2024-27013. Self-Regulatory Organizations; Cboe Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Options on Ethereum Exchange-Traded Funds

Ethereum fund	Shares outstanding
Fidelity Fund	10,850,000
21Shares Fund	760,000
Invesco Fund	468,000
Franklin Fund	1,500,000
VanEck Fund	1,725,000
Grayscale Fund	228,468,500
Grayscale Mini Fund	380,898,500
Bitwise Fund	12,370,000
iShares Fund	37,200,000

The Exchange states that, despite the fact that these Ethereum Funds were in only their third week of trading (they began trading on July 23, 2024), five of these funds already have more than 7,000,000 shares outstanding, which is the minimum number of shares of a corporate stock that the Exchange generally requires to list options on that stock pursuant to Exchange Rule 4.3, Interpretation and Policy .01(a)(1).^[20] However, the Exchange states that shares outstanding ( i.e., free float),^[21] while commonly used to determine investable capacities of corporate stocks, has little utility with respect to ETFs due to the market structure of ETFs.^[22] The Exchange states that proofing of ETF baskets, in addition to the efficiency of creation/redemption mechanisms, decouple concepts of “floating” ETF shares against the impacts of ETF liquidity to the liquidity of ETF constituents.^[23] The Exchange states that although ETF market makers may often limit the amount of floating ETF shares, primary market mechanisms enable virtually limitless capacity to create and redeem ETF shares on a daily basis.^[24] The Exchange states that, as evidenced during their brief time in market, the gross value of daily shares created or redeemed for each Ethereum Fund approximates its assets under management (“AUM”) as of July 24, 2024, which were as follows: ^[25]

Ethereum Fund	AUM
Fidelity Fund	9,481,360
21Shares Fund	148,080,600
Invesco Fund	37,197,280
Franklin Fund	19,301,340
VanEck Fund	9,013,556
Grayscale Fund	8,040,436,000
Grayscale Mini Fund	1,043,203,000
Bitwise Fund	230,788,700
iShares Fund	287,328,200

The Exchange states that this demonstrates that each Ethereum Fund is characterized by a substantial number of outstanding shares.^[26] The Exchange further states that, given how recently Ethereum Funds began trading, the Exchange does not have access to the number of beneficial holders of Ethereum Funds at this time.^[27] However, the Exchange states that, given the significant trading volumes of the Ethereum Funds, it is reasonable to expect that shares of all of the Ethereum Funds are characterized by a substantial number of outstanding shares that are widely held.^[28] The Exchange also believes each Ethereum Fund is characterized by a substantial number of outstanding shares that are actively traded.^[29] The Exchange states that, as of August 7, 2024, the total trading volume (by shares and notional) for each fund since they began trading on July 23, 2024, and the average daily volume (“ADV”) over the five-day period of August 2 through August 7, 2024, for each Ethereum Fund was as follows: ^[30]

Ethereum Fund	Trading volume (shares)	Trading volume (notional $)	ADV (shares)
Fidelity Fund	32,751,647	1,023,590,893.88	1,279,085.00
21Shares Fund	2,995,673	46,584,597.69	183,032.80
Invesco Fund	2,398,977	75,800,517.49	116,423.80
Franklin Fund	3,726,018	89,987,417.90	114,194.60
VanEck Fund	5,557,411	247,424,935.45	288,519.00
Grayscale Fund	221,839,519	5,934,238,584.03	7,429,260.00
Grayscale Mini Fund	387,753,619	1,117,121,565.01	24,800,550.00
Bitwise Fund	27,454,355	638,820,845.28	806,202.19
iShares Fund	124,839,230	2,896,601,784.35	6,720,303.00