NYSE Arca withdraws request to list options on commodity trusts, crypto ETFs

It’s the latest in a flurry of regulatory activity around options on crypto funds.

New York Stock Exchange’s (NYSE) Arca electronic exchange withdrew a rule change it proposed in January that would have allowed options trading on commodity-based trusts, including cryptocurrency exchange-traded funds (ETFs), according to an Aug. 13 filing.

The purpose of the proposed change was to “permit the listing and trading of options on Commodity-Based Trust Shares,” according to the Jan. 19 filing. It would have included options on crypto ETFs such as Grayscale Bitcoin Trust (GBTC), according to a Feb. 28 letter from Grayscale Investments to the United States Securities and Exchange Commission (SEC).

The SEC should “update its outdated historical patchwork approach to approval of options on spot commodity-based ETPs… including options on GBTC on the Exchanges,” the letter said.

The withdrawal is the latest in a sudden flurry of activity related to listing options on spot crypto ETFs.

On Aug. 8, securities exchange Cboe amended an application to list options on BTC ETFs. According to an Aug. 6 filing, Nasdaq asked the SEC for permission to list options on BlackRock’s iShares Ethereum Trust (ETHA). Bloomberg predicts spot BTC options go live in the fourth quarter.

“There’s definitely some movement on Bitcoin ETF options,” Bloomberg Intelligence analyst James Seyffart said in an Aug. 8 post on X. “The SEC likely gave some sort of feedback.

Investors in the US are currently permitted to trade options on ETFs that track the performance of BTC using derivatives but not on ETFs that physically hold Bitcoin itself.

“[I]f investing in options for shares of products holding derivatives of an asset is acceptable for investors, investing in options for shares of products holding the asset itself should be as well,” according to Grayscale’s letter.

Allowing options trading on spot crypto ETFs would mark an important milestone for adoption.

Financial advisors — who control as much as half of investment flows in the $9 trillion ETF market — rely on options to safeguard against sharp market movements. More than 10% of advisers actively used options to manage client portfolios as of 2023, according to a survey by The Journal of Financial Planning.