Nasdaq’s ISE is asking the SEC to lift the iShares Bitcoin Trust option limits to one million contracts, allowing for greater institutional hedging but potentially more volatility.
Summary
- The proposal would move iShares Bitcoin Trust into a top derivatives tier alongside Apple Nvidia the S&P500 and Nasdaq-100 with reference to market capitalization and volume
- A contract position of one million would be equivalent to approximately 7.5% of the ETF’s float and 0.284% of all bitcoin. allowing dealers to hedge larger pension and hedge fund flows
- Analysts say higher limits and relief on FLEX options could tighten spreads and support structured products, but could also increase volatility as dealers rebalance high gamma risk.
Nasdaq’s International Securities Exchange filed a proposal with the U.S. Securities and Exchange Commission on Nov. 26 to increase position limits on BlackRock’s iShares Bitcoin Trust options from 250,000 contracts to one million. according to to regulatory documents.
Nasdaq iShares Bitcoin ETF option limits are being increased
The filing calls for the Bitcoin exchange-traded (BTC) fund to be reclassified into the same derivatives tier as major stock indexes and large-cap stocks, including Apple, NVIDIA, the S&P 500 and the Nasdaq-100.
The exchange argued in its comments that the existing limit limits trading and hedging strategies, noting that the fund’s market capitalization and average trading volume make it among the largest products on US exchanges. The iShares Bitcoin Trust is currently the largest Bitcoin ETF by assets.
According to the filing, a fully exercised contract position of one million would represent approximately 7.5% of the fund’s float and 0.284% of all existing bitcoin.
The proposed limit expansion would allow market makers to hedge larger positions that align with institutional flows from pension funds and hedge funds, the filing said. Under current restrictions, dealers face limitations in managing delta, gamma and vega exposures in large-scale transactions.
According to market data, the iShares Bitcoin Trust has surpassed Deribit as the largest open interest venue for Bitcoin options this year, indicating a shift in price trends towards regulated US venues.
Industry analysts note that higher position limits could facilitate the creation of structured products, including capital-protected baskets and yield-bearing instruments that provide Bitcoin exposure without direct ownership of the cryptocurrency. However, regulatory frameworks such as Staff Accounting Bulletin 121 continue to pose challenges to how regulated entities hold digital assets.
The filing also calls for the elimination of limits on custom, physically delivered FLEX options, which could allow large block trades to migrate from over-the-counter swaps to listed structures.
Market structure experts note that extended position limits typically narrow bid-ask spreads, but can also increase volatility during sharp price moves if dealers are forced to quickly hedge large gamma exposures.
The SEC has not announced a timeline for its decision on the proposal. The commission typically allows a public comment period before ruling on changes to exchange rate rules.
