Industry insiders suggest that options on newly introduced U.S. spot bitcoin exchange-traded funds (ETFs) may encounter a lengthy regulatory approval process, potentially diminishing the appeal of these financial products. The Securities and Exchange Commission (SEC) recently granted approval for spot bitcoin ETFs, marking a significant development for the cryptocurrency industry with ten products already trading since January 11.
Options, which are derivative financial instruments providing the right to buy or sell an asset at a predetermined price within a specified timeframe, are facing delays in approval due to the absence of an established regulatory framework. The SEC, responsible for overseeing technical rule changes for option listings, usually grants approval shortly after an ETF begins trading. However, given the classification of bitcoin as a commodity, the approval process may also involve the Commodity Futures Trading Commission (CFTC), responsible for overseeing commodity derivatives.
Concerns related to jurisdiction and oversight arise from products associated with spot bitcoin ETFs, contributing to the complexities of dual regulatory engagement, according to an anonymous source familiar with the matter. Martin Leinweber, a digital asset product strategist, anticipates that the approval process for options could span between two and ten months.
The absence of options could pose risk management challenges for significant investors, potentially causing some to avoid participation altogether, warns Yesha Yadav, a law professor at Vanderbilt University. This delay also hinders the crypto industry's ambitions to introduce more innovative products to the market, with regulatory hurdles acting as gatekeepers, as explained by John Roglieri, head of capital markets at FalconX.
While dual approval for options is rare, historical cases, such as the SPDR Gold Shares ETF tied to a physical commodity, took over three years for the CFTC to approve options. Notably, an application to launch options on platinum and palladium ETFs in 2010 never received regulatory approval.
Nasdaq, CBOE, and NYSE Arca, the exchanges listing the ETFs, have sought SEC approval to launch options, with CBOE expecting to list options later in 2024. The Options Clearing Corporation (OCC), responsible for clearing options, must obtain CFTC approval for commodity-based products, but the timeframe for this process remains uncertain.
Exchange executives are set to meet with CFTC officials to discuss the matter soon, according to an additional source. Given the decade-long process for the SEC to approve bitcoin ETFs, Adam Sze, head of digital assets product at Global X, suggests that a delay in options approval should not come as a surprise, stating that "a few more months for listed options probably isn't that long in the grand scheme of things."