SEC gives green light to NYSE and CBOE for Bitcoin ETF options trading

SEC approval of Bitcoin ETF options expected to inject liquidity, improve market stability, and offer new hedging tools for traders.

Key Takeaways

• SEC’s approval for NYSE and CBOE Bitcoin ETF options could reshape crypto derivatives trading.
• New position and exercise limits aim to prevent market manipulation in Bitcoin ETF options trading.

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The SEC has approved options trading on Bitcoin ETFs listed on both the New York Stock Exchange and the Chicago Board Options Exchange.

This approval allows traders to use Bitcoin ETPs like the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, and the Bitwise Bitcoin ETF as underlying securities for options trading.

Additionally, the SEC granted accelerated approval for the listing and trading of options on other spot Bitcoin ETFs, including the Fidelity Wise Origin Bitcoin Fund, the ARK21Shares Bitcoin ETF, and the Invesco Galaxy Bitcoin ETF on both exchanges.

The filing outlines the criteria for the underlying securities, stating that the options will permit hedging, boost liquidity, and potentially reduce volatility in the underlying Bitcoin ETFs.

The rule amendment also permits the listing and trading of these options under Rule 915, ensuring that the Bitcoin ETFs are treated similarly to commodity-backed ETPs, like those holding gold or silver, that are already listed.

The SEC emphasized that Bitcoin options must adhere to strict position and exercise limits. The Exchange proposes a 25,000 contract limit for Bitcoin Fund options, equating to roughly 0.9% of the outstanding shares for GBTC, 0.7% for BTC, and 3.6% for BITB.

The filing outlines how NYSE and its affiliate, NYSE Arca, will share surveillance data with the Chicago Mercantile Exchange  to monitor trading activities and detect potential manipulation in both spot and futures markets.

The high correlation between CME Bitcoin futures and the spot Bitcoin market makes any suspicious trading activity easily detectable, providing an additional layer of security for investors.

The SEC also noted that the approved position and exercise limits are the lowest available in the options industry, making the new products highly conservative and safe for institutional investors and hedge funds.

Additionally, the filing highlights how the creation and redemption of shares within Bitcoin funds like GBTC ensures that no single entity can dominate the market. Even if multiple market participants held the maximum allowed positions, the market impact would be minimal.

The approval of Bitcoin ETF options on both the NYSE and CBOE is another step in integrating digital assets into traditional finance. As the market evolves, the SEC’s decision could pave the way for further crypto product offerings in regulated financial markets.

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