Key takeaways
- SEC approval for NYSE and CBOE Bitcoin ETF options could reshape crypto derivatives trading.
- The new position and exercise limits aim to prevent market manipulation in Bitcoin ETF options trading.
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The SEC has approved the trading of options on Bitcoin ETFs that are listed on both NYSE and the Chicago Board Options Exchange.
This approval allows traders to use Bitcoin ETPs such as Grayscale Bitcoin Trust, Grayscale Bitcoin Mini Trust, and 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 allow hedging, increase liquidity, and potentially reduce volatility in the underlying Bitcoin ETFs.
The rule amendment also allows for the listing and trading of these options under Rule 915, ensuring that Bitcoin ETFs are treated similarly to commodity-backed ETPs, such as those holding gold or silver, which are already listed. .
The SEC emphasized that Bitcoin options must comply with strict position and exercise limits. The Exchange proposes a limit of 25,000 contracts for Bitcoin Fund options, which is equivalent to approximately 0.9% of outstanding shares for GBTC, 0.7% for BTC and 3.6% for BITB.
The filing describes how NYSE and its subsidiary, NYSE Arca, will share surveillance data with the Chicago Mercantile Exchange to monitor trading activities and detect potential manipulations in the spot and futures markets.
The high correlation between CME Bitcoin futures and the Bitcoin spot 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 presentation highlights how the creation and redemption of shares within Bitcoin funds like GBTC ensures that no single entity can dominate the market. Even if several market participants held the maximum permitted positions, the impact on the market would be minimal.
The approval of Bitcoin ETF options on both the NYSE and CBOE is another step in the integration of digital assets into traditional finance. As the market evolves, the SEC’s decision could pave the way for new crypto product offerings in regulated financial markets.
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