Notice2025-21123
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Proposed Rule Change To Amend the Position and Exercise Limits for IBIT Options and FLEX Trading
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
November 26, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 226 (Wednesday, November 26, 2025)</title>
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[Federal Register Volume 90, Number 226 (Wednesday, November 26, 2025)]
[Notices]
[Pages 54414-54425]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-21123]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104235; File No. SR-ISE-2025-26]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Proposed Rule Change To Amend the Position and Exercise Limits for
IBIT Options and FLEX Trading
November 21, 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 November 13, 2025, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared 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, Sections 13 and 15 to
[[Page 54415]]
propose an increase to the position and exercise limits for options on
iShares Bitcoin Trust ETF (``IBIT''). The Exchange also proposes an
amendment to Options 3A, Section 18, Position Limits, related to FLEX
Trading in options on IBIT.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rulefilings">https://listingcenter.nasdaq.com/rulebook/ise/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: (1) Options 9, Section 13, Position
Limits, and Options 9, Section 15, Exercise Limits, to increase the
position and exercise limits for options on IBIT; and (2) Options 3A,
Section 18, Position Limits, related to FLEX Trading in options on
IBIT. Each change will be discussed below.
IBIT is an Exchange-Traded Fund (``ETF'') that holds Bitcoin and is
listed on The Nasdaq Stock Market LLC.\3\ On September 20, 2024, ISE
received approval to list options on IBIT.\4\ The position and exercise
limits for IBIT options are currently set as stated in Options 9,
Sections 13 and 15.\5\
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\3\ 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.
\4\ 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.
\5\ IBIT currently has a position limit of 250,000 contracts.
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Position and Exercise Limits
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 ISE 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, ISE proposes to increase the position
limits and exercise limits for options on IBIT to 1,000,000 contracts
by noting the proposed position limit in Supplementary Material .01 to
Options 9, Section 13 and noting the proposed exercise limits in
Supplementary Material .01 to Options 9, Section 15. The position limit
for options on IBIT is currently set pursuant to ISE Options 9, Section
13(d) where the largest in capitalization and the most frequently
traded stocks and ETFs have an option position limit of 250,000
contracts (with adjustments for splits, re-capitalizations, etc.) on
the same side of the market; and smaller capitalization stocks and ETFs
have position limits of 200,000, 75,000, 50,000 or 25,000 contracts
(with adjustments for splits, recapitalizations, etc.) on the same side
of the market. The Exchange notes that the proposed position limits and
exercise limits for options on IBIT are consistent with existing
position limits and exercise limits for options on iShares MSCI
Emerging Markets, iShares China Large-Cap ETF and iShares MSCI EAFE
ETF.
Composition and Growth Analysis for Underlying ETFs
As stated above, position (and exercise) limits are intended to
prevent the establishment of options positions that can be used or
might create incentives to manipulate the underlying market so as to
benefit options positions. The Commission has recognized that these
limits are designed to minimize the potential for mini-manipulations
and for corners or squeezes of the underlying market, as well as serve
to reduce the possibility for disruption of the options market itself,
especially in illiquid classes.\6\
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\6\ See Securities Exchange Act Release No. 67672 (August 15,
2012), 77 FR 50750 (August 22, 2012)(SR-NYSEAmex-2012-29).
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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.'' \7\ 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.'' \8\ The Exchange
has observed an ongoing increase in demand in options on IBIT in
2025.\9\ The Exchange believes the current position limit and exercise
limit of 250,000 contracts (the highest position limit available
pursuant to Options 9, Section 13 and exercise limit pursuant to
Options 9, Section 15) will impede trading activity and strategies of
investors, such as use of effective hedging vehicles or income
generating strategies (e.g., buy-write or put-write), and the ability
of Market Makers to make liquid markets with tighter spreads in IBIT
options.
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\7\ See supra note 4, IBIT Approval Order, 89 FR 78946.
\8\ See id.
\9\ In 2024, the Exchange filed a rule proposal, which was later
approved in 2025, to eliminate the 25,000 contract position and
exercise limits for IBIT options and apply the position and exercise
limits in ISE Options 9, Sections 13 and 15 to IBIT options
utilizing November 25, 2024 data. See Securities Exchange Act
Release No. 103564 (July 29, 2025), 90 FR 36229 (August 1, 2025)
(SR-ISE-2024-62) (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) (``SR-ISE-2024-
62'').
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The Exchange believes that increasing the position limit (and
exercise limit) for options on IBIT to 1,000,000 contracts would enable
liquidity providers to provide additional liquidity to the Exchange, as
well as other options exchange [sic] on which they participate. As
described in further detail below, the Exchange believes that the
continuously increasing market capitalization of IBIT options, as well
as the highly liquid markets for those securities, reduces the concerns
for potential market manipulation and/or disruption in the underlying
markets upon increasing position limits, while the rising demand for
trading options on IBIT for legitimate economic purposes
[[Page 54416]]
compels an increase in position limits (and corresponding exercise
limits).
IBIT currently qualifies for a 250,000 contract position limit
pursuant to the criteria in Options 9, Section 13(d), which requires
that, for the most recent six-month period, trading volume for the
underlying security be at least 100 million shares.\10\ As of September
22, 2025, the market capitalization for IBIT was 86,243,795,200 \11\
with an average daily volume (``ADV''), for the preceding 6 months
prior to September 22, 2025 of 44,590,758 shares. By comparison on the
same day, the iShares MSCI Emerging Markets (``EEM'') has an ADV of
25,951,152 shares and an AUM of 15,253,164 the iShares China Large-Cap
ETF (``FXI'') has an ADV [sic] 37,112,065 and an AUM of 6,641,144,520,
and the iShares MSCI EAFE ETF (``EFA'') has an ADV of 15,253,164 shares
and an AUM of 65,309,708,400.\12\
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\10\ Options 9, Section 13(d), Equity Option Position Limits,
provides at subparagraph (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 totalled at least 100 million
shares or the most recent six-month trading volume of the underlying
security must have totalled at least seventy-five (75) million
shares and the underlying security must have at least 300 million
shares currently outstanding.
\11\ The market capitalization was determined by multiplying a
Net Asset Value of $63.82 by the number of shares outstanding
1,351,360,000 This figure was acquired as of September 22, 2025. 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>.
\12\ These figures are from September 22, 2025.
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In addition to IBIT's Options 9, Section 13(d) eligibility for
1,000,000 contracts, the Exchange performed additional analysis with
respect to IBIT. First, 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'').\13\ This pool of data took into consideration 3,837 options
on single stock securities, excluding broad based ETFs.\14\ Next, the
data was aggregated based on market capitalization and ADV and grouped
by option symbol and position limit utilizing statistical thresholds
for ADV, based on 180 days, and market capitalization that were one
standard deviation \15\ above the mean for each position limit category
(i.e. 25,000, 50,000 to 52,000, 75,000, 200,000, 250,000 to 375,000,
450,000 to 650,000, 750,000 to 1,250,000 and, and greater than or equal
to 2,000,000).\16\ 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 $86,243,795,200 \17\ with an ADV, for the preceding 180 days
prior to September 22, 2025 of 44,590,758 shares.
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\13\ The computations are based on OCC data from September 22,
2025. Data displaying zero values in market capitalization or ADV
were removed.
\14\ IBIT has one asset and therefore is not comparable to a
broad based ETF where there are typically multiple components.
\15\ The standard deviation added limited utility to the
analysis given the heavily skewed distribution of market
capitalizations in the single stock securities.
\16\ These buckets are based on OCC's current positions limits.
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>. ISE 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. The Exchange notes that position limits may also be
higher due to corporate actions in the underlying equities, such as
a stock split.
\17\ Net Asset Value of $63.82 by the number of shares
outstanding 1,351,360,000 This figure was acquired as of September
22, 2025. 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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ADV data 25k 50k-52K 75k 200K 250k-375K 450K-650K 750K-1.25mm >2mm
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# of observations......................................... 461 416 618 242 2053 30 10 7
Average................................................... 132321.57 235163.6226 509734.18 841918.72 4775653.48 5642930.33 10635080.6 50205543
Median.................................................... 82871 226666.5 460291.5 725930 2034164 3885309 6796056.5 24579479
Min....................................................... 3680 13899 40749 216929 19490 831836 2978671 11619600
Max....................................................... 17814711 603967 17482329 12254148 201249138 17984949 29325815 2.13E+08
standard deviation........................................ 828,042 84,111 710,041 1,051,555 10,159,806 4,633,053 7,932,019 67,295,249
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IBIT rank............................................. 1 1 1 1 28 1 1 2
IBIT % rank........................................... 99.78% 99.76% 99.84% 99.59% 98.64% 96.77% 90.91% 75.00%
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[[Page 54417]]
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Market cap statistics 25k 50k-52K 75k 200K 250k-375K 450K-650K 750K-1.25mm >2mm
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# of observations............................. 461 416 618 242 2053 30 10 7
Average....................................... 1,007,520,531 2,464,343,468 3,992,511,695 5,171,751,213 28,688,338,310 37,742,244,761 179,955,279,374 915,980,231,570
Median........................................ 339,106,498 769,523,459 1,217,087,833 1,968,792,306 3,608,694,412 18,460,292,643 59,294,185,791 88,656,192,303
Min........................................... 6,795,099 9,793,046 8,429,118 1,344,717 2,606,704 1,800,390,060 1,699,688,247 19,015,094,513
Max........................................... 68,939,030,394 72,989,960,658 176,864,955,730 96,272,102,932 3,823,992,443,677 319,121,188,080 819,768,552,364 4,461,723,000,000
Standard deviation............................ 3,801,401,188 6,060,205,416 10,906,688,857 11,243,106,431 155,720,555,229 61,397,662,386 252,788,200,396 1,540,543,863,123
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IBIT rank................................. 1 1 3 3 127 4 6 5
IBIT % rank............................... 99.78% 99.76% 99.52% 98.77% 93.82% 87.10% 45.45% 37.50%
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[[Page 54418]]
Based on the above table, if IBIT were compared to the 10 stocks
that have position limits of 750,000 contracts to 1.25 million
contracts it would rank in the 45th percentile for market
capitalization and the 91st percentile for ADV.
The Exchange also analyzed the position limits for IBIT by
regressing the median elements from each bucket of market
capitalization and 180-day ADV of all non-ETF equities, against their
respective position limit figures. From this regression, the Exchange
was able to determine the implied coefficients to create a formulaic
method for determining an appropriate position limit.\18\ The Exchange
utilized a linear model approach which incorporated the median metric
from each bucket given the data at both the lower end of each position
limit bucket and the higher end of each position limit bucket could be
considered significant outliers, thereby skewing the results. Below are
various linear models utilizing market capitalization and ADV as well
as a two factor model to determine the appropriate coefficients when
both metrics are incorporated into the same model.\19\
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\18\ The Exchange utilized Excel's Data Analysis Package to
model the position limit.
\19\ See id.
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Figure 1
[GRAPHIC] [TIFF OMITTED] TN26NO25.000
Figure 1 utilizes IBIT's market capitalization of 86,243,795,200 to
arrive at a modeled position limit of 1,749,876 .
Figure 2
[GRAPHIC] [TIFF OMITTED] TN26NO25.001
[[Page 54419]]
Figure 2 utilizes IBIT's ADV of 44,590,758 to arrive at a modeled
position limit of 4,675,816. Based on the aforementioned analysis, the
Exchange believes that the proposed 1,000,000 contracts for position
and exercise limits is appropriate.
Figure 3--Two Factor Model Summary Output
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Regression Statistics
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Multiple R............................................ 0.999028761
R Square.............................................. 0.998058465
Adjusted R Square..................................... 0.997281851
Standard Error........................................ 43913.88857
Observations.......................................... 8
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ANOVA
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df SS MS F Significance F
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Regression...................... 2 4.96E+12 2.48E+12 1285.141 1.66E-07
Residual........................ 5 9.64E+09 1.93E+09
Total........................... 7 4.97E+12
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Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
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Intercept....................................................... 59926.4823 18894.26 3.171677 0.024768 11357.24 108495.7 11357.24 108495.7
ADV median of bucket............................................ 0.072164134 0.005413 13.33234 4.25E-05 0.05825 0.086078 0.05825 0.086078
market cap median of bucket..................................... 7.57992E-06 1.33E-06 5.681216 0.002354 4.15E-06 1.1E-05 4.15E-06 1.1E-05
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Figure 3 shows the results when constructing a two-factor model
employing both metrics (180-day ADV and market capitalization). The
result is a modeled position limit of 3,871,575.\20\
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\20\ See id.
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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. Also, as of September 22, 2025, there
were approximately 19,923,945 Bitcoins in circulation.\21\ At a price
of $112,748,\22\ that equates to a market capitalization of greater
than $2.246 trillion US. If a position limit of 1,000,000 contracts
were considered, the exercisable risk would represent 7.39995% \23\ of
the outstanding shares outstanding of IBIT. Since IBIT has a creation
and redemption process managed through the issuer, 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 0.284% of all Bitcoin outstanding.\24\ Assuming a
scenario where all options on IBIT shares were exercised given the
proposed 1,000,000 contract position limit (and exercise limit), this
would have a virtually unnoticed impact on the entire Bitcoin market.
This analysis demonstrates that the proposed 1,000,000 per same side
position and exercise limit is appropriate for options on IBIT given
its liquidity.
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\21\ See <a href="https://www.coingecko.com/en/coins/Bitcoin">https://www.coingecko.com/en/coins/Bitcoin</a>.
\22\ This is the approximate price of Bitcoin from September 22,
2025.
\23\ This percentage is arrived at with this equation:
(1,000,000 contract limit * 100 share per option/1,351,360,000
shares outstanding).
\24\ This number was arrived at with this calculation:
(1,000,000 limit * 100 shares per option * $63.82 IBIT NAV)/
(19,923,945 BTC outstanding * $112,748 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 \25\ that has a position
limit of 2,000 futures.\26\ On September 5, 2025, CME bitcoin futures
settled at $94,945.\27\ On September 22, 2025, 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, 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).\28\ 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.\29\ 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 1,000,000 contracts for position and exercise limits
is appropriate.
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\25\ CME Bitcoin Futures are described in Chapter 350 of CME's
Rulebook.
\26\ See the Position Accountability and Reportable Level Table
in the Interpretations & Special Notices Section of Chapter 5 of
CME's Rulebook.
\27\ 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.
\28\ 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>.
\29\ Id.
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Fourth, ISE analyzed a position limit and exercise limit of
1,000,000 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'').\30\ GLD has a
float of 342 million shares \31\ and a position limit of 250,000
contract [sic]. SLV has
[[Page 54420]]
a float of 536 million shares,\32\ and a position limit of 250,000
contracts. Finally, BITO has 142.79 million shares outstanding \33\ and
a position limit of 250,000 contracts. As previously noted, 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. A position limit exercise in GLD would
represent 7.31% of the float of GLD; a position limit exercise in SLV
would represent 4.66% of the float of SLV, and a position limit
exercise of BITO would represent 17.51% of the float of BITO. In
comparison, a 1,000,000 contract position limit in IBIT would represent
7.56% of the float of IBIT. Consequently, the 1,000,000 proposed IBIT
options position and exercise limit is more conservative than the
standard applied to GLD, SLV and BITO, and appropriate.
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\30\ GLD, SLV and BITO each hold one asset in trust similar to
IBIT.
\31\ 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>.
\32\ 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>.
\33\ See <a href="https://www.marketwatch.com/investing/fund/bito">https://www.marketwatch.com/investing/fund/bito</a>.
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Fifth, ISE notes that IBIT began trading in penny increments as of
January 2, 2025 pursuant to the Penny Interval Program.\34\ 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.\35\ 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
experienced 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.\36\ 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. The
Exchange notes that options on iShares MSCI Emerging Markets, iShares
China Large-Cap ETF and iShares MSCI EAFE ETF also trade in penny
increments based on their liquidity.
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\34\ 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 Options 3, Section
3. See Supplementary Material .01 to ISE Options 3, Section 3.
\35\ 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'').
\36\ Id. at 19548.
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The Exchange believes that IBIT options has [sic] demonstrated that
it [sic] has [sic] more than sufficient liquidity to garner an
increased position and exercise limit of 1,000,000 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 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' [sic] 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.\37\ Moreover, the Exchange's requirement that Members file
reports with the Exchange for any customer who held aggregate large
long or short positions on the same side of the market of 200 or more
option contracts of any single class for the previous day will remain
at this level and will continue to serve as an important part of the
Exchange's surveillance efforts.\38\
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\37\ 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 Financial Industry Regulatory Authority, Inc. (``FINRA''), acting
as its agent pursuant to a regulatory services agreement (``RSA'').
\38\ See Options 9, Section 16.
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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 250,000 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(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
[[Page 54421]]
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,\39\ 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 must maintain for a
large position held by itself or by its customer.\40\ In addition, Rule
15c3-1 \41\ imposes a capital charge on Members to the extent of any
margin deficiency resulting from the higher margin requirement.
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\39\ 17 CFR 240.13d-1.
\40\ See Options 9, Section 3 regarding margin requirements.
\41\ 17 CFR 240.15c3-1.
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FLEX Trading
Today, IBIT options are approved for FLEX trading. Options 3A,
Section 18(b)(1)(A) provides that there shall be no position limits for
FLEX Equity Options, other than as set forth in subparagraphs (b)(1)(B)
and (C) and Options 3A, Section 18(c).\42\ Further, Options 3A, Section
18(c) currently provides that FLEX Option positions shall not be
aggregated with positions in non-FLEX Options other than as provided
below and in subparagraphs (b)(1)(B) and (C) to Options 3A, Section 18.
Pursuant to Options 3A, Section 18(b)(1)(C), the position limit for
FLEX equity options on IBIT are subject to the position limits set
forth in Options 9, Section 13, and subject to the exercise limits set
forth in Options 9, Section 15 and are to be aggregated with positions
on the same non-FLEX underlying ETF for the purpose of calculating the
position limits set forth in Options 9, Section 13, and the exercise
limits set forth in Options 9, Section 15.
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\42\ Subparagraph (b)(1)(B) to Options 3A, Section 18 currently
provides that position limits for FLEX Equity Options where the
underlying security is an ETF that is settled in cash pursuant to
Section 3(c)(5)(A)(ii) above shall be subject to the position limits
set forth in Options 9, Section 13, and subject to the exercise
limits set forth in Options 9, Section 15. Positions in such cash-
settled FLEX Equity Options shall be aggregated with positions in
physically settled options on the same underlying ETF for the
purpose of calculating the position limits set forth in Options 9,
Section 13 and the exercise limits set forth in Options 9, Section
15. Paragraph (c) to Options 3A, Section 18 currently describes the
aggregation of FLEX positions and states that for purposes of the
position limits and reporting requirements set forth in this Section
18, FLEX Option positions shall not be aggregated with positions in
non-FLEX Options other than as provided below and in subparagraph
(b)(1)(B) above, and positions in FLEX Index Options on a given
index shall not be aggregated with options on any stocks included in
the index or with FLEX Index Option positions on another index.
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The current 250,000 contract position limit in Options 9, Section
13 and exercise limit in Options 9, Section 15 for IBIT options
currently applies [sic] to non-FLEX IBIT options and FLEX Equity
Options, regardless of whether the underlying security is an ETF that
is settled in cash pursuant to Section 3(c)(5)(A)(ii) or physically-
settled pursuant to Options 3A, Section 3(c)(5)(A)(i). Also, IBIT is
one of the fifty (50) ETFs that qualify for FLEX Equity Options to be
cash-settled on the ETF pursuant to Options 3A, Section 3(c)(5)(A)(ii).
Today, the majority of options on an ETF are subject to position
limits for FLEX Equity Option pursuant to Options 3A, Section
18(b)(1)(A), unless those ETFs qualify for cash-settlement pursuant to
Options 3A, Section 3(c)(5)(A)(ii) in which case, the positions are
aggregated with positions in physically settled options on the same
underlying ETF pursuant to Options 3A, Section 18(b)(1)(B). IBIT is
unreasonably constrained as compared to other ETFs with respect to
positions in physically settled FLEX Equity Options.
At this time, the Exchange proposes to remove the current
constraint on IBIT FLEX Equity Options that are physically-settled in
Options 3A, Section 18(b)(1)(C) so that IBIT FLEX Equity Options would
have no position and exercise limits similar to the vast majority of
options on ETFs. The Exchange notes that options on iShares MSCI
Emerging Markets, iShares China Large-Cap ETF and iShares MSCI EAFE ETF
are subject to a position limit and exercise limit of 1,000,000
contracts for FLEX Equity Options, which limits are aggregated for
cash-settled options on these ETFs with those limits, identical to
options on IBIT. However, options on iShares MSCI Emerging Markets,
iShares China Large-Cap ETF and iShares MSCI EAFE ETF are not subject
to position limits for FLEX Equity Options when those FLEX Equity
Options are physically delivered, unlike options on IBIT. The Exchange
also notes that other ETFs that hold commodities such as GLD, SLV, and
BITO are also not subject to position limits for FLEX Equity Options
when those FLEX Equity Options are physically delivered.
As proposed, similar to all other ETFs that may also settle in
cash, FLEX Equity Options on IBIT would continue to be aggregated with
respect to the position limits and exercise limits applicable to non-
FLEX IBIT options and FLEX Equity Options where the underlying security
is an ETF that is settled in cash, pursuant to Section 3(c)(5)(A)(ii).
The Exchange believes that it is consistent with the Act to allow IBIT
options to transact in FLEX in the same manner FLEX trading is
permitted today for other ETFs overlying other commodities GLD, SLV and
BITO.
Further, the Exchange believes that the share creation and
redemption process unique to ETFs would continue to mitigate any
potential risk of manipulation in FLEX trading in IBIT options. The
creation and redemption process is designed to ensure that an ETF's
price closely tracks the value of its underlying asset(s). For example,
if a market participant exercised a long call position for 25,000
contracts and purchased 2,500,000 shares of IBIT and this purchase
resulted in the value of IBIT shares to trade [sic] at a premium to the
value of the (underlying) Bitcoin held by IBIT, the Exchange believes
that other market participants would attempt to arbitrage this price
difference by selling short IBIT shares while concurrently purchasing
Bitcoin. Those market participants (arbitrageurs) would then deliver
cash to IBIT and receive shares of IBIT, which would be used to close
out any previously established short position in IBIT. Thus, this
creation and redemptions process would significantly reduce the
potential risk of price dislocation between the value of IBIT shares
and the value of Bitcoin holdings. The Exchange understands that FLEX
Options on ETFs are currently traded in the OTC market by a variety of
market participants, e.g., hedge funds, proprietary trading firms, and
pension funds. The Exchange believes that the trading of FLEX IBIT
options on exchange would allow these same market participants \43\ to
better manage the risk associated with the volatility of IBIT (the
underlying ETF) positions given the enhanced liquidity that an
exchange-traded product would bring.
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\43\ FLEX trading is mostly utilized by institutional investors
and hedge funds.
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Allowing IBIT FLEX Equity Options that are physically-settled to
have no position (and exercise limits) would allow additional IBIT FLEX
Equity
[[Page 54422]]
Options to transact on ISE, leading to greater liquidity in IBIT FLEX
Equity Options. There are advantages to having a greater number of IBIT
FLEX Equity Options trade on ISE. Trading a greater number of IBIT FLEX
contracts on exchange would allow them to be closed with a liquidating
transaction as compared to OTC FLEX contracts which must be held until
expiration. Counterparty credit risk would be mitigated for the FLEX
exchange-traded contracts which are issued and guaranteed by OCC,
thereby it is advantageous to have a greater number of FLEX contracts
in IBIT trade on exchange. Finally, the price discovery and
dissemination provided by the Exchange and its Members would lead to
more transparent markets in IBIT if a greater number of IBIT FLEX
Option traded on exchange.
Of note, FLEX options serve two primary client types in the capital
markets: (1) ETF and structured return issuers who seek European-style
\44\ options with bespoke strike and expirations, such that they can
tailor their returns more precisely than they could with standard
American-style options; \45\ and (2) with respect to stock lending,
certain investors (e.g. banks and hedge funds) may seek to align their
contract durations for calls and puts, and thereby prefer European-
style exercise, which can be exercised only on its expiration date, as
compared to American-style, which can be exercised on any business day
prior to its expiration date and on its expiration date.
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\44\ The term ``European-style option'' means an options
contract that, subject to the provisions of Options 6B, Section 1
(relating to the cutoff time for exercise instructions) and to the
Rules of the Clearing Corporation, can be exercised only on its
expiration date. See Options 1, Section 1(a)(15).
\45\ The term ``American-style option'' means an options
contract that, subject to the provisions of Options 6B, Section 1
(relating to the cutoff time for exercise instructions) and to the
Rules of the Clearing Corporation, can be exercised on any business
day prior to its expiration date and on its expiration date. Today,
non-FLEX equity options settle American-style. See Options 1,
Section 1(a)(3).
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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 IBIT options. The Exchange believes any additional
traffic that would be generated from the trading of FLEX IBIT options
would be manageable. The Exchange believes Members 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 continue to 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 IBIT
options, will continue to apply to FLEX IBIT 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 the Financial Industry
Regulatory Authority (``FINRA'') who perform surveillance and
investigative work on behalf of the Exchange pursuant to a regulatory
services agreement) conducts surveillances with respect to IBIT (the
underlying ETF) and, as appropriate, would continue to review activity
in IBIT when conducting surveillances for market abuse or manipulation
in IBIT options.\46\ The Exchange does not believe that allowing FLEX
IBIT options to trade subject to the proposed position limits (and
exercise limits) would render the marketplace for non-FLEX IBIT
options, or equity options in general, more susceptible to manipulative
practices.
---------------------------------------------------------------------------
\46\ See IBIT Approval Order, 90 FR at 15761.
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The Exchange represents that its existing trading surveillances are
adequate to monitor the trading in IBIT (as well as FLEX IBIT) on the
Exchange. Additionally, the Exchange is a member of the Intermarket
Surveillance Group (``ISG'') under the Intermarket Surveillance Group
Agreement. ISG members work together to coordinate surveillance and
investigative information sharing in the stock, options, and futures
markets. For surveillance purposes, the Exchange would therefore have
access to information regarding trading activity in the pertinent
underlying securities. 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.\47\ The Exchange will
implement any additional surveillance procedures it deems necessary to
effectively monitor the trading of IBIT options.
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\47\ 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 IBIT to utilize FLEX IBIT options. The Exchange
believes that offering innovative products flows to the benefit of the
investing public. A robust and competitive market requires that
exchanges respond to Members' evolving needs by constantly improving
their offerings. Such efforts would be stymied if exchanges were
prohibited from amending their product offerings. 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,\48\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\49\ 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. Additionally, the Exchange
believes the proposed rule change is consistent with the Section
(6)(b)(5) \50\ requirement that the rules of an exchange not be
designed
[[Page 54423]]
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\48\ 15 U.S.C. 78f(b).
\49\ 15 U.S.C. 78f(b)(5).
\50\ 15 U.S.C. 78(f)(b)(5).
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Position and Exercise Limits
The Exchange believes that increasing the position limit and
exercise limit for options on IBIT to 1,000,000 contracts 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. The increased position and
exercise limits 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, pursuant to Options 9,
Section 13(d), similar to other options.
In addition, the Exchange believes that the current liquidity in
IBIT will continue to mitigate concerns regarding potential
manipulation of IBIT options and/or disruption of IBIT upon amending
the table of position limits in Supplementary Material .01 to Options
9, Section 13 and the table of exercise limits in Supplementary
Material .01 to Options 9, Section 15.
Comparing IBIT's data relative to the market capitalization of the
entire Bitcoin market in terms of exercise risk and availability of
deliverables, the Exchange was able to conclude that if a position
limit of 1,000,000 contracts were considered, the exercisable risk
would represent 7.39995% \51\ 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 0.284% of all Bitcoin outstanding.\52\ This
analysis demonstrated that a 1,000,000 contracts position and exercise
limits would be appropriate.
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\51\ This percentage is arrived at with this equation:
(1,000,000 contract limit * 100 share per option/1,351,360,000
shares outstanding).
\52\ This number was arrived at with this calculation:
(1,000,000 limit * 100 shares per option * $63.82 IBIT NAV)/
(19,923,945 BTC outstanding * $112,748 BTC price).
---------------------------------------------------------------------------
Comparing a position limit of 1,000,000 for IBIT options against
other options on ETFs with an underlying commodity, namely GLD, SLV and
BITO, a position limit exercise in GLD represents 7.31% of the float of
GLD, a position limit exercise in SLV represents 4.66% of the float of
SLV, and a position limit exercise of BITO represents 17.51% of the
float of BITO. In comparison, a 1,000,000 contract position limit in
IBIT options would represent 7.56% of the float of IBIT. Consequently,
a 1,000,000 IBIT options position limit is generally aligned with the
standards applied to GLD, SLV and BITO, and appropriate.
ISE notes that IBIT began trading in penny increments on January 2,
2025 pursuant to the Penny Interval Program.\53\ 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.\54\ The most actively traded options classes are included in
the Penny Program based on certain objective criteria (trading volume
thresholds and initial price tests).\55\ 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.\56\ 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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\53\ 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 Options 3, Section
3. See Supplementary Material .01 to ISE Options 3, Section 3.
\54\ 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'').
\55\ Options on iShares MSCI Emerging Markets, iShares China
Large-Cap ETF and iShares MSCI EAFE ETF also trade in penny
increments based on their liquidity.
\56\ 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.
FLEX Trading
The Exchange believes that permitting IBIT options to trade
physically-settled FLEX Equity Options in the same manner as a majority
of other options on an ETF would remove impediments to and perfect the
mechanism of a free and open market by allowing IBIT to continue to
grow as product. The removal of the current constraint with respect to
IBIT's position limits and exercise limits for physically-delivered ETF
options will increase IBIT's liquidity. The Exchange believes that the
additional liquidity will serve as a deterrent to potential
manipulation as options that are very liquid are more difficult to
manipulate.
This proposal would allow a greater number of IBIT FLEX Equity
Options to trade on ISE allowing it to compete more effectively with
the OTC market.\57\
[[Page 54424]]
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. Further, the proposed rule change would result in increased
competition by permitting the Exchange to trade an additional number of
IBIT FLEX Equity Options in a manner that is more competitive, while
retaining the regulatory constraints applicable to the majority of
options on ETFs.
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\57\ OTC markets do not constrain trading of products in the
same manner as exchange rules. There is no centralized authority
that would place similar position and exercise limits on IBIT
options, although risk parameters are set by counterparties to
specific transactions.
---------------------------------------------------------------------------
The purpose of position limits is to address potential manipulative
schemes and adverse market impacts surrounding the use of options, such
as disrupting the market in the security underlying the options. Today,
the vast majority of ETFs are permitted to trade FLEX as proposed
herein. Specifically, options on iShares MSCI Emerging Markets, iShares
China Large-Cap ETF and iShares MSCI EAFE ETF are able to transact FLEX
Equity Options as proposed, namely that there are no position limits
(and exercise limits) for physically-settled FLEX Equity Options on
iShares MSCI Emerging Markets, iShares China Large-Cap ETF and iShares
MSCI EAFE ETF.
A robust and competitive market requires that exchanges respond to
evolving needs in the market by constantly improving their offerings.
Such efforts would be stymied if exchanges were prohibited from
offering innovative products such as the proposed FLEX IBIT options in
a manner that would unnaturally restrain an offering from gaining
additional liquidity. The Exchange does not believe that allowing FLEX
IBIT options the additional proposed flexibility 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
IBIT options. Regarding the proposed FLEX IBIT options, the Exchange
applies the same surveillance procedures currently utilized for FLEX
Options listed on the Exchange (as well as for non-FLEX IBIT options).
For surveillance purposes, the Exchange would have access to
information regarding trading activity in IBIT (the underlying
ETF).\58\ In light of surveillance measures related to both options and
IBIT (the underlying ETF), 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 IBIT options.
---------------------------------------------------------------------------
\58\ See IBIT Approval Order, 90 FR at 15761.
---------------------------------------------------------------------------
Finally, the Exchange believes that it is consistent with the Act
to allow physically-delivered FLEX Equity Options in IBIT with no
position or exercise limits given FLEX trading is permitted today in
the same manner in other ETFs overlying a commodity such as GLD, SLV
and BITO.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange does not believe that the proposed rule change will
impose any burden on inter-market 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.
Position and Exercise Limits
The Exchange's proposal does not burden intra-market competition
because all Members 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.
FLEX Trading
The Exchange does not believe that its proposed rule change will
impose any burden on intra-market competition as all market
participants would be able to transact IBIT FLEX Equity Options that
are physically-settled similar to the manner in which the vast majority
of ETF FLEX Equity Options trade today. For example, today, FLEX
trading is permitted in the same manner in other ETFs overlying a
commodity such GLD, SLV and BITO.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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#4f3d3a232a622c2022222a213b3c0f3c2a2c61282039"><span class="__cf_email__" data-cfemail="097b7c656c246a6664646c677d7a497a6c6a276e667f">[email protected]</span></a>. Please include
file number SR-ISE-2025-26 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-ISE-2025-26. 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
[[Page 54425]]
to file number SR-ISE-2025-26 and should be submitted on or before
December 17, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\59\
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\59\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-21123 Filed 11-25-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on November 26, 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.