.89% of the
float of IBIT. Consequently, 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 Exchange notes
that the Cboe Bitcoin U.S. ETF Index Options (CBTX) and the Cboe Mini
Bitcoin U.S. ETF Index Options (MBTX),\42\ which trade exclusively on
Cboe, are comprised of multiple bitcoin ETFs of which IBIT is the
highest weighted (at 20%) in the index composition.\43\ These indices
currently trade pursuant to a 24,000 contract position and exercise
limit.\44\
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\38\ GLD, SLV and BITO each hold one asset in trust similar to
IBIT.
\39\ 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>.
\40\ 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>.
\41\ See <a href="https://www.marketwatch.com/investing/fund/bito">https://www.marketwatch.com/investing/fund/bito</a>.
\42\ MBTX is based on \1/10\th the value of the Cboe Bitcoin
U.S. ETF Index.
\43\ See <a href="https://www.cboe.com/tradable_products/bitcoin-etf-indexoptions?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch">https://www.cboe.com/tradable_products/bitcoin-etf-indexoptions?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>.
\44\ See Cboe Rule 8.32(a). The Exchange notes 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, the Exchange and ISE note that IBIT began trading in penny
increments as of January 2, 2025 pursuant to the Penny Interval
Program.\45\ The Commission noted that evidence contained in both the
Exchanges' Report and the Cornerstone analysis demonstrates that the
Penny Pilot has benefitted investors and other market participants in
the form of narrower spreads.\46\ 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.\47\ 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. 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.
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\45\ 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 Exchange Rule 7260(b). 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 Rule 7260(b).
See BOX Rule 7260(b).
\46\ 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'').
\47\ Id. at 19548.
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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 member organization 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 \48\
would continue to be exempt
[[Page 41446]]
from this reporting requirement, however, the Exchange may access
Market-Maker position information.\49\ Moreover, the Exchange's
requirement that member organizations 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.\50\ 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 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 Rule 3120(e), similar to
other options.
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\48\ The term ``Market Maker'' means an Options Participant
registered with the Exchange for the purpose of making markets in
options contracts traded on the Exchange and that is vested with the
rights and responsibilities specified in the Rule 8000 Series. All
Market Makers are designated as specialists on the Exchange for all
purposes under the Exchange Act or Rules thereunder. See BOX Rule
100(31).
\49\ The Options Clearing Corporation (``OCC'') through the
Large option Position Reporting (``LOPR'') system acts as a
centralized service provider for Participant compliance with
position reporting requirements by collecting data from each
Participant or Participant organization, consolidating the
information, and ultimately providing detailed listings of each
Participant's report to the Exchange, as well as Financial Industry
Regulatory Authority, Inc. (``FINRA''), acting as its agent pursuant
to a regulatory services agreement (``RSA''). The term
``Participant'' means a firm, or organization that is registered
with the Exchange pursuant to the Rule 2000 Series for purposes of
participating in trading on a facility of the Exchange and includes
an ``Options Participant'' and ``BSTX Participant.'' See BOX Rule
100(42).
\50\ See BOX Rule 3150.
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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,\51\ 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.\52\ In addition,
Rule 15c3-1 \53\ imposes a capital charge on member organizations to
the extent of any margin deficiency resulting from the higher margin
requirement.
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\51\ 17 CFR 240.13d-1.
\52\ See BOX Rules, series 10100, Margin Requirements.
\53\ 17 CFR 240.15c3-1.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Securities Exchange Act of 1934
(the ``Act''),\54\ in general, and Section 6(b)(5) of the Act,\55\ 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 facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest. Additionally, the Exchange believes the proposed rule
change is consistent with the Section (6)(b)(5) \56\ requirement that
the rules of an exchange not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\54\ 15 U.S.C. 78f(b).
\55\ 15 U.S.C. 78f(b)(5).
\56\ Id.
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The Exchange believes that removing IBIT from the table of position
limits in IM-3120-2, so its position limit would be reviewed similar to
all other options for which the Exchange has not filed to otherwise
establish the position limits to levels outside of the position limits
of Rule 3120(d) 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 Rule
3120(d) and corresponding exercise limits in Rule 3140 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 proposed change 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, pursuant to Rule 3120(e),
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
the table of position limits in IM-3120-2.
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
[[Page 41447]]
2.89% \57\ of the shares outstanding of IBIT. 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.\58\
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\57\ This percentage is arrived at with this equation: (250,000
contract limit * 100 shares per option/866,040,000 shares
outstanding).
\58\ 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 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. Comparing a position limit of 250,000 for IBIT options
against other options on ETFs with an underling commodity, namely GLD,
SLV and BITO, 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, 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, the Exchange notes that Cboe's proprietary CBTX and
MBTX indices weight IBIT the highest (at 20%) in its index composition
among the other ETFs that comprise the index.\59\ The Exchange notes
that today, these indexes have a position limit of 24,000 contracts
which is much higher than the current position limits for IBIT options
when considering the notional value of the indices.\60\ These indexes
are already trading with position and exercise limits that are higher
than the lowest position limit for an industry index option.\61\
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\59\ See <a href="https://www.cboe.com/tradable_products/bitcoin-etf-indexoptions?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch">https://www.cboe.com/tradable_products/bitcoin-etf-indexoptions?utm_source=mcae&utm_medium=email&utm_campaign=bitcoin_eft_options_launch</a>.
\60\ See Cboe Rule 8.32(a). The Exchange notes 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.
\61\ 18,000 contracts is the lowest position limit for industry
index options if the Exchange determines, at the time of a review
conducted pursuant to subparagraph (2) of this paragraph (a), that
any single underlying stock accounted, on average, for thirty
percent (30%) or more of the index value during the thirty (30)-day
period immediately preceding the review. See BOX Rule 6050. 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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The Exchange notes that IBIT began trading in penny increments as
of January 2, 2025 pursuant to the Penny Interval Program.\62\ The
Commission noted that evidence contained in both the Exchanges' Report
and the Cornerstone analysis demonstrates that the Penny Pilot has
benefitted investors and other market participants in the form of
narrower spreads.\63\ 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.\64\ 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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\62\ 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 Exchange Rule 501(c)(2). 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 Rule 7260(b).
See BOX Rule 7260(b).
\63\ 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'').
\64\ Id. at 19548.
\65\ See supra note 4.
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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.
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. In this regard and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to filings submitted by ISE.\65\
The Exchange's proposal does not burden intra-market competition
because all Participants would be subject to the position limits in
Rule 3120 and corresponding exercise limits in Rule 3140. 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 intermarket competition as the proposal is not
competitive in nature. 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
[[Page 41448]]
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \66\ and Rule 19b-4(f)(6) thereunder.\67\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\66\ 15 U.S.C. 78s(b)(3)(A)(iii).
\67\ 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 the pre-filing requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \68\ 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),\69\ 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 limits for IBIT, 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.\70\ The Exchange is proposing similarly to remove of the
25,000 contract position and exercise limit for IBIT, such that those
funds will be subject to the position and exercise limits as determined
by the position limit rules at Rule 3120. The Exchange has provided
information regarding IBIT, including, among other things, information
regarding trading volume, and the market capitalization of IBIT and
surveillance procedures that will apply. The Commission notes that the
proposal raises no new or novel legal issues and would simply provide
an additional venue for trading IBIT with position and exercise limits
that may be higher than 25,000 contracts. 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.\71\
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\68\ 17 CFR 240.19b-4(f)(6).
\69\ 17 CFR 240.19b-4(f)(6)(iii).
\70\ See ISE Approval Order.
\71\ 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 such 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 under
Section 19(b)(2)(B) \72\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\72\ 15 U.S.C. 78s(b)(2)(B).
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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#6e1c1b020b430d0103030b001a1d2e1d0b0d40090118"><span class="__cf_email__" data-cfemail="7b090e171e56181416161e150f083b081e18551c140d">[email protected]</span></a>. Please include
file number SR-BOX-2025-22 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-BOX-2025-22. 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-BOX-2025-22 and should be submitted on
or before September 15, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\73\
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\73\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-16179 Filed 8-22-25; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.