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Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on August 19, 2024, Cboe Exchange, Inc. (“Exchange”) filed with the Securities and Exchange Commission (“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.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
Cboe Exchange, Inc. (the “Exchange” or “Cboe Options”) proposes to amend Rule 4.3. The text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the Exchange's website ( http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx ), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 4.3 regarding the criteria for underlying securities. Specifically, the Exchange proposes to amend Rule 4.3, Interpretation and Policy .06(a)(4) to allow the Exchange to list and trade options on Units that represent interests in the following exchange-traded products: the Fidelity Wise Origin Bitcoin Fund (the “Fidelity Fund”), the ARK21Shares Bitcoin ETF (the “ARK 21Shares Fund”), the Invesco Galaxy Bitcoin ETF (the “Invesco Fund”), the Franklin Bitcoin ETF (the “Franklin Fund”), the VanEck Bitcoin Trust (the “VanEck Fund”), and the WisdomTree Bitcoin Fund (the “WisdomTree Fund”), the Grayscale Bitcoin Trust BTC (the “Grayscale Fund”), the Bitwise Bitcoin ETF (the “Bitwise Fund”), the iShares Bitcoin Trust ETF (the “iShares Fund”), and the Valkyrie Bitcoin Fund (the “Valkyrie Fund” and, collectively, the “Bitcoin Funds”), designating them as “Units” deemed appropriate for options trading on the Exchange. Current Rule 4.3, Interpretation and Policy .06 provides that, subject to certain other criteria set forth in that Rule, securities deemed appropriate for options trading include Units that represent certain types of interests, including interests in certain specific trusts that hold financial instruments, money market instruments, or precious metals (which are deemed commodities).
Rule 1.1 defines a “Unit” (which may also be referred to as an exchange-traded fund (“ETF”)) as a share or other security traded on a national securities exchange and defined as an NMS stock as set forth in Rule 4.3.
See Rule 4.3, Interpretation and Policy .06(a), which permits options trading on Units that represent (1) interests in registered investment companies (or series thereof) organized as open-end management investment companies, unit investment trusts or similar entities that hold portfolios of securities and/or financial instruments including, but not limited to, stock index futures contracts, options on futures, options on securities and indexes, equity caps, collars and floors, swap agreements, forward contracts, repurchase agreements and reverse purchase agreements (the “Financial Instruments”), and money market instruments, including, but no limited to, U.S. government securities and repurchase agreements (the “Money Market Instruments”) comprising or otherwise based on or representing investments in indexes or portfolios of securities and/or Financial Instruments and Money Market Instruments (or that hold securities in one or more other registered investment companies that themselves hold such portfolios of securities and/or Financial Instruments and Money Market Instruments); (2) interests in a trust or similar entity that holds a specified non-U.S. currency deposited with the trust or similar entity when aggregated in some specified minimum number may be surrendered to the trust by the beneficial owner to receive the specified non-U.S. currency and pays the beneficial owner interest and other distributions on deposited non-U.S. currency, if any, declared and paid by the trust (“Currency Trust Shares”); (3) commodity pool interests principally engaged, directly or indirectly, in holding and/or managing portfolios or baskets of securities, commodity futures contracts, options on commodity futures contracts, swaps, forward contracts and/or options on physical commodities and/or non-U.S. currency (“Commodity Pool Units”); (4) interests in the SPDR Gold Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, the Aberdeen Standard Physical Silver Trust, the Aberdeen Standard Physical Gold Trust, the Aberdeen Standard Physical Palladium Trust, the Aberdeen Standard Physical Platinum Trust, the Sprott Physical Gold Trust or the Goldman Sachs Physical Gold ETF; or (5) an interest in a registered investment company (“Investment Company”) organized as an open-end management investment company or similar entity, that invests in a portfolio of securities selected by the Investment Company's investment adviser consistent with the Investment Company's investment objectives and policies, which is issued in a specified aggregate minimum number in return for a deposit of a specified portfolio of securities and/or a cash amount with a value equal to the next determined net asset value (“NAV”), and when aggregated in the same specified minimum number, may be redeemed at a holder's request, which holder will be paid a specified portfolio of securities and/or cash with a value equal to the next determined NAV (“Managed Fund Share”).
The Bitcoin Funds are Bitcoin-backed commodity ETFs structured as trusts. Similar to any Unit currently deemed appropriate for options trading under Rule 4.3, Interpretation and Policy .06, the investment objective of each Bitcoin Fund trust is for its shares to reflect the performance of Bitcoin (less the expenses of the trust's operations), offering investors an opportunity to gain exposure to Bitcoin without the complexities of Bitcoin delivery. As is the case for Units currently deemed appropriate for options trading, a Bitcoin Fund's shares represent units of fractional undivided beneficial interest in the trust, the assets of which consist principally of Bitcoin and are designed to track Bitcoin or the performance of the price of Bitcoin and offer access to the Bitcoin market. The Bitcoin Funds provide investors with cost-efficient alternatives that allow a level of participation in the Bitcoin market through the securities market. The primary substantive difference between Bitcoin Funds and Units currently deemed appropriate for options trading are that Units may hold securities, certain financial instruments, and specified precious metals (which are deemed commodities), while Bitcoin Funds hold Bitcoin (which is also deemed a commodity).
The trust may include minimal cash.
The Exchange believes the Bitcoin Funds satisfy the Exchange's initial listing standards for Units on which the Exchange may list options. Specifically, the Bitcoin Funds satisfy the initial listing standards set forth in Rule 4.3, Interpretation and Policy .06(b), as is the case for other Units on which the Exchange lists options (including trusts that hold commodities). Rule 4.3, Interpretation and Policy .06 requires that Units must either (1) meet the criteria and standards set forth in Rule 4.3, Interpretation and Policy .01(a), or (2) be available for creation or redemption each business day from or through the issuer in cash or in kind at a price related to net asset value, and the issuer must be obligated to issue Units in a specified aggregate number even if some or all of the investment assets required to be deposited have not been received by the issuer, subject to the condition that the person obligated to deposit the investments has undertaken to deliver the investment assets as soon as possible and such undertaking is secured by the delivery and maintenance of collateral consisting of cash or cash equivalents satisfactory to the issuer, as provided in the respective prospectus. The Bitcoin Funds satisfy Rule 4.3, Interpretation and Policy .06(b)(2), as they are all subject to this creation and redemption process.
Rule 4.3, Interpretation and Policy .01 provides for guidelines to be by the Exchange when evaluating potential underlying securities for Exchange option transactions.
While not required by the Rules for purposes of options listings, the majority of the Bitcoin Funds satisfy the criteria and guidelines set forth in Rule 4.3, Interpretation and Policy .01. Pursuant to Rule 4.3(a), a security (which includes a Unit) on which options may be listed and traded on the Exchange must be duly registered (with the Commission) and be an NMS stock (as defined in Rule 600 of Regulation NMS under the Securities Exchange Act of 1934, as amended (the “Act”)), and be characterized by a substantial number of outstanding shares that are widely held and actively traded. Each of the Bitcoin Funds is an NMS Stock as defined in Rule 600 of Regulation NMS under the Act. The Exchange believes each Bitcoin Fund is characterized by a substantial number of outstanding shares that are widely held and actively traded.
The criteria and guidelines for a security to be considered widely held and actively traded are set forth in Rule 4.3, Interpretation and Policy .01, subject to exceptions.
An “NMS stock” means any NMS security other than an option, and an “NMS security” means any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan (or an effective national market system plan for reporting transaction in listed options). See17 CFR 242.600(b)(64) (definition of “NMS security”) and (65) (definition of “NMS stock”).
As of August 7, 2024, the Bitcoin Funds had the following number of shares outstanding:
| Bitcoin fund | Shares outstanding |
|---|---|
| Fidelity Fund | 201,100,100 |
| ARK 21Shares Fund | 45,495,000 |
| Invesco Fund | 7,965,000 |
| Franklin Fund | 11,100,000 |
| VanEck Fund | 9,600,000 |
| WisdomTree Fund | 1,420,000 |
| Grayscale Fund | 296,930,100 |
| Bitwise Fund | 69,910,000 |
| iShares Fund | 606,120,000 |
| Valkyrie Fund | 31,335,000 |
| Bitcoin fund | AUM |
|---|---|
| Fidelity Fund | 10,240,420,000 |
| ARK 21Shares Fund | 2,887,759,000 |
| Invesco Fund | 405,628,500 |
| Franklin Fund | 339,882,800 |
| VanEck Fund | 617,779,500 |
| WisdomTree Fund | 81,690,950 |
| Grayscale Fund | 20,117,590,000 |
| Bitwise Fund | 2,266,633,000 |
| iShares Fund | 18,274,490,000 |
| Valkyrie Fund | 527,831,700 |
| Bitcoin fund | Beneficial holders | Date |
|---|---|---|
| Fidelity Fund | 279,656 | 6/27/2024 |
| ARK 21Shares Fund | 69,425 | 6/26/2024 |
| Invesco Fund | 13,420 | 6/25/2024 |
| Franklin Fund | 12,224 | 6/27/2024 |
| VanEck Fund | 19,061 | 6/28/2024 |
| WisdomTree Fund | 3,509 | 7/2/2024 |
| Bitcoin fund | Trading volume (shares) | Trading volume (notional $) | ADV (shares) |
|---|---|---|---|
| Fidelity Fund | 1,490,261,825 | 78,936,647,100.20 | 6,014,335.50 |
| ARK 21Shares Fund | 413,159,977 | 24,787,148,013.81 | 1,893,335.00 |
| Invesco Fund | 78,609,595 | 4,578,462,838.89 | 299,372.94 |
| Franklin Fund | 58,954,975 | 2,063,321,834.88 | 338,901.56 |
| VanEck Fund | 59,991,039 | 4,195,401,686.66 | 265,605.84 |
| WisdomTree Fund | 39,977,866 | 2,546,889,570.58 | 209,501.33 |
| Grayscale Fund | 2,074,101,826 | 95,371,791,353.17 | 4,794,193.00 |
| Bitwise Fund | 455,817,104 | 14,926,192,896.43 | 2,250,989.25 |
| iShares Fund | 5,209,443,211 | 185,451,676,432.50 | 28,406,964.00 |
| Valkyrie Fund | 100,580,329 | 1,762,278,782.37 | 349,587.41 |