SEC Initiates Consultations on Rule Change for Bitcoin Trading Options

The United States Securities and Exchange Commission (SEC) initiated a new phase of discussions on April 24 regarding a proposed rule alteration for the trading of options on Bitcoin exchange-traded funds (ETFs) while also inviting public input on the matter.

Multiple exchanges are looking to trade options on the newly approved spot bitcoin ETFs, though they have been met with delays.

SEC Initiates Review of Bitcoin Options Trading Impact, Seeks Public Feedback

As outlined in the filing, the SEC will investigate the potential impacts of introducing Bitcoin options trading on the broader market, particularly during periods of market turbulence. The review will scrutinize whether exchanges’ current surveillance and enforcement mechanisms are sufficient to manage the distinctive characteristics of Bitcoin options.

Various exchanges, including Cboe Exchange, Inc., BOX Exchange LLC, MIAX International Securities Exchange LLC, Nasdaq ISE, LLC, and NYSE American LLC, have submitted requests to enable options trading on recently approved spot bitcoin ETFs, as disclosed in the SEC’s filing published on Thursday.

Nasdaq’s application would list and trade options tied to BlackRock’s iShares Bitcoin Trust, while Cboe intends to facilitate options trading across a spectrum of ETPs holding Bitcoin.

The SEC has extended the review period for allowing options trading on Grayscale and Bitwise Bitcoin ETFs, with a new decision date set for May 29.#SEC #BTCETFhttps://t.co/5HCxjgTaEh

— Cryptonews.com (@cryptonews) April 9, 2024

Interested parties are invited to submit their initial comments within 21 days following the official registration of the document, setting the final deadline for May 15. Additionally, rebuttal comments may be submitted until May 29.

The agency also questioned whether options trading on spot bitcoin ETFs should adhere to the same regulations as stocks.

“Whether options on the specified Bitcoin ETPs should be subject to the same position limits as options on stock, and whether the available supply in the markets for Bitcoin should be considered in establishing position limits for options on Bitcoin ETPs,” the filing read.

Bitcoin options are financial instruments that grant the purchaser the right, but not the obligation, to buy or sell Bitcoin at a predetermined price by a specified date. Typically utilized by traders well-versed in option pricing and market dynamics, options trading, similar to other investments, carries inherent risks that may not align with all investors’ risk tolerance levels.

SEC Delays Decision on Options Trading for Bitcoin ETPs

Public Input Sought by SEC on Bitwise, Grayscale Bitcoin ETF Options

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— Cryptonews.com (@cryptonews) February 25, 2024

The SEC previously solicited feedback on the proposed rule amendment and has incorporated the received commentary in its filing. Most of the comments highlighted the potential benefits of introducing options on Bitcoin ETPs, citing enhanced liquidity and bolstered market efficiency.

The feedback has highlighted potential benefits, with some suggesting that options trading on spot bitcoin ETFs could provide investors with hedging strategies and risk management tools.

SEC Delays Decision on Options Trading on Spot Bitcoin ETFs

The US SEC has delayed the decision to approve options trading on the spot Bitcoin ETFs.#CryptoNews #newshttps://t.co/GZ9NGTcocc

— Cryptonews.com (@cryptonews) March 8, 2024

The latest delay follows a previous postponement in the SEC’s decision-making process regarding options trading earlier this month.

Meanwhile, asset management firms such as Bitwise and Grayscale are actively pursuing regulatory clearance to list options on their Bitcoin ETFs through applications to the New York Stock Exchange.

In a February comment letter, Grayscale CEO Michael Sonnenshein emphasized the logical progression of approving options on these products.

“It stands to reason that, now that spot Bitcoin ETPs have been approved for trading on NYSE Arca pursuant to the Rule 19b-4 process, the natural next step is the approval of options on spot Bitcoin ETPs,” Sonnenshein said.

He drew parallels to the approval process for options on spot gold ETPs following their initial approval.

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