Nasdaq Seeks to Quadruple iShares Bitcoin Trust Options Limits for Bigger Institutional Hedging
The Nasdaq’s International Securities Exchange (ISE) has filed a proposal with the U.S. Securities and Exchange Commission (SEC) to increase position limits on BlackRock’s iShares Bitcoin Trust options from 250,000 contracts to one million. This move aims to provide greater institutional protection and flexibility in managing large-scale trades, but it may also lead to increased volatility in the market. 
Background and Rationale
The proposal seeks to reclassify the iShares Bitcoin Trust into the same derivatives category as major stock indexes and large-cap stocks, including Apple, NVIDIA, the S&P 500, and the Nasdaq-100. This reclassification is based on the fund’s market capitalization and average trading volume, making it one of the largest products listed on U.S. exchanges. The existing limit of 250,000 contracts restricts trading and hedging strategies, and the exchange argues that a higher limit is necessary to accommodate institutional inflows from pension funds and hedge funds.
A fully exercised position of one million contracts would represent approximately 7.5% of the fund’s free float and 0.284% of all bitcoin in existence. This increased limit would allow market makers to hedge larger positions and manage delta, gamma, and vega exposures in large-scale trades more effectively. The iShares Bitcoin Trust has already overtaken Deribit as the largest open Bitcoin options trading venue this year, indicating a shift in price discovery towards regulated trading venues in the US.
Potential Impact and Implications
Industry analysts note that higher position limits could facilitate the creation of structured products, including capital-protected baskets and yield-producing instruments that allow Bitcoin exposure without direct ownership of the cryptocurrency. However, regulatory frameworks such as Staff Accounting Bulletin 121 continue to pose challenges to the way regulated entities hold digital assets. The filing also calls for the removal of restrictions on customized, physically delivered FLEX options, which would allow the migration of large block trades from over-the-counter swaps to listed structures.
Market structure experts observe that expanded position limits typically tighten bid-ask spreads, but can also increase volatility during sharp price movements when traders are forced to quickly hedge large gamma exposures. The SEC has not announced a timeline for its decision on the proposal, and the Commission typically allows a public comment period before deciding on changes to exchange rules.
For more information on this development, please visit the original article at https://crypto.news/nasdaq-seeks-to-quadruple-ishares-bitcoin-trust-options-limits-for-bigger-institutional-hedging/
