2024-28114. Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To List and Trade Various Bitcoin Options

Bitcoin Trust	6-Month trading volume (shares)	30-Day ADV (shares)	30-Day ADV (notional $)
Fidelity Fund	1,112,861,581	6,014,335	250,354,755
ARK 21 Fund	297,360,739	1,893,335	90,484,307

( print page 95312)

Cboe noted that as demonstrated above, despite the fact that the Fidelity Fund and the ARK 21 Fund had been trading for approximately seven months (as of January 10, 2024) only as of August 7, 2024, the six-month trading volume for each as of that date was substantially higher than 2,400,000 shares (approximately 464 and 124 times that amount, respectively), which is the minimum 12-month volume the Exchange generally requires for a corporate stock in order to list options on that security as set forth in Options 4, Section 3(b). Additionally, Cboe noted in in CBOE-2024-035 that as of August 7, 2024, the trading volume for the Fidelity Fund and the ARK 21 Fund was in the top 5% of all ETFs that are currently trading. Cboe noted in CBOE-2024-035 that this data demonstrates the Fidelity Fund and the ARK 21 Fund are characterized as having shares that are actively traded.

Cboe determined the proposed position and exercise limits considering, among other things, the approximate six-month average daily volume (“ADV”) and outstanding shares of the Fidelity Fund and the ARK 21 Fund noted in the filing (which as discussed above demonstrate that these Bitcoin Trusts are widely held and actively traded and thus justify these conservatively proposed position limits), as set forth in in CBOE-2024-035 and below, along with market capitalization (as of August 7, 2024):

Underlying Bitcoin Trust	Six-month ADV (shares)	Outstanding shares	Market capitalization ($)
Fidelity Fund	8,902,893	201,100,100	14,217,013,188
ARK 21 Fund	2,378,886	45,495,000	2,487,666,600

Cboe then compared the number of outstanding shares of the Fidelity Fund and the ARK 21 Fund to those of other ETFs. The following table in CBOE-2024-035 provided the approximate average position (and exercise limit) of ETF options with similar outstanding shares (as of August 27, 2024), compared to the proposed position and exercise limit for options on the Fidelity Fund and the ARK 21 Fund:

Underlying Bitcoin Trust	Average limit of other ETF options (contracts)	Proposed limit (contracts)
Fidelity Fund	188,11023	25,000	Cboe noted in Cboe-2024-035 that over 80% of the ETFs used for comparison had a limit of at least 200,000, and more than half had a limit of 250,000. Additionally, the three-month ADV of the majority of the ETFs used for comparison was lower than the Fidelity Fund three-month ADV of 5,665,027 shares.
ARK 21 Fund	108,69624	25,000	Cboe noted in Cboe-2024-035 that nearly 80% of the ETFs used for comparison had a limit of at least 75,000 (and up to 250,000). Additionally, the three-month ADV of the majority of ETFs used for comparison was lower (many more than four times lower) than the ARK 21 Fund three-month ADV of 1,737,327 shares.

Cboe considered current position and exercise limits of options on ETFs with outstanding shares comparable to those of each the Fidelity Fund and the ARK 21 Fund, with the proposed limit significantly lower (between two and ten times lower) than the average limits of the options on the other ETFs. As discussed above in in CBOE-2024-035, the Fidelity Fund and the ARK 21 Fund are actively held and widely traded: (1) each of these Bitcoin Trusts (as of August 7, 2024) had significantly 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 Options 4, Section 3(b); (2) the Fidelity Fund and the ARK 21 Fund (as of the dates listed above) had significantly more than 2,000 beneficial holders, which is the minimum number of holders the Exchange generally requires for corporate stock in order to list options on that stock pursuant to Options 4, Section 3(b)(2) and; (3) the Fidelity Fund and the ARK 21 Fund had a six-month trading volume substantially higher than 2,400,000 shares, which is the minimum 12-month volume the Exchange generally requires for a security in order to list options on that security as set forth in Options 4, Section 3.

Cboe noted in in CBOE-2024-035 that with respect to outstanding shares, if a market participant held the maximum number of positions possible pursuant to the proposed position and exercise limits, the equivalent shares represented by the proposed position/exercise limit would represent the following approximate percentage of current outstanding shares:

Underlying Bitcoin Trust	Proposed position /exercise limit (in equivalent shares)	Outstanding shares	Percentage of outstanding shares (%)
Fidelity Fund	2,500,000	201,100,100	1.2
ARK 21 Fund	2,500,000	45,495,000	5.5

As this table demonstrated in CBOE-2024-035, if a market participant held the maximum permissible options positions in either the Fidelity Fund or the ARK 21 Fund and exercised all of them at the same time, that market ( print page 95313) participant would control a small percentage of the outstanding shares of the particular underlying Bitcoin Trust. Cboe provided a table in in CBOE-2024-035 noting the equivalent shares of the position limits applicable to equity options, including ETFs, further represents the percentages of the minimum number of outstanding shares that an underlying stock or ETF must have to qualify for that position limit (under the second method described above), all of which are higher than the percentages for the Fidelity Fund and the ARK 21 Fund.

Position/exercise limit (in equivalent shares)	Minimum outstanding shares	Percentage of outstanding shares (%)
2,500,000	6,300,000	40.0
5,000,000	40,000,000	12.5
7,500,000	120,000,000	6.3
20,000,000	240,000,000	8.3
25,000,000	300,000,000	8.3

6,300,000 is the minimum number of outstanding shares an underlying security must have for the Exchange to continue to list options on that security, so this would be the smallest number of outstanding shares permissible for any corporate option that would have a position limit of 25,000 contract. See Options 4, Section 3(b). This rule applies to corporate stock options but not ETF options, which currently have no requirement regarding outstanding shares of the underlying ETF for the Exchange to continue listing options on that ETF. Therefore, there may be ETF options trading for which the 25,000 contract position limits represent an even larger percentage of outstanding shares of the underlying ETF than set forth above.

CBOE-2024-035 provided that the equivalent shares represented by the proposed position and exercise limits for the Fidelity Fund and the ARK 21 Fund as a percentage of outstanding shares of the underlying Bitcoin Trust is significantly lower than the percentage for the lowest possible position limit for equity options of 25,000 (under 6% compared to 40%) and is lower than that percentage for each current position limit bucket.^[12]

GBTC, BTC and BITB

NYSE American LLC (“NYSE American”) noted in NYSEAmerican-2024-49 that, as of August 30, 2024, GBTC, BTC and BITB had the following number of shares outstanding (and corresponding market capitalization):

Bitcoin Trust	Shares outstanding	Market value (08/30/2024) ($)
GBTC	284,570,100	13,443,091,524
BTC	366,950,100	1,930,157,526
BITB	68,690,000	2,221,640,670

NYSE American noted in NYSEAmerican-2024-49 that, as displayed in the above table, GBTC, BTC and BITB had significantly 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 Options 4, Section 3(b). NYSE American noted in NYSEAmerican-2024-49 that this demonstrated that GBTC, BTC and BITB are characterized by a substantial number of outstanding shares. Further, as provided in NYSEAmerican-2024-49 the below table contained information regarding the number of beneficial holders of GBTC, BTC and BITB as of August 14, 2024.

Bitcoin Trust	Beneficial holders (8/14/24)
GBTC	464,364
BTC	13,403
BITB	75,437

As shown in NYSEAmerican-2024-49, the table showed that GBTC, BTC and BITB each had significantly more than 2,000 beneficial holders (approximately 232, 7, and 38 times more, respectively), which is the minimum number of holders the Exchange generally requires for corporate stock in order to list options on that stock pursuant to pursuant to Options 4, Section 3(b)(2).^[13] Therefore, NYSE American noted that the shares of each GBTC, BTC and BITB are widely held. In addition, NYSE American noted that the shares of each GBTC, BTC and BITB are actively traded. NYSEAmerican-2024-49 provided, as of September 30, 2024, that the total trading volume (by shares and notional) for these funds since they began trading ^[14] and the average daily volume (“ADV”) over the 30-day period of September 1 through September 30, 2024, was as follows:

Bitcoin Trust	Trading volume (shares)	Trading volume (notional $)	ADV (shares)
GBTC	1,803,567,700	93,472,544,497	3,266,138
( print page 95314)
BTC	335,492,930	1,792,866,521	6,838,546
BITB	434,815,840	14,433,361,384	1,949,835

As demonstrated above and in NYSEAmerican-2024-49, even though GBTC, BTC and BITB were trading for less than one year (and in the case of the BTC, less than two months), the trading volume for each was substantially higher than 2,400,000 shares (between roughly 165 and 700 times that amount), which is the minimum 12-month volume the Exchange generally requires for a security in order to list options on that security as set forth in Options 4, Section 3(b). NYSE American noted that this data demonstrated that GBTC, BTC and BITB are characterized by a substantial number of outstanding shares that are actively traded.

NYSE American noted in NYSEAmerican-2024-49 that BTC began trading on July 31, 2024, and therefore had only two months of trading data available at the time of filing NYSEAmerican-2024-49. In terms of total volume, NYSEAmerican-2024-49 provided the below table.

Bitcoin Trust	Total volume (9/30/2024)
GBTC	723,758,100 (6-months).
BTC	335,492,930 (2-months).
BITB	263,965,870 (6-months).

NYSE American noted in NYSEAmerican-2024-49 that based on the most-recent trading volume, GBTC, BTC and BITB exceeded the requisite minimum of 100,000,000 shares necessary to qualify for the 250,000-contract position and exercise limits. By comparison, NYSE American noted that other options symbols with six-month trading volume less than GBTC, BITB, and BTC were eligible for position and exercise limits of at least 250,000.^[15] NYSEAmerican-2024-49 provided, with respect to the outstanding shares of each Bitcoin Trust, if a market participant held the maximum number of contracts possible pursuant to the proposed position and exercise limits (25,000 contracts), the equivalent shares represented by the proposed position/exercise limit (2,500,000 shares) would represent the following approximate percentage of current outstanding shares:

Bitcoin Trust	Proposed position/exercise limit 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

As this table demonstrated in NYSEAmerican-2024-49, if a market participant held the maximum permissible options positions in any one of GBTC, BTB or BITB options and exercised all of them at the same time, that market participant would control a small percentage of the outstanding shares of the underlying GBTC, BTB or BITB. For example, as noted above, a position limit of 25,000 same side contracts effectively restricts a market participant from holding positions that could result in the receipt of no more than 2,500,000 shares of the applicable Bitcoin Trust (if that market participant exercised all its options). Based on the number of shares outstanding for each of GBTC, BTB or BITB as of August 30, 2024, NYSE American noted in NYSEAmerican-2024-49 and the table below, that the approximate number of market participants that could hold the maximum of 25,000 same side positions in each of GBTC, BTB and BITB that would equate to the number of shares outstanding of that Bitcoin Trust:

Bitcoin Trust	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

NYSE American concluded in NYSEAmerican-2024-49 that this meant if 114 market participants had 25,000 same side positions in options on GBTC, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security under stress. Similarly, this means if 147 market participants had 25,000 same side positions in options on BTC, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security under stress. Finally, this means if 27 market participants had 25,000 same side positions in options on BITB, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security under stress. ( print page 95315) NYSE American noted in NYSEAmerican-2024-49 that it believed it was highly unlikely for this to occur; however, even if such event did occur, NYSE American would not expect GBTC, BTB or BITC to be under stress because such an event would merely induce the creation of more shares through the trust's creation and redemption process. Further, given that the issuer of each of GBTC, BTB or BITC may create and redeem shares that represent an interest in Bitcoin, NYSE American noted in NYSEAmerican-2024-49 that it is relevant to compare the size of a position limit to the market capitalization of the Bitcoin market. NYSE American noted in NYSEAmerican-2024-49 that, as of August 30, 2024, the global supply of Bitcoin was 19,747, 066, and the price of one Bitcoin was approximately $59,108.23,39 which equates to a market capitalization of approximately $1.167 trillion.^[16] NYSE American stated in NYSEAmerican-2024-49 that a position and exercise limit of 25,000 same side contracts effectively restricts a market participant from holding positions that could result in the receipt of no more than 2,500,000 shares of GBTC, BTC, or BITB, as applicable (if that market participant exercised all its options). NYSE American presented the below table with the share price of each of GBTC, BTC and BITB on August 30, 2024, the value of 2,500,000 shares of the particular Bitcoin Trust at that price, and the approximate percentage of that value of the size of the Bitcoin market:

Bitcoin Trust	Aug. 30th share price ($)	Value of 2,500,000 shares of Bitcoin Trust ($)	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

NYSE American concluded that, if a market participant with the maximum 25,000 same side contracts in options on GBTC, BTC, or BITB exercised all positions at one time, such an event would have no practical impact on the Bitcoin market. NYSE American also reviewed the market capitalization of each Bitcoin Trust relative to the market capitalization of the entire bitcoin market, as of August 30, 2024.

	Bitcoin/shares outstanding	Market value (8/30/2024) ($)	% of total Bitcoin market (%)
Total Bitcoin Market	19,747,066	$1,167,214,096,788	100.00
GBTC	284,570,100	$13,443,091,524	1.15
BTC	366,950,100	$1,930,157,526	0.17
BITB	68,690,000	$2,221,640,670	0.19

As shown above and in NYSEAmerican-2024-49, GBTC, BTC and BITB collectively represented approximately 1.51% of the global supply of Bitcoin (19,747,066). Based on the $46.75 price of a GBTC share on August 30, 2024, a market participant could have redeemed one Bitcoin for approximately 1,264 GBTC shares. Further, NYSE American noted that another 24,967,146,455 GBTC shares could be created before the supply of Bitcoin was exhausted. NYSEAmerican-2024-49 provided that as a result, 9,987 market participants would have to simultaneously exercise 25,000 same side positions in GBTC options to receive shares of the GBTC holding the entire global supply of Bitcoin. NYSEAmerican-2024-49 also provided that based on the $5.20 price of a BTC share on August 30, 2024, a market participant could have redeemed one Bitcoin for approximately 11,367 BTC shares. Another 224,464,249,382 BTC shares could be created before the supply of Bitcoin was exhausted. NYSE American stated that as a result, 89,786 market participants would have to simultaneously exercise 25,000 same side positions in BTC options to receive shares of BTC holding the entire global supply of Bitcoin. Similarly, NYSE American noted that based on the $31.95 price of a BITB share on August 30, 2024, a market participant could have redeemed one Bitcoin for approximately 1,850 BITB shares. NYSEAmerican-2024-49 provided that another 36,532,522,591 BITB shares could be created before the supply of Bitcoin was exhausted. NYSE American concluded that as a result, 14,613 market participants would have to simultaneously exercise 25,000 same side positions in BITB options to receive shares of BITB holding the entire global supply of Bitcoin. NYSE American also concluded that, unlike GBTC, BTB and BITB, the number of shares that corporations may issue is limited. NYSEAmerican-2024-49 provided that, however, like corporations, which authorize additional shares, repurchase shares, or split their shares, the Bitcoin Trusts may create, redeem, or split shares in response to demand and while the supply of Bitcoin is limited to 21,000,000, it is believed that it will take more than 100 years to fully mine the remaining Bitcoin.^[17] NYSE American noted that the supply of Bitcoin is larger than the available supply of most securities.^[18] NYSE American concluded that given the significant unlikelihood of any of these events ever occurring, NYSE American noted that it did not believe options on GBTC, BTC and BITB should be subject to position and exercise limits even lower than those proposed (which are already equal to the lowest available limit for equity options in the industry) to protect the supply of Bitcoin. NYSE American also noted in ( print page 95316) NYSEAmerican-2024-49 that it believed the proposed limits are appropriate given position limits for Bitcoin futures. NYSE American noted that the Chicago Mercantile Exchange (“CME”) imposed a position limit of 2,000 futures (for the initial spot month) on its Bitcoin futures contract.^[19] Further, NYSE American provided that on August 28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. NYSE American noted that a position of 2,000 CME Bitcoin futures, therefore, would have a notional value of $589,500,000. NYSEAmerican-2024-49 provided the following table with the share price of each of GBTC, BTC and BITB on August 28, 2024, and the approximate number of option contracts that equates to that notional value:

Bitcoin Trust	Aug. 28th share price	Number of options contracts
GBTC	46.94	125,585
BTC	5.23	1,127,151
BITB	32.08	183,759