90 FR 73 pgs. 16290-16298 - Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Rules To Allow the Exchange To List Options on the iShares Ethereum Trust
Type: NOTICEVolume: 90Number: 73Pages: 16290 - 16298
Pages: 16290, 16291, 16292, 16293, 16294, 16295, 16296, 16297, 16298Docket number: Release No. 34-102831; File No. SR-CBOE-2025-025]
FR document: [FR Doc. 2025-06509 Filed 4-16-25; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-102831; File No. SR-CBOE-2025-025]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Rules To Allow the Exchange To List Options on the iShares Ethereum Trust
April 11, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act"), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on April 9, 2025, Cboe Exchange, Inc. ("Exchange" or "Cboe Options") filed with the Securities and Exchange Commission ("Commission") the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a "non-controversial" proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act? 3 and Rule 19b-4(f)(6) thereunder. 4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?17 CFR 240.19b-4.
3 ?15 U.S.C. 78s(b)(3)(A)(iii).
4 ?17 CFR 240.19b-4(f)(6).
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 its Rules to allow the Exchange to list options on the iShares Ethereum Trust (the "Trust"). 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
[top] 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? 5 that represent interests in the Trust. This is a competitive filing based on a similar proposal submitted by Nasdaq ISE, LLC ("ISE"), which was recently approved by the Securities and Exchange Commission (the "Commission"). 6 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, 7
Footnotes:
5 ?Rule 1.1 defines a "Unit" (which may also be referred to as an 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.
6 ? See Securities Exchange Act Release No. 100661 (August 6, 2024), 89 FR 65690 (August 12, 2024) (SR-ISE-2024-35); and Securities Exchange Act Release No. 102798 (April 9, 2025) ("ISE Approval").
7 ? 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 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); (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, the Goldman Sachs Physical Gold ETF, the Fidelity Wise Origin Bitcoin Fund, the ARK 21Shares Bitcoin ETF, the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, or the Bitwise Bitcoin 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").
8 ?Rule 4.3, Interpretation and Policy .01 provides for guidelines to be by the Exchange when evaluating potential underlying securities for Exchange option transactions.
The Exchange proposes to add the Trust to the list of Units on which the Exchange may list options in Rule 4.3, Interpretation and Policy .06(a)(4). The shares are issued by the Trust, a Delaware statutory trust. The Trust will operate pursuant to a trust agreement (the "Trust Agreement") between the Sponsor, BlackRock Fund Advisors (the "Trustee") as the trustee of the Trust and will appoint Wilmington Trust, National Association, as Delaware Trustee of the Trust (the "Delaware Trustee") by such time that the Registration Statement is effective. The Trust issues Shares representing fractional undivided beneficial interests in its net assets. The assets of the Trust will consist only of ether ("ether" or "ETH") held by a custodian on behalf of the Trust, except under limited circumstances when transferred through the Trust's prime broker temporarily (described below), and cash. Neither the Trust, nor the Sponsor, nor the Ether Custodian (as defined below), nor any other person associated with the Trust will, directly or indirectly, engage in action where any portion of the Trust's ETH becomes subject to the Ethereum proof-of-stake validation or is used to earn additional ETH or generate income or other earnings. Coinbase Custody Trust Company, LLC (the "Ether Custodian"), is the custodian for the Trust's ether holdings, and maintains a custody account for the Trust ("Custody Account"); Coinbase, Inc. (the "Prime Execution Agent"), an affiliate of the Ether Custodian, is the prime broker for the Trust and maintains a trading account for the Trust ("Trading Account"); and The Bank of New York Mellon is the custodian for the Trust's cash holdings (the "Cash Custodian" and together with the Ether Custodian, the "Custodians") and the administrator of the Trust (the "Trust Administrator"). Under the Trust Agreement, the Trustee may delegate all or a portion of its duties to any agent, and has delegated the bulk of the day-to-day responsibilities to the Trust Administrator and certain other administrative and record-keeping functions to its affiliates and other agents. The Trust is not an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act").
The investment objective of the Trust is to reflect generally the performance of the price of ether. The Trust seeks to reflect such performance before payment of the Trust's expenses and liabilities. The Shares are intended to constitute a simple means of making an investment similar to an investment in ether through the public securities market rather than by acquiring, holding and trading ether directly on a peer-to-peer or other basis or via a digital asset platform. The Shares have been designed to remove the obstacles represented by the complexities and operational burdens involved in a direct investment in ether, while at the same time having an intrinsic value that reflects, at any given time, the investment exposure to the ether owned by the Trust at such time, less the Trust's expenses and liabilities. Although the Shares are not the exact equivalent of a direct investment in ether, they provide investors with an alternative method of achieving investment exposure to ether through the public securities market, which may be more familiar to them.
An investment in the Shares is backed by ether held by the Ether Custodian on behalf of the Trust. All of the Trust's ether will be held in the Custody Account, other than the Trust's ether which is temporarily maintained in the Trading Account under limited circumstances, i.e., in connection with creation and redemption Basket? 9 activity or sales of ether deducted from the Trust's holdings in payment of Trust expenses or the Sponsor's fee (or, in extraordinary circumstances, upon liquidation of the Trust). The Custody Account includes all of the Trust's ether held at the Ether Custodian, but does not include the Trust's ether temporarily maintained at the Prime Execution Agent in the Trading Account from time to time. The Ether Custodian will keep all of the private keys associated with the Trust's ether held in the Custody Account in "cold storage". 10 The hardware, software, systems, and procedures of the Ether Custodian may not be available or cost-effective for many investors to access directly.
Footnotes:
9 ?The Trust issues and redeems Shares only in blocks of 40,000 or integral multiples thereof. A block of 40,000 Shares is called a "Basket." These transactions take place in exchange for ether.
10 ?The term "cold storage" refers to a safeguarding method by which the private keys corresponding to the Trust's ether are generated and stored in an offline manner, subject to layers of procedures designed to enhance security. Private keys are generated by the Ether Custodian in offline computers that are not connected to the internet so that they are more resistant to being hacked.
The Exchange believes that offering options on the Trust will benefit investors by providing them with an additional, relatively lower cost investing tool to gain exposure to spot ether as well as a hedging vehicle to meet their investment needs in connection with ether products and positions. Similar to other commodity ETFs in which options may be listed on the Exchange ( e.g. SPDR® Gold Trust, the iShares COMEX Gold Trust, the iShares Silver Trust, or the Aberdeen Standard Physical Gold Trust), 11 the proposed ETF is a trust that essentially offers the same objectives and benefits to investors.
Footnotes:
11 ? See Rule 4.3, Interpretation and Policy .06(a)(4).
Options on the Trust will trade in the same manner as options on other ETFs on the Exchange. Exchange Rules that currently apply to the listing and trading of all options on ETFs on the Exchange, including, for example, Rules that govern listing criteria, expirations, exercise prices, minimum increments, position and exercise limits, margin requirements, customer accounts and trading halt procedures, will apply to the listing and trading of options on the Trust on the Exchange. Today, these rules apply to options on the various commodities ETFs deemed appropriate for options trading on the Exchange pursuant to Rule 4.3, Interpretation and Policy .06.
[top] The Exchange's initial listing standards for ETFs on which options may be listed and traded on the Exchange will apply to the Trust.
Footnotes:
12 ?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.
13 ?Rule 4.3, Interpretation and Policy .01 provides for guidelines to be by the Exchange when evaluating potential underlying securities for Exchange option transactions.
Options on the Trust will be subject to the Exchange's continued listing standards set forth in Rule 4.4, Interpretation and Policy .06 for Units deemed appropriate for options trading pursuant to Rule 4.3, Interpretation and Policy .06. Specifically, Rule 4.4, Interpretation and Policy .06 provides that Units that were initially approved for options trading pursuant to Rule 4.3, Interpretation and Policy .06 shall be deemed not to meet the requirements for continued approval, and the Exchange shall not open for trading any additional series of option contracts of the class covering that such Units, if the Units cease to be an NMS stock or the Units are halted from trading in their primary market. Additionally, options on Units may be subject to the suspension of opening transactions in any of the following circumstances: (1) in the case of options covering Units approved for trading under Rule 4.3, Interpretation and Policy .06(b)(1), in accordance with the terms of paragraphs (a), (b), and (c) of Rule 4.4, Interpretation and Policy .01; (2) in the case of options covering Units approved for trading under Rule 4.3 Interpretation and Policy .06(b)(2) (as is the case for the Trust), following the initial twelve-month period beginning upon the commencement of trading in the Units on a national securities exchange and are defined as an NMS stock, there are fewer than 50 record and/or beneficial holders of such Units for 30 or more consecutive trading days; (3) the value of the index or portfolio of securities, non-U.S. currency, or portfolio of commodities including commodity futures contracts, options on commodity futures contracts, swaps, forward contracts and/or options on physical commodities and/or financial instruments and money market instruments on which the Units are based is no longer calculated or available; or (4) such other event shall occur or condition exist that in the opinion of the Exchange makes further dealing in such options on the Exchange inadvisable.
Options on the Trust will be physically settled contracts with American-style exercise. 14 Consistent with current Rule 4.5, which governs the opening of options series on a specific underlying security (including Units), the Exchange will open at least one expiration month for options on the Trust? 15 at the commencement of trading on the Exchange and may also list series of options on the Trust for trading on a weekly, 16 monthly, 17 or quarterly? 18 basis. The Exchange may also list long-term equity option series ("LEAPS") that expire from 12 to 180 months from the time they are listed. 19
Footnotes:
14 ? See Rule 4.2, which provides that the rights and obligations of holders and writers are set forth in the Rules of the Options Clearing Corporation ("OCC"); and Equity Options Product Specifications January 3, 2024), available at Equity Options Specifications (cboe.com); see also OCC Rules, Chapters VIII (which governs exercise and assignment) and Chapter IX (which governs the discharge of delivery and payment obligations arising out of the exercise of physically settled stock option contracts).
15 ? See Rule 4.5(b). The monthly expirations are subject to certain listing criteria for underlying securities described within Rule 4.3. Monthly listings expire the third Friday of the month. The term "expiration date" (unless separately defined elsewhere in the OCC By-Laws), when used in respect of an option contract (subject to certain exceptions), means the third Friday of the expiration month of such option contract, or if such Friday is a day on which the exchange on which such option is listed is not open for business, the preceding day on which such exchange is open for business. See OCC By-Laws Article I, Section 1. Pursuant to Rule 4.5(c), additional series of options of the same class may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market, to meet customer demand or when the market price of the underlying stock moves more than five strike prices from the initial exercise price or prices. New series of options on an individual stock may be added until the beginning of the month in which the options contract will expire. Due to unusual market conditions, the Exchange, in its discretion, may add a new series of options on an individual stock until the close of trading on the business day prior to expiration.
16 ? See Rule 4.5(d).
17 ? See Rule 4.5(g).
18 ? See Rule 4.5(e).
19 ? See Rule 4.5(f).
Pursuant to Rule 4.5, Interpretation and Policy .07, which governs strike prices of series of options on Units, the interval of strikes prices for series of options on the Trust will be $1 or greater when the strike price is $200 or less and $5 or greater where the strike price is over $200. 20 Additionally, the Exchange may list series of options pursuant to the $1 Strike Price Interval Program, 21 the $0.50 Strike Program, 22 the $2.50 Strike Price Program, 23 and the $5 Strike Program. 24 Pursuant to Rule 5.4, where the price of a series of a Trust option is less than $3.00, the minimum increment will be $0.05, and where the price is $3.00 or higher, the minimum increment will be $0.10. 25 Any and all new series of Trust options that the Exchange lists will be consistent and comply with the expirations, strike prices, and minimum increments set forth in Rules 4.5 and 5.4, as applicable.
Footnotes:
20 ?The Exchange notes that for options listed pursuant to the Short Term Option Series Program, the Monthly Options Series Program, and the Quarterly Options Series Program, Rules 4.5(d), (e), and (g) specifically sets forth intervals between strike prices on Quarterly Options Series, Short Term Option Series, and Monthly Options Series, respectively.
21 ? See Rule 4.5, Interpretation and Policy .01(a).
22 ? See Rule 4.5, Interpretation and Policy .01(b).
23 ? See Rule 4.5, Interpretation and Policy .04.
24 ? See Rule 4.5, Interpretation and Policy .01(f).
25 ?If options on the Trust are eligible to participate in the Penny Interval Program, the minimum increment will be $0.01 for series with a price below $3.00 and $0.05 for series with a price at or above $3.00. See 5.4(d) (which describes the requirements for the Penny Interval Program).
[top] Trust options will trade in the same manner as any other Unit options on the Exchange. The Exchange Rules that currently apply to the listing and trading of all Unit options on the Exchange, including, for example, Rules that govern listing criteria, expirations, exercise prices, minimum increments, margin requirements, customer accounts, and trading halt procedures will apply to the listing and trading of Trust options on the Exchange in the same manner as they apply to other options on all other Units that are listed and traded on the Exchange, including the precious-metal and Bitcoin-backed
Rule 4.20 currently permits the Exchange to authorize for trading a FLEX option class on any equity security if it may authorize for trading a non-FLEX option class on that equity security pursuant to Rule 4.3. The proposed rule change amends Rule 4.20 to exclude the Trust from this provision.
The Exchange also proposes to amend Rule 8.30. Specifically, the Exchange proposes to amend Rule 8.30, Interpretation and Policy .10 to provide a position limit of 25,000 same side option contracts for Trust options. Additionally, pursuant to the Rule 8.42, Interpretation and Policy .02, the exercise limits for options on the Trust will be equivalent to this proposed position limit. In considering the appropriate position and exercise limits for the Trust options, the Exchange reviewed the data presented by ISE in the ISE Approval. In the ISE Approval, ISE considered the Trust's market capitalization and average daily volume ("ADV") against those of other underlying securities, as well as the proposed position and exercise limit in relation to other options. In measuring the Trust 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"). 26 ISE also considered the trading volume for the Trust in terms of daily and notional volumes during the period of time the Trust has been trading from July 23, 2024 through December 14, 2024. The average daily volume for this time period is 5,302,533 shares and the average notional volume for this time period is $127,825,276.00. The Trust had 93,352 shareholders. 27 ISE indicated both the average daily volume and the average notional volume experienced an uptick at launch (which can be typical for anticipated product launches) then levelled off for several months. Renewed growth in the cryptocurrency market caused increased growth beginning in early November 2024.
Footnotes:
26 ?ISE represented these computations were based on OCC data from October 22, 2024, and that data displaying zero values in market capitalization or ADV were removed.
27 ?ISE represented it obtained this number from Broadridge Financial Solutions, Inc. on December 19, 2024.
ISE reviewed the market capitalization and ADV of 3,930 options on single stock securities excluding ETFs. 28 Next, ISE aggregated this data based on market capitalization and ADV and grouped option symbols by position limit utilizing statistical thresholds for ADV and market capitalization for each position limit category ( i.e. 25,000, 50,000 to 65,000, 75,000, 100,000 to less than 250,000, 250,000 to less than 500,000, 500,000 to 1,000,000 and greater than 1,000,000). Rule 8.30 sets out position limits for various contracts. For example, like ISE, a 25,000 contract limit applies to those options having an underlying security that does not meet the requirements for a higher options contract limit. ISE indicated it performed this exercise to demonstrate the Trust's position limit relative to other options symbols in terms of market capitalization and ADV. For reference the market capitalization for the Trust was 1.16 billion? 29 with an ADV, for the preceding three months prior to October 22, 2024, of greater than 2.99 million shares. By comparison, other options symbols with similar market capitalization and ADV have a position limit of 50,000 contracts or 75,000 contracts. 30 From a 90-day ADV perspective, ISE reviewed statistics that indicated that the Trust had a 90-day ADV greater than each of the stocks in the 100,000 contracts to 249,000 contracts range. Therefore, the proposed 25,000 same side position and exercise limits for options on the Trust are conservative.
Footnotes:
28 ?The Trust has one asset and therefore is not comparable to a broad based ETF where there are typically multiple components.
29 ?ISE acquired this figure as of October 22, 2024. See https://www.ishares.com/us/products/337614/ishares-ethereum-trust-etf. The global supply of ether grows each day ether are minted.
30 ?ISE determined the median market capitalization for 50,000 contracts was 788,000,000 million and the median market capitalization for 75,000 contracts was 1,037,000 billion. Further, placing the Trust at 50,000 contracts would rank it in the 59th percentile in market capitalization and placing the Trust at 75,000 contracts would rank it in the 46th percentile in market capitalization.
Second, ISE reviewed the Trust's data relative to the market capitalization of the entire ether market in terms of exercise risk and availability of deliverables. Utilizing data as of October 22, 2024, there were 120,392,960 Ethereum in circulation. The price of Ethereum on October 22, 2024, was $2,620 per coin which equates to a market capitalization of greater than $315 billion US dollars. If a position limit of 25,000 options were considered (the position limit that would be typically assigned based upon data), the exercisable risk would represent less than 4.3524% of the outstanding shares of the Trust. 31 Since the Trust has a creation and redemption process managed through the issuer, we can additionally compare the position limit sought to the total market capitalization of the entire Ethereum market. In this case, the exercisable risk represented by 25,000 options on the Trust would be less than 0.03% of the market capitalization of all outstanding ether. Assuming a scenario where all 25,000 options on ether shares were exercised given the proposed 25,000 per same side position limit, this would have a virtually unnoticed impact on the entire ether market. This analysis demonstrates that the proposed 25,000 per same side position limit (and exercise limit) is conservative and appropriate for options on the Trust.
Footnotes:
31 ?The 4.4% was calculated as follows: 2,500,000 (exercisable stock from position limit)/57,440,000 (shares outstanding on October 22, 2024) = 4.35237%.
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), we examined equivalent ether futures position limits. In particular, ISE looked at the CME Ethereum futures contract? 32 that has a position limit of 8,000 futures. 33 On October 22, 2024, CME ether futures settled at $2,629. Using a contract multiplier of $50, a position limit of 8,000 futures would have a notional value $1.0516 billion (8,000 × $50 × $2,629). Using an October 22, 2024, share price of $19.91 for shares of the Trust, a futures position of 8,000 contracts, with a notional value of $1.0516 billion dollars would equate to an options position of 528,176 contracts ($1.0516 billion (notional value of 8,000 Ethereum futures contracts)/$19.91 (price of the Trust shares) = 52,817,679 (Trust shares)/100 (the number of shares represented by one options contract)) = 528,176 options contracts. Because substantial sums of any distributed options portfolio are likely to be out of the money on expiration, an options position limit equivalent to the CME position limit for Ethereum (considering that all options deltas are <=1.00) should be a bit higher than the CME implied 528,176 contract limit.
Footnotes:
32 ?CME Ether Futures are described in Chapter 350 of CME's Rulebook.
33 ? See CME Rulebook, Chapter 5, Position Limit, Position Accountability and Reportable Level Table in the Interpretations & Special Notices.
[top] The Exchange notes, unlike options contracts, CME position limits are calculated on a net futures-equivalent basis by contract and include contracts
Footnotes:
34 ? See CME Rulebook Chapter 5, Position Limit, Position Accountability and Reportable Level Table in the Interpretations & Special Notices.
35 ? Id.
In analyzing the proposed position limit for options on the Trust, ISE also considered the supply of ether. Specifically, ISE examined the number of market participants with a position limit of 25,000 contracts that would need to exercise in unison to put the underlying asset under stress. In the case of options on ether, the proposed 25,000 same side position and exercise limit effectively restricts a market participant from holding positions that could be exercised in excess of 2,500,000 shares of the Trust. Utilizing data from October 22, 2024, the Trust had 57,440,000 shares outstanding, therefore 22.976 participants would have to simultaneously exercise their position limits in order to create a scenario that may put the underlying asset (shares of the Trust) under stress. The Exchange notes that historically, from observation only, it appears that no more than five market participants holding options positions in any single security have exercised in unison in any option. As unlikely an occurrence as all market participants exercising their positions in unison would be, if it were to occur, it should be noted that even such an occurrence would not likely put the Trust under stress as economic incentives, would induce the creation of more shares through the ETF creation and redemption process.
Further, given that the current global supply of Ethereum, the underlying asset of the Trust, is 120,392,960? 36 coins and each Ethereum coin can currently be exchanged (Ethereum to USD and then USD to Trust shares) for 131.6 shares of the Trust another 15,843,979,598 shares of the Trust could be created by the underlying ETF. In addition, as of October 22, 2024, a 25,000 contract position limit for options on the Trust would represent less than 4.3524% of the outstanding shares of the Trust (2,500,000 (position limit exercise)/57,440,000 (shares outstanding of the Trust on October 22, 2024)) = 4.3524%. 37 Also, as of October 22, 2024, a 25,000 contract position limit for options on the Trust would represent less than .01578% of the global supply of ether (2,500,000 (position limit exercise)/120,392,960 (number of ether) × 131.6 (Trust shares per ether)) = .01578%.
Footnotes:
36 ?This figure was acquired as of October 22, 2024. See https://www.ishares.com/us/products/337614/ishares-ethereum-trust-etf. The global supply of ether grows each day ether are minted.
37 ? See https://coinmarketcap.com/currencies/ethereum/.
Today, the Exchange has an adequate surveillance program in place for options. Cboe intends to apply those same program procedures to options on the Trust that it applies to the Exchange's other options products, including options on Units. 38 Cboe's market surveillance staff would have access to the surveillances conducted by Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe EDGX Exchange, Inc. 39 with respect to the Trust and would review activity in the underlying Trust when conducting surveillances for market abuse or manipulation in the options on the Trust. 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. In addition to obtaining information from its affiliated markets, the Exchange would be able to obtain information regarding trading in shares of the Trust from their primary listing markets and from other markets that trade shares of the Trust through ISG. In addition, Cboe has a Regulatory Services Agreement with the Financial Industry Regulatory Authority ("FINRA") for certain market surveillance, investigation and examinations functions. Pursuant to a multi-party 17d-2 joint plan, all options exchanges allocate amongst themselves and FINRA responsibilities to conduct certain options-related market surveillance that are common to rules of all options exchanges. 40
Footnotes:
38 ?The surveillance program includes surveillance patterns for price and volume movements as well as patterns for potential manipulation ( e.g., spoofing and marking the close).
39 ?Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe EDGX Exchange, Inc. are affiliated markets of the Exchange.
40 ?Section 19(g)(1) of the Act, among other things, requires every self-regulatory organization ("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 ("common members"). 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.
[top] The underlying shares of spot Ethereum ETPs, including the Trust, are also subject to safeguards related to addressing market abuse and manipulation. As the Commission stated in its order approving proposals of several exchanges to list and trade shares of spot Ethereum-based ETPs, 41 "[e]ach Exchange has a comprehensive surveillance-sharing agreement with the [CME] via their common membership in ISG. This facilitates the sharing of information that is available to the CME through its surveillance of its markets, including its surveillance of the CME Ether futures market."? 42 The Exchange states that, given the consistently high correlation between the CME Ethereum futures market and the spot Ethereum market, as confirmed by the Commission through robust correlation analysis, the Commission was able to conclude that such surveillance sharing agreements could reasonably be "expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the
Footnotes:
41 ? See Securities Exchange Act Release Nos. 100224 (May 23, 2024), 89 FR 46937 (May 30, 2024) (SR-NYSEArca-2023-70; SR-NYSEArca-2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023-069; SR-CboeBZX-2023-070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095; and SR-CboeBZX-2024-018) (Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, to List and Trade Shares of Ether-Based Exchange-Traded Products) ("Ethereum ETP Approval Order").
42 ? See Ethereum ETP Approval Order, at 46938 (footnotes excluded).
43 ? See Ethereum ETP Approval Order, at 46941 (footnote excluded).
44 ? See Ethereum ETP Approval Order.
Finally, quotation and last sale information for ETFs is available via the Consolidated Tape Association ("CTA") high speed line. Quotation and last sale information for such securities is also available from the exchange on which such securities are listed. Quotation and last sale information for options on the Trust will be available via Options Price Reporting Authority ("OPRA") and major market data vendors. The Exchange has also analyzed its capacity and represents that it believes the Exchange and OPRA have the necessary systems capacity to handle the additional traffic associated with the listing of new series that may result from the introduction of options on the Trust up to the number of expirations currently permissible under the Rules.
The Exchange believes that offering options on the Trust will benefit investors by providing them with an additional, relatively lower cost investing tool to gain exposure to the price of Ethereum and hedging vehicle to meet their investment needs in connection with Ethereum -related products and positions. The Exchange expects investors will transact in options on the Trust in the unregulated over-the-counter ("OTC") options market, 45 but may prefer to trade such options in a listed environment to receive the benefits of trading listing options, including (1) enhanced efficiency in initiating and closing out positions; (2) increased market transparency; and (3) heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of all listed options. The Exchange believes that listing Trust options may cause investors to bring this liquidity to the Exchange, would increase market transparency and enhance the process of price discovery conducted on the Exchange through increased order flow. The Units that hold financial instruments, money market instruments, precious metal commodities, or Bitcoin on which the Exchange may already list and trade options are trusts structured in substantially the same manner as the Trust and essentially offer the same objectives and benefits to investors, just with respect to different assets. The Exchange notes that it has not identified any issues with the continued listing and trading of any Unit options, including Units that hold commodities ( i.e., precious metals and Bitcoin) that it currently lists and trades on the Exchange.
Footnotes:
45 ?The Exchange understands from customers that investors have historically transacted in options on Units in the OTC options market if such options were not available for trading in a listed environment.
Finally, the Exchange notes that applicable Exchange rules will require that customers receive appropriate disclosure before trading options in the Trust. 46 Further, brokers opening accounts and recommending options transactions must comply with relevant customer suitability standards. 47
Footnotes:
46 ? See Rules 9.1(b) and (e).
47 ? See Rule 9.3.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act. 48 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5)? 49 requirements that the rules of an exchange be 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 to permit unfair discrimination between customers, issuers, brokers, or dealers.
Footnotes:
48 ?15 U.S.C. 78f(b).
49 ?15 U.S.C. 78f(b)(5).
50 ? Id.
In particular, the Exchange believes that the proposal to list and trade options on the Trust will remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, protect investors because offering options on the Trust will provide investors with a greater opportunity to realize the benefits of utilizing options on an ETF based on spot Ethereum, including cost efficiencies and increased hedging strategies. The Exchange believes that offering options on a competitively priced ETF based on spot Ethereum will benefit investors by providing them with an additional, relatively lower-cost risk management tool, allowing them to manage, more easily, their positions and associated risks in their portfolios in connection with exposure to spot Ethereum. Additionally, the Exchange's offering of Trust options will provide investors with the ability to transact in such options in a listed market environment as opposed to in the unregulated OTC options market, which would increase market transparency and enhance the process of price discovery conducted on the Exchange through increased order flow to the benefit of all investors. Today, the Exchange lists options on other commodity (including Ethereum) ETFs structured as a trust, which essentially offer the same objectives and benefits to investors, and for which the Exchange has not identified any issues with the continued listing and trading of options on those ETFs.
The Exchange also believes the proposal to permit options on the Trust will remove impediments to and perfect the mechanism of a free and open market and a national market system, because options on the Trust will comply with current Exchange Rules. Options on the Trust must satisfy the initial listing standards and continued listing standards currently in the Rules, applicable to options on all ETFs, including options on other commodity ETFs already deemed appropriate for options trading on the Exchange pursuant to Rule 4.3, Interpretation and Policy .06(a)(d). Additionally, as demonstrated above, the Trust is characterized by a substantial number of shares that are widely held and actively traded. Further, Rules that currently govern the listing and trading of options on ETFs, including permissible expirations, strike prices, minimum increments, position and exercise limits (as proposed herein), and margin requirements, will govern the listing and trading of options on the Trust.
[top] The Exchange believes the proposed position and exercise limits are designed to prevent fraudulent and manipulative acts and practices and promote just and equitable principles of trade, as they are designed to address potential manipulative schemes and adverse market impacts surrounding the use of options, such as disrupting the
Footnotes:
51 ? See Securities Exchange Act Release No. 39489 (December 24, 1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
The Exchange represents that it has the necessary systems capacity to support the new Trust options. As discussed above, the Exchange believes that its existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might arise from listing and trading Unit options, including Trust options. The Exchange's existing surveillance and reporting safeguards are designed to deter and detect possible manipulative behavior which might arise from listing and trading options on ETFs and ETPs, such as (existing) precious metal-commodity backed ETP options as well as the proposed options on the Trust. The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of options on the Trust in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange's market surveillance staff will have access to surveillances that it conducts, and that FINRA conducts on its behalf, with respect to the Trust and, as appropriate, would review activity in the underlying Fund when conducting surveillances for market abuse or manipulation in the options on the Trust. Additionally, the Exchange is a member of the 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. In addition, the Exchange has a Regulatory Services Agreement with the FINRA and as noted herein, pursuant to a multi-party 17d-2 joint plan, all options exchanges allocate regulatory responsibilities to FINRA to conduct certain options-related market surveillances. Further, the Exchange will implement any new surveillance procedures it deems necessary to effectively monitor the trading of options on the Trust.
The underlying shares of spot Ethereum ETPs, including the Trust, are also subject to safeguards related to addressing market abuse and manipulation. As the Commission stated in its order approving proposals of several exchanges to list and trade shares of spot Ethereum-based ETPs, "[e]ach Exchange has a comprehensive surveillance-sharing agreement with the CME via their common membership in the Intermarket Surveillance Group. This facilitates the sharing of information that is available to the CME through its surveillance of its markets, including its surveillance of the CME ether futures market."? 52 The Exchange states that, given the consistently high correlation between the CME Ethereum futures market and the spot Ethereum market, as confirmed by the Commission through robust correlation analysis, the Commission was able to conclude that such surveillance sharing agreements could reasonably be "expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the [Ether ETPs]."? 53 In light of the foregoing, 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 options on the Trust. Further, the Exchange will implement any new surveillance procedures it deems necessary to effectively monitor the trading of options on Ethereum ETPs.
Footnotes:
52 ? See Ethereum ETP Approval Order, 89 FR, at 46938.
53 ? See Ethereum ETP Approval Order, 89 FR at 46941.
The Exchange believes the proposed rule change to exclude the Trust from being eligible for trading as FLEX options is consistent with the Act, because it will permit the Exchange to continue to participate in ongoing discussions with the Commission regarding appropriate position limits for ETF options. 54
Footnotes:
54 ?The Exchange will submit a separate rule filing that would permit the Exchange to authorize for trading FLEX options on the Trust (which filing may propose changes to existing FLEX option position limits for such options if appropriate).
Finally, the Exchange notes that 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 because applicable Exchange rules will require that customers receive appropriate disclosure before trading options in the Trust? 55 and will require that brokers opening accounts and recommending options transactions must comply with relevant customer suitability standards. 56
Footnotes:
55 ? See Rules 9.1(b) and (e).
56 ? See Rule 9.3.
B. Self-Regulatory Organization's Statement on Burden on Competition
[top] 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 intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act as Trust options will be equally available to all market participants who wish to trade such options and will trade generally in the same manner as other options. The Rules that currently apply to the listing and trading of all Unit options on the Exchange, including, for example, Rules that govern listing criteria, expirations, exercise prices, minimum increments, margin requirements, customer accounts, and trading halt procedures will apply to the listing and trading of
Footnotes:
57 ? See Rule 4.3, Interpretation and Policy .06(a)(4).
The Exchange does not believe that the proposal to list and trade options on the Trust will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. To the extent that the advent of the Trust options trading on the Exchange may make the Exchange a more attractive marketplace to market participants at other exchanges, such market participants are free to elect to become market participants on the Exchange. The Exchange notes that listing and trading Trust options on the Exchange will subject such options to transparent exchange-based rules as well as price discovery and liquidity, as opposed to alternatively trading such options in the OTC market.
The Exchange believes that the proposed rule change may relieve any burden on, or otherwise promote, competition, as it is designed to increase competition for order flow on the Exchange in a manner that is beneficial to investors by providing them with a lower-cost option to hedge their investment portfolios. The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues that offer similar products. Ultimately, the Exchange believes that offering Trust options for trading on the Exchange will promote competition by providing investors with an additional, relatively low-cost means to hedge their portfolios and meet their investment needs in connection with Ethereum prices and Ethereum-related products and positions on a listed options exchange.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act? 58 and Rule 19b-4(f)(6) thereunder. 59 Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act? 60 and subparagraph (f)(6) of Rule 19b-4 thereunder. 61
Footnotes:
58 ?15 U.S.C. 78s(b)(3)(A)(iii).
59 ?17 CFR 240.19b-4(f)(6).
60 ?15 U.S.C. 78s(b)(3)(A)(iii).
61 ?17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Commission has waived the pre-filing requirement.
A proposed rule change filed under Rule 19b-4(f)(6)? 62 under the Act does not normally become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b-4(f)(6)(iii), 63 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission previously approved the listing of options on the iShares Ethereum Trust. 64 The Exchange has provided information regarding the underlying iShares Ethereum Trust, including, among other things, information regarding trading volume, the number of shareholders, and the market capitalization of the iShares Ethereum Trust. The proposal also establishes position and exercise limits for options on the iShares Ethereum Trust and provides information regarding the surveillance procedures that will apply to iShares Ethereum Trust options. The Commission believes that waiver of the operative delay could benefit investors by providing an additional venue for trading iShares Ethereum Trust options. Therefore, the Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposed rule change as operative upon filing. 65
Footnotes:
62 ?17 CFR 240.19b-4(f)(6).
63 ?17 CFR 240.19b-4(f)(6)(iii).
64 ? See ISE Approval, supra note 6.
65 ?For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
• Use the Commission's internet comment form ( https://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include file number SR-CBOE-2025-025 on the subject line.
Paper Comments
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[top] All submissions should refer to file number SR-CBOE-2025-025. 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 ( https://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 66
Footnotes:
66 ?17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-06509 Filed 4-16-25; 8:45 am]
BILLING CODE 8011-01-P