TLDR:
- The SEC has permitted Nasdaq to list options for BlackRock’s Bitcoin ETF.
- Since March 2024, BlackRock has been advocating for approval post the SEC's nod on Bitcoin ETFs.
- Nasdaq's International Securities Exchange has revised rules to mitigate concerns over market manipulation and trading risks.
- A cap of 25,000 contracts is imposed on IBIT options to maintain market stability.
- The options are structured to settle in physical form, employing an American exercise style.
The U.S. Securities and Exchange Commission has approved Nasdaq ISE's plans to trade options related to BlackRock’s iShares Bitcoin Trust (IBIT). BlackRock, a top-tier global asset manager, has been in the pursuit of this options listing approval since March 2024. This is in alignment with the SEC’s prior approvals for various Bitcoin ETFs, paving the way for an expansion in crypto-based financial instruments.
The approval process demanded that Nasdaq ISE propose changes to avert potential market manipulation and curtail excessive speculative behavior in this emerging market.
Discussions have intensified over the past 12 hours regarding IBIT options. Here’s a bit more insight.
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A critical revision was the setting of a cap and exercise limitations at 25,000 contracts for options linked to IBIT. This cap is considered conservative by Nasdaq in relation to market size and liquidity.
— Fred Krueger (@dotkrueger) September 21, 2024
The sanctioned IBIT options will see physical settlement, which means the actual ETF shares will be delivered upon exercising the option. They also allow American-style exercise, granting holders the flexibility to act on their contracts pre-expiry.
This adaptability equips investors with more robust tools for adjusting their Bitcoin price exposure.
BlackRock’s Bitcoin ETF has gained remarkable momentum since its start in early 2024. It now stands as a highly-liquid Bitcoin asset in the U.S., captivating both individual and institutional investors. The addition of options around this ETF amplifies the suite of Bitcoin-linked financial offerings.
Despite greenlighting, the SEC’s decision surfaces amid ongoing discussions about the inherent risks in cryptocurrency derivatives.
During the evaluation process, feedback highlighted issues such as market instability and the seamless blend of cryptocurrency with established financial sectors. There were calls urging the SEC to postpone decisions until the Bitcoin market showed steadier footing.
Nonetheless, the SEC concluded that Nasdaq’s surveillance systems, including real-time market monitoring and agreements with CME, were satisfactory in addressing these apprehensions.
Concurrently, Nasdaq has proposed to the SEC a scheme to launch and allow trading of options on a prospective iShares Ethereum Trust by BlackRock. This trust would incorporate Ethereum and cash, securely managed by Coinbase and The Bank of New York Mellon, respectively. It is clarified that the trust will not engage in Ethereum’s proof-of-stake validation nor utilize its assets for staking rewards.
This Ethereum options initiative is a step forward following numerous pleas to alter rules to permit trading of options associated with both Bitcoin and Ethereum ETFs in the U.S. Despite some pushback due to concerns over market firmness, these efforts persist.
Editor-in-Chief of Blockonomi and the brain behind Kooc Media, a forward-looking UK-based digital media company. A staunch advocate for open-source software, blockchain innovation, and a universally accessible, equitable Internet.
