The United States Securities and Exchange Commission (SEC) has initiated a fresh round of consultations regarding a proposed rule change aimed at facilitating the trading of options on Bitcoin Exchange-Traded Products (ETPs).
Potential Impacts of Listing Bitcoin Options
The move, detailed in a filing dated April 24, signifies the SEC’s endeavor to gain deeper insights into the potential impacts of listing Bitcoin options, particularly during volatile market conditions. This review will assess whether the existing surveillance and enforcement mechanisms of exchanges are robust enough to manage the unique characteristics of Bitcoin options.
The deadline for initial comments on the proposal is set at 21 days from the official registration of the document, making the final submission date May 15. Furthermore, rebuttal comments can be submitted until May 29.
It’s worth mentioning that Bitcoin options are financial instruments that grant the buyer the right, though not the obligation, to buy or sell bitcoin at a predetermined price by a specified date. Typically, options are favored by traders well-versed in option pricing and market dynamics. However, it’s important to note that options trading involves risks that may not be suitable for all investors.
Previous Comments on Proposed Rule Change
The SEC has previously solicited comments on the proposed rule change and has incorporated the received feedback into its filing. Many of the comments emphasized the potential benefits of options on Bitcoin ETPs, particularly in enhancing liquidity and market efficiency.
In detailing their proposals, the exchanges highlighted their intention to amend rules to permit the listing and trading of options on shares representing interests in trusts holding spot bitcoin or specified trusts holding spot bitcoin.
These trusts, collectively known as Bitcoin ETPs, hold spot bitcoin, with their investment objective being to mirror the performance of bitcoin, minus operating expenses, thus offering investors exposure to bitcoin without the complexities of direct investment.
One commenter underscored that options serve as efficient risk management tools, offering investors the flexibility to take on or mitigate risks. Moreover, another commenter points out that options on spot bitcoin ETPs could bolster price discovery in the underlying ETP shares. This could enhance market efficiency, and assist investors in achieving their desired investment objectives, such as income generation, hedging, or volatility reduction. The filing further states:
“In addition, the commenter stated that approving the listing and trading of options on spot Bitcoin ETPs “would further bring Bitcoin into the regulatory perimeter by allowing additional regulated market participants such as CFTC regulated designated contract merchants and SEC-regulated broker-dealers to trade the products.””
Financial Institutions Interested in Futures
Several financial institutions, including Nasdaq and Cboe, have submitted proposals to the SEC requesting permission to trade Bitcoin options. Nasdaq’s proposal aims to list and trade options on BlackRock’s iShares Bitcoin Trust, whereas Cboe seeks to offer options trading on various ETPs holding bitcoin.
Moreover, asset management firms like Bitwise and Grayscale are also seeking regulatory approval to list options on their recently-launched Bitcoin ETFs through applications submitted to the New York Stock Exchange (NYSE).
