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On August 15, 2024, NYSE American LLC (“Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) and Rule 19b-4 thereunder, a proposed rule change to list and trade options on 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”), the WisdomTree Bitcoin Fund (the “WisdomTree Fund”), the Grayscale Bitcoin Trust BTC (the “Grayscale Fund”), the Grayscale Bitcoin Mini Trust (the “Grayscale Mini Fund”), the Bitwise Bitcoin ETF (the “Bitwise Fund”), the iShares Bitcoin Trust ETF (the “iShares Fund”), and the Valkyrie Bitcoin Fund. The proposed rule change was published for comment in the Federal Register on September 4, 2024. On September 9, 2024, the Exchange filed Amendment No. 1 to the proposed rule change, which replaced and superseded the original proposal in its entirety. On October 7, the Exchange filed Amendment No. 2 to the proposal, which replaced and superseded Amendment No. 1 in its entirety. On October 11, 2024, the Exchange filed Amendment No. 3 to the proposal, which replaces and supersedes Amendment No. 2 in its entirety. The Commission received no comments regarding the proposal. The Commission is publishing this notice to solicit comments on Amendment No. 3 from interested persons, and is approving the proposed rule change, as modified by Amendment No. 3, on an accelerated basis.
On January 10, 2024, the Commission approved proposals by NYSE Arca, Inc., The Nasdaq Stock Market LLC, and Cboe BZX Exchange, Inc. to list and trade the shares of 11 bitcoin-based commodity-based trust shares and trust units, including the trusts underlying the proposed options. See Securities Exchange Act Release No. 99306 (Jan. 10, 2024), 89 FR 3008 (Jan. 17, 2024) (order approving File Nos. SR-NYSEARCA-2021-90; SR-NYSEARCA-2023-44; SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072) (“Bitcoin ETP Order”).
See Securities Exchange Act Release No. 100861 (Aug. 28, 2024), 89 FR 71982.
On September 9, 2024, the Exchange filed Amendment No. 1 to SR-NYSEAMER-2024-49, which replaced and superseded the original filing in its entirety and, on October 7, 2024, the Exchange filed Amendment No. 2 to SR-NYSEAMER-2024-49, which replaced and superseded in its entirety both Amendment No. 1 and the original filing. See https://www.sec.gov/comments/sr-nyseamer-2024-49/srnyseamer202449-518495-1491742.pdf and https://www.sec.gov/comments/sr-nyseamer-2024-49/srnyseamer202449-527736-1516262.pdf, respectively. Amendment No. 3, which supersedes and replaces Amendment No. 2 in its entirety, modifies the original filing by (1) including reference to, and reliance on, the “ISE IBIT Approval Order,” as referenced infra; (2) narrowing the scope of the original filing by (i) eliminating the following bitcoin-related funds, and any information related thereto: the ARK21Shares Bitcoin ETF, the Invesco Galaxy Bitcoin ETF, the Franklin Bitcoin ETF, the VanEck Bitcoin Trust, and the WisdomTree Bitcoin Fund, and (ii) excluding the (remaining) Bitcoin Fund options from being available for flexible (“FLEX”) option trading; (3) providing additional information and analysis of trading data for the Bitcoin Funds in support of this proposal, including the proposed position limits of 25,000 per side for the options on the Bitcoin Funds; and (4) supplementing information related to the Exchange's surveillance program, including the manner in which it would surveil suspicious trading activity in the underlying Bitcoin Funds and where the Exchange would obtain information about the bitcoin market. Amendment No. 3 is available on the Exchange's website at https://www.nyse.com/regulation/rule-filings. A FLEX Option is a customized options contract that is subject to the rules in Section 15 of the Exchange's rules. A FLEX Equity Option is an option on a specified underlying equity security that is subject to the rules in Section 15 of the Exchange's rules. See Exchange Rules 900G(b)(1) and (10). Except as provided in Exchange Rules 906G(b)(i) and (ii), there are no position limits for FLEX Equity options. See Exchange Rule 906G(b).
I. The Exchange's Description of the Proposed Rule Change, as Modified by Amendment No. 3
The Exchange proposes to amend Rule 915 regarding the criteria for underlying securities. This Amendment No. 3 supersedes and replaces Amendment No. 2 to the original filing in its entirety. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, 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 915 (Criteria for Underlying Securities). Specifically, the Exchange proposes to amend Rule 915, Commentary .10 to allow the Exchange to list and trade options on the following exchange-traded products: the Grayscale Bitcoin Trust (BTC) (the “Grayscale Fund” or “GBTC”), the Grayscale Bitcoin Mini Trust BTC (the “Grayscale Mini Fund” or “BTC”), and the Bitwise Bitcoin ETF (the “Bitwise Fund” or “BITB” and, collectively, the “Bitcoin Funds” or “Funds”).
See proposed Rule 915, Commentary .10(a). On January 11, 2024, GBTC and BITB began trading on NYSE Arca, Inc. (“NYSE Arca”), the Exchange's affiliated SRO, after the Commission approved rule changes to list and trade shares of “Bitcoin-Based Commodity-Based Trust Shares” pursuant to Rule 8.201-E(c)(1) (Commodity-Based Trust Shares), including GBTC and BITB. See Securities Exchange Act Release No. 99306 (January 10, 2024) (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), 89 FR 3008 (January 17, 2024) (SR-NYSEARCA-2023-44; SR-NYSEARCA-2021-90).
On July 13, 2024, after receiving approval of the Commission, BTC began trading on NYSE Arca. See Securities Exchange Act Release No. 100610 (July 26, 2024) (Order Granting Approval of Proposed Rule Changes, as Modified by Amendment No. 1, to List and Trade Share of BTC pursuant to NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares)), 89 FR 62821 (August 1, 2024) (SR-NYSEARCA-2023-45).
The Exchange notes that this is a competitive filing as the Commission recently approved a rule proposal by Nasdaq ISE, LLC (“ISE”) to allow the listing and trading of options on iShares Bitcoin Trust (or IBIT), which is a trust that holds bitcoin (referred to herein as the “ISE IBIT Approval Order”). As discussed herein, the Exchange believes, like the recently-approved options on IBIT, options on the Bitcoin Funds would permit hedging, and allow for more liquidity, better price efficiency, and less volatility with respect to the underlying Funds. Further, permitting the listing of such options would enhance the transparency and efficiency of markets in these and correlated products.
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”)) (“ISE IBIT Approval Order”).
Rule 915 provides that, subject to certain other criteria set forth in the Rule, securities deemed appropriate for options trading include Exchange-Traded Fund Shares (or ETFs) as defined in Commentary .06, that represent certain types of interests and exchange-traded products (“ETPs”) structured as trusts that hold precious metals (which are deemed commodities). Like ETPs backed by precious metals ( i.e., commodities), the Exchange proposes to allow options trading on the Bitcoin Funds that hold Bitcoin—which is also deemed a commodity.
See Rule 915, Commentary .06, which permits options trading on ETFs that are traded on a national securities exchange and are defined as an “NMS stock” in Rule 600(b)(55) of Regulation NMS, that represent 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 not 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); 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”); 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”); or represents 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”); provided that all of the conditions listed in Rules 915 and 916 are met.
See Rule 915, Commentary .10 (permitting the listing and trading of options on shares of the following trusts: SPDR Gold Trust, the iShares COMEX Gold Trust the iShares Silver Trust, the ETFS Gold Trust, and the ETFS Silver Trust, pursuant to Rule 915 and 916).
See proposed Rule 915, Commentary .10(a) (added to include the listing and trading of options on shares of GBTC, BTC, and BITB, pursuant to Rule 915 and 916).
The Bitcoin Funds are structured as trusts that hold bitcoin. Like ETFs and ETPs currently deemed appropriate for options trading, 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. Each 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 trust may include minimal cash.
The Exchange believes each Bitcoin Fund satisfies the Exchange's initial listing standards set forth in Commentary .01 to Rule 915. The Exchange notes that the Bitcoin Funds also satisfy the listing standard applied to ETFs traded on the Exchange that they be available for creation and redemption each business day as set forth in Commentary .06(a)(ii).
Commentary .01 to Rule 915 provides for guidelines to be by the Exchange when evaluating potential underlying securities for Exchange option transactions.
Commentary .06(a)(ii) requires that ETFs must 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 ETFs 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.
First, each of the Bitcoin Funds satisfy the criteria and guidelines set forth in Rule 915(a). Pursuant to Rule 915(a), a security 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 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 Commentary .01 to Rule 915, 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 30, 2024, the Bitcoin Funds had the following number of shares outstanding (and corresponding market capitalization):
| Bitcoin fund | Shares outstanding | Market value (8/30/2024) |
|---|---|---|
| GBTC | 284,570,100 | $13,443,091,524 |
| BTC | 366,950,100 | 1,930,157,526 |
| BITB | 68,690,000 | 2,221,640,670 |
| Bitcoin Fund | Beneficial holders (8/14/24) |
|---|---|
| GBTC | 464,364 |
| BTC | 13,403 |
| BITB | 75,437 |
| Bitcoin Fund | Trading volume (shares) | Trading volume (notional $) | ADV (shares) |
|---|---|---|---|
| GBTC | 1,803,567,700 | 93,472,544,497 | 3,266,138 |
| BTC | 335,492,930 | 1,792,866,521 | 6,838,546 |
| BITB | 434,815,840 | 14,433,361,384 | 1,949,835 |
| Bitcoin Fund | Total volume (9/30/2024) |
|---|---|
| GBTC | 723,758,100 (6-months) |
| BTC | 335,492,930 (2-months) |
| BITB | 263,965,870 (6-months) |
| Bitcoin Fund | Proposed position/exercise limits in equivalent shares | Outstanding shares (8/30/24) | Percentage of outstanding shares |
|---|---|---|---|
| GBTC | 2,500,000 | 284,570,100 | 0.9 |
| BTC | 2,500,000 | 366,950,100 | 0.7 |
| BITB | 2,500,000 | 68,690,000 | 3.6 |
| Bitcoin Fund | Shares outstanding | Number of market participants with 25,000 same side positions |
|---|---|---|
| GBTC | 284,570,100 | 114 |
| BTC | 366,950,100 | 147 |
| BITB | 68,690,000 | 27 |
| Bitcoin Fund | Aug. 30th share price ($) | Value of 2,500,000 shares of bitcoin fund ($) | Percentage of bitcoin market |
|---|---|---|---|
| GBTC | 46.75 | 116,875,000 | 0.010 |
| BTC | 5.20 | 13,000,000 | 0.001 |
| BITB | 31.95 | 79,875,000 | 0.007 |
See id.
| Bitcoin Fund | Aug. 28th share price | Number of option contracts |
|---|---|---|
| GBTC | 46.94 | 125,585 |
| BTC | 5.23 | 1,127,151 |
| BITB | 32.08 | 183,759 |