SEC Initiates Consultations on Rule Change for Bitcoin Trading Options

The United States Securities and Exchange Commission (SEC) has initiated consultations on a proposed rule change for the trading of options on Bitcoin exchange-traded funds (ETFs). The SEC is seeking public input on the potential impacts of introducing Bitcoin options trading on the broader market, particularly during periods of market turbulence.

Reviewing the Impact of Bitcoin Options Trading

The SEC aims to investigate the potential effects of introducing Bitcoin options trading on the broader market. This review will focus on whether exchanges' current surveillance and enforcement mechanisms are sufficient to manage the distinctive characteristics of Bitcoin options. The SEC wants to ensure that proper measures are in place to handle market volatility and protect investors.

Requests for Options Trading on Bitcoin ETFs

Several 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. 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.

Public Input and Regulatory Considerations

Interested parties are invited to submit their initial comments within 21 days following the official registration of the document, with the final deadline set for May 15, 2024. The SEC is also questioning whether options trading on spot Bitcoin ETFs should adhere to the same regulations as stocks. This includes considering whether options on Bitcoin ETFs 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 ETFs.

Potential Benefits and Delays

The SEC has previously solicited feedback on the proposed rule change and has incorporated the received commentary in its filing. Most of the comments highlighted the potential benefits of introducing options on Bitcoin ETFs, citing enhanced liquidity and bolstered market efficiency. However, the decision-making process regarding options trading has faced delays, with the SEC extending the review period for allowing options trading on Grayscale and Bitwise Bitcoin ETFs, setting a new decision date for May 29, 2024.

Industry Perspectives and Regulatory Clearance

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. These firms believe that options trading on spot Bitcoin ETFs could provide investors with hedging strategies and risk management tools. They draw parallels to the approval process for options on spot gold ETPs following their initial approval.

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