The Securities and Exchange Commission (SEC) last month approved spot bitcoin ETFs, in a watershed for the crypto industry. Ten products are trading since January 11th.
Options are listed derivatives that give the holder the right to buy or sell an asset, such as a stock or exchange-traded product, at a predetermined price before a set date. They offer traders a cheap way to increase their purchasing power, while institutional investors often use them to hedge risk.
Options for the bitcoin ETFs are delayed because there is no established regulatory process to approve them, the people said.
The SEC oversees technical rule changes that exchanges must make to list options, and typically approves them days after an ETF begins trading. But because regulators view bitcoin as a commodity, spot bitcoin ETF options may also require approval from the Commodity Futures Trading Commission (CFTC), which oversees commodity derivatives, the people said.
Products related to the spot bitcoin ETFs could raise questions about jurisdiction and oversight that the CFTC is still sorting out, said a person familiar with the matter, who declined to be identified discussing regulatory matters.
“This dual regulatory engagement adds a layer of complexity and potential for what some might call regulatory headaches,” said Martin Leinweber, digital asset product strategist at MarketVector Indexes, which provides the benchmark for VanEck’s spot bitcoin ETF. He expects it could take between two and ten months for the approvals.
Without the options, big investors, who analysts said could help drive as much as $100 billion into the ETFs, face risk management problems. That can lead some to “stay away altogether,” said Yesha Yadav, a law professor at Vanderbilt University.
The delay is also an obstacle to the crypto industry’s goal of bringing more innovative crypto products to market.
“The markets really want to go there, but the regulators are the gatekeepers,” said John Roglieri, head of capital markets at FalconX, marketer for the ETFs.
While it is not unprecedented for options to require dual approval, it is rare. In the case of the first ETF linked to a physical commodity, the SPDR Gold Shares ETF, it took more than three years for the CFTC to approve the options. Regulators never signed off on a 2010 application to launch options on platinum and palladium ETFs.
The SEC did not respond to a request for comment. The CFTC declined to comment.
Nasdaq, CBOE and NYSE Arca, which list the ETFs, in January sought SEC approval to launch the options, according to notices on their websites. CBOE said it expects to list options “later in 2024.”
The Options Clearing Corporation (OCC), which clears options for exchanges, must seek CFTC approval to clear and settle commodity-based securities. The OCC said it is working with its regulators on required approvals, but declined to comment on a potential timeframe.
Some exchange executives are expected to meet with CFTC officials to discuss the matter soon, according to a second person familiar with the matter.
Given that it took 10 years for the SEC to approve bitcoin ETFs, a delay in the options would not be surprising, said Adam Sze, head of digital assets product at Global X, which withdrew its own application for a spot bitcoin ETF on Tuesday.
“A few more months for listed elections probably isn’t that long in the grand scheme of things.”
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Published: 01 Feb 2024, 16:59 IST