FR 2025-03074

Nasdaq ISE, LLC has submitted a proposal to amend its rules to allow the trading of options on Commodity-Based Trust Shares. These shares are involved with commodities like gold or bitcoin and are held within a trust. If the rule change is implemented, these options would be traded in the same way as traditional Exchange-Traded Funds (ETFs). The Securities and Exchange Commission (SEC) is currently reviewing this rule change and is accepting public comments to ensure it aligns with securities laws and maintains a fair market environment.

Key Points of the Document

The document describes how Nasdaq ISE wishes to expand the criteria for listing options. This expansion involves including Commodity-Based Trust Shares, which are a relatively novel financial product. These trust shares operate by holding specific commodities or a combination of commodities and cash in a trust, allowing for the trading of options based on these holdings. The proposal aims to provide investors with additional tools to manage risk, presumably enhancing market liquidity and transparency.

Issues and Concerns

Several noteworthy concerns arise from the document:

• Complexity and Jargon: The technical language might be difficult for those unfamiliar with financial regulations to understand. Consequently, this could hinder public engagement and limit the ability of everyday investors to provide input.

• Financial Impact and Stakeholder Effects: There is no detailed analysis of the potential financial implications or costs associated with implementing this rule change. It is unclear how smaller investors or exchanges might be affected compared to larger, more established entities.

• Reference Removal: The rationale behind withdrawing references to certain Commodity-Based Trust Shares, such as the SPDR® Gold Trust, lacks clarity. Stakeholders might benefit from more information on why these references are being removed.

• Surveillance and Safeguards: While the proposal mentions surveillance measures, it does not detail the mechanisms in place to prevent manipulative behaviors, which could be critical for investor confidence.

• Risks and Drawbacks: Potential risks, like those associated with market instability or diminished investor protections due to this change, are not addressed. A comprehensive overview of these risks would provide a more balanced view.

Broader Public Impact

For the general public, particularly investors, the proposed rule change could increase accessibility to new investment products and strategies, offering additional methods for risk diversification. However, the absence of a plain-language explanation might make it harder for average investors to fully understand and take advantage of these opportunities.

Impact on Stakeholders

• Investors: The ability to trade options on a broader range of trust shares might give investors new avenues to hedge investments or speculate. This could attract traders looking for diverse investment strategies.

• Regulatory Bodies: The rule change would require regulators to ensure that adequate surveillance and safeguards are in place to prevent market manipulation and protect investors.

• Market Participants: Larger financial entities might find it easier to adapt to these changes than smaller players, potentially affecting competitive dynamics in the market.

Conclusion

The proposed amendments by Nasdaq ISE, LLC could expand investment options available to the public, offering potentially innovative ways to engage with commodities markets. However, the lack of transparency concerning the proposed changes' implications, costs, and potential risks underscores the need for careful consideration and robust public dialogue. Enhanced stakeholder engagement, particularly with clearer explanations and comprehensive impact assessments, would be beneficial for fostering a more transparent and inclusive rule-making process.

The document discusses proposed amendments by Nasdaq ISE, LLC, to allow the listing and trading of options on Commodity-Based Trust Shares. Within this context, there are several important financial references that merit further examination and explanation.

Financial References and Programs

The document outlines that the interval between strike prices of options on a Commodity-Based Trust Share would be $1 or greater when the strike price is $200 or less, and $5 or greater when the strike price is greater than $200. These intervals are part of the Exchange's framework for managing and listing new options, helping to standardize how these options are priced and traded.

Additionally, the Exchange mentions existing programs such as the $1 Strike Price Interval Program, the $0.50 Strike Program, the $2.50 Strike Price Program, and the $5 Strike Program. These programs provide structured intervals for listing options, making them more accessible and comprehensible for traders who wish to engage in transactions with precise pricing structures.

For option series where the price is less than $3.00, the minimum increment will be $0.05, whereas, for option series priced at $3.00 or higher, the increment is set at $0.10. This precision in increments is crucial as it impacts how trades are executed and managed, having a direct implication on both the liquidity and attractiveness of options trading to investors.

There is also a mention of participation in the Penny Interval Program, where the minimum increment would be $0.01 for series priced below $3.00 and $0.05 for series priced at or above $3.00. This program allows for even finer granularity and flexibility in pricing, which could facilitate greater market activity and potentially attract more investors due to the possibility of tighter spreads.

Relation to Identified Issues

One issue identified in the document is the complex legal and regulatory language, which could limit public engagement and understanding. The financial references and pricing programs mentioned could be particularly opaque to laypersons unfamiliar with the intricacies of options trading. Making these programs and pricing increments clearer and more relatable could alleviate some of the issues with public comprehension and potentially enhance stakeholder engagement.

Moreover, the lack of a clear statement regarding the financial impact of this rule change is also notable. By providing more context on how these structured pricing programs impact market liquidity and investor costs, the document could address concerns about potential financial implications more clearly. For example, explaining how these increments and programs might affect trading costs, market stability, or investor protection could offer the public a clearer understanding of both the short-term and long-term financial impacts.

In summary, while the document provides detailed financial references concerning the listing of options on Commodity-Based Trust Shares, it could enhance understanding and address certain issues by simplifying explanations and outlining potential impacts on investors and the market. Addressing these points could make the proposal more transparent and accessible to a broader audience.