NYSE Arca Withdraws Proposal for Options on Commodity Trusts and Crypto ETFs

In a recent development, NYSE Arca has retracted its request to implement a rule change that would have facilitated options trading on commodity-based trusts, which includes cryptocurrency exchange-traded funds (ETFs). This action is part of a broader trend of increased regulatory scrutiny surrounding options on crypto funds.

Details of the Withdrawal

The initial proposal, which was put forth in January, aimed to allow for the listing and trading of options on Commodity-Based Trust Shares, including popular crypto ETFs like the Grayscale Bitcoin Trust (GBTC). A document from August 13 indicates that this request has now been withdrawn.

The earlier filings suggested that the SEC needs to address the current inefficiencies in its historical approval process regarding options on spot commodity-based exchange-traded products (ETPs), as stated in a letter from Grayscale Investments addressed to the SEC. This letter specifically called for options on GBTC to be included in the exchanges’ listings.

Recent Related Actions

This decision by NYSE Arca is occurring alongside a notable surge in attempts to list options on spot crypto ETFs. On August 8, Cboe made amendments to its application for options on Bitcoin ETFs. Additionally, Nasdaq has sought SEC approval to list options on BlackRock’s iShares Ethereum Trust (ETHA), as documented in a filing from August 6.

Bloomberg analysts predict that options on spot Bitcoin ETFs could become available by the fourth quarter of this year. An analyst from Bloomberg Intelligence remarked on the ongoing discussions about Bitcoin ETF options, suggesting that feedback from the SEC may have influenced the recent activity.

Implications for Investors

Currently, U.S. investors are permitted to trade options on ETFs that derive their value from Bitcoin through derivatives, but not on ETFs that physically hold Bitcoin. Grayscale’s correspondence stressed that if it is deemed acceptable to trade options for derivatives-based products, the same logic should apply to products that hold the actual asset.

Allowing options trading on spot crypto ETFs could be a significant step toward broader acceptance and adoption within the investment community. Financial advisors, who manage a substantial portion of the ETF market, often utilize options to protect against volatile market shifts. A survey from The Journal of Financial Planning indicated that over 10% of financial advisors actively use options to manage their client portfolios.