Key Takeaways
- Nasdaq ISE has proposed a tenfold increase to the position and exercise limits for IBIT options.
- The rationale behind this proposal is the rising trading volumes and liquidity associated with IBIT.
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Nasdaq ISE, LLC (ISE), the options exchange owned by Nasdaq, has recently proposed an amendment to the SEC aiming to raise the position and exercise limits for options on the iShares Bitcoin Trust ETF (IBIT) from 25,000 to 250,000 contracts.
The existing position and exercise limits for IBIT options are regarded as relatively low in the options trading landscape. The proposed adjustment, pending SEC approval, seeks to meet the escalating trading volume and liquidity associated with IBIT, which stands as the foremost fund holding Bitcoin.
The exchange has justified this increase to 250,000 contracts based on IBIT’s substantial market capitalization of $46.8 billion and an average daily trading volume of 39.4 million shares.
The suggested limit of 250,000 contracts would constitute merely 2.89% of IBIT’s shares, which is significantly lower compared to similar ETFs like SPDR Gold Shares (GLD) and iShares Silver Trust (SLV). Those ETFs have higher percentage limitations relative to their floats, according to ISE.
“A position limit exercise in GLD would represent 8.17% of GLD’s float; a position limit exercise in SLV would represent 4.8% of SLV’s float, and a position limit exercise of BITO would represent 23.22% of BITO’s float,” stated ISE. “Thus, the proposed IBIT options position and exercise limit of 250,000 is more conservative compared to those set for GLD, SLV, and BITO and is suitable.”
Once approved, these changes are expected to enhance market liquidity and aid institutional investors in better risk management. The SEC has a 45-day window to approve or reject the proposal, or to start procedures to determine if the proposal should be denied.
“The Exchange believes that increasing the position (and exercise) limits for IBIT options would cultivate a more liquid and competitive market atmosphere for IBIT options, ultimately benefiting customers trading these options,” ISE commented in their filing.
In September last year, the SEC approved rule changes permitting Nasdaq ISE to list and trade options on BlackRock’s IBIT. This development allows investors to hedge against Bitcoin price fluctuations while adhering to strict regulatory oversight.
Furthermore, Nasdaq has announced its intention to seek approval for Bitcoin options trading, intending to broaden its digital asset offerings by tracking the CME CF Bitcoin Real-Time Index, similar to a recent initiative launched by NYSE.
