U.S. Representatives Mike Flood, a Republican, and Wiley Nickel, a Democrat, are actively urging the Securities and Exchange Commission (SEC) to expedite the approval process for options trading on spot bitcoin exchange-traded products (ETPs).
They are advocating for parity in the treatment of Bitcoin futures exchange-traded funds (ETFs), which already permit options trading, and spot Bitcoin ETPs which are currently stalled in regulatory limbo.
Lawmakers Call for Parity in Bitcoin Options Trading
The legislators highlighted the successful January approval of spot Bitcoin ETFs by the SEC, which have since attracted substantial investment, totaling billions of dollars. Their concern centers on the inconsistency in regulatory actions where options trading for Bitcoin futures ETFs were quickly approved, whereas similar options for spot Bitcoin ETPs are still pending approval. This discrepancy has not only puzzled lawmakers but also raised broader concerns regarding the SEC’s rationale, especially in light of past court decisions challenging the SEC’s disparate treatment of comparable financial products.
In their communications with SEC Chair Gary Gensler, Flood and Nickel underscored the critical need for options trading for spot Bitcoin ETPs, arguing that it is essential for providing investors with necessary tools for risk management and diversified investment strategies. They pointed out that while options for Bitcoin futures ETFs were allowed to trade immediately following their approval, a similar request for spot Bitcoin ETFs has languished for almost two months since the New York Stock Exchange submitted the necessary applications.
This push for regulatory clarity gained additional impetus following a pivotal decision last summer by a trio of judges in a D.C. court. The court mandated that the SEC reconsider an application by asset management firm Grayscale for a spot Bitcoin ETF, after Grayscale’s initial application to convert its flagship GBTC fund was rejected the previous year. This judicial ruling was instrumental in the eventual green-lighting of spot bitcoin ETFs earlier this year.
Court Ruling Paves the Way for Spot Bitcoin ETFs
Despite the SEC’s usual procedure of involving multiple regulatory bodies, including the Commodity Futures Trading Commission (CFTC), in such approvals, the focus of Flood and Nickel’s outreach remained squarely on the SEC’s actions—or inactions. They have expressed concerns over the SEC’s extended timelines and the perceived indecisiveness that could hinder the development and efficiency of the crypto market.
Previously, on April 8, the SEC had announced an extension of its decision timeline regarding options trading for Bitcoin ETFs proposed by firms like Grayscale and Bitwise. By April 25, the SEC had commenced consultations regarding a proposed rule change, signaling a possible alteration in its regulatory stance. However, multiple exchanges eager to initiate options trading on newly approved spot bitcoin ETFs have been met with procedural delays.
SEC Scrutiny: Assessing Market Risks of Bitcoin Options
The SEC’s comprehensive review process is aimed at evaluating the potential impact of introducing Bitcoin options trading on market stability, especially during volatile periods. This includes assessing whether the current surveillance and enforcement mechanisms are sufficient to handle the complexities of Bitcoin options.
The SEC has set May 29, 2024, as the new deadline for its decision, following a prior postponement in March 2024 which affected proposals from notable exchanges such as Cboe Exchange Inc. and Nasdaq ISE. This cautious approach underscores the SEC’s ongoing struggles with the regulatory challenges posed by emerging crypto-related financial products.
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