SEC Begins Consultations on Rule Change for Bitcoin Trading Options
Hassan Shittu
Last updated:
April 25, 2024 20:09 EDT
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2 min read
The Securities and Exchange Commission (SEC) of the United States has launched a new phase of discussions on April 24 regarding a proposed rule change for the trading of options on Bitcoin exchange-traded funds (ETFs). The SEC is also seeking public input on the matter.
Several exchanges are eager to trade options on the recently approved spot bitcoin ETFs, but they have faced delays.
SEC Reviews Impact of Bitcoin Options Trading, Seeks Public Feedback
As stated in the filing, the SEC will examine the potential effects of introducing Bitcoin options trading on the broader market, particularly during periods of market volatility. The review will assess whether the current surveillance and enforcement mechanisms of exchanges are adequate to handle the unique characteristics of Bitcoin options.
Multiple 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 revealed 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 plans to facilitate options trading across a range of Bitcoin holding ETPs.
Interested parties are encouraged to submit their initial comments within 21 days following the official registration of the document, with the final deadline set for May 15. Additionally, rebuttal comments can be submitted until May 29.
The agency also raised questions about whether options trading on spot bitcoin ETFs should be subject to the same regulations as stocks.
The filing stated, “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.”
Bitcoin options are financial instruments that give the buyer the right, but not the obligation, to buy or sell Bitcoin at a predetermined price by a specified date. Options trading, like other investments, carries inherent risks and is typically utilized by experienced traders familiar with option pricing and market dynamics.
SEC Delays Decision on Options Trading for Bitcoin ETPs
The SEC previously sought feedback on the proposed rule change and has included the received commentary in its filing. Most of the comments highlighted the potential benefits of introducing options on Bitcoin ETPs, such as increased liquidity and improved market efficiency.
The feedback has emphasized the potential benefits, with some suggesting that options trading on spot bitcoin ETFs could provide investors with hedging strategies and risk management tools.
The latest delay follows a previous postponement in the SEC’s decision-making process regarding options trading earlier this month.
Meanwhile, asset management firms like Bitwise and Grayscale are actively seeking 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 underscored 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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