Proposal to Raise Position Limits for BlackRock's IBIT Options
The Nasdaq International Securities Exchange (ISE) has filed a proposal with the US Securities and Exchange Commission (SEC) to raise the position limits for options on BlackRock’s iShares Bitcoin Trust (IBIT). In a Federal Register notice, the exchange requested that the restrictions on position sizes be increased from 250,000 contracts per side to one million. This would place the US spot Bitcoin ETF (exchange-traded fund) in the same liquidity tier as major global equity benchmarks such as iShares MSCI Emerging Markets (EEM) and iShares China Large-Cap ETF (FXI).
The request to increase the limit to one million contracts follows Nasdaq’s request in January to raise the ceiling from 25,000 to 250,000 as IBIT was well above the trading volume minimum of 100 million shares to qualify. The proposal also comes as BlackRock’s IBIT has become the largest venue for Bitcoin options open interest, even surpassing Deribit.
Good catch.. new proposal to raise position limits on IBIT optons to 1 million contracts. They just raised the limit to 250,000 (from 25,000) in July. $IBIT is now the biggest bitcoin options market in the world by open interest.
The SEC is not soliciting public comments on the rule change.
Nasdaq ISE Addresses Restrictions on Market Makers and Institutional Desks
Position limits exist to prevent any one investor from controlling too many option contracts on the same stock, which thereby reduces the risk of manipulative schemes that could impact stock prices. However, ISE said that IBIT has posted strong and accelerating options volumes throughout this year, and added that the existing ceiling now restricts market makers and institutional desks who rely on options hedging and yield strategies.
In its Federal Register notice, the exchange said that it “expects continued options volume growth in IBIT as opportunities for investors to participate in the options market increase and evolve.” In its filing, ISE included a detailed analysis of several of IBIT’s market statistics such as its capitalization, average daily volume, and liquidity to ETFs that already support one million contract limits.
With regards to the risk of market manipulation, ISE also noted that even a fully exercised one million contract position would only equal around 7.5% of IBIT’s total float. It also only equates to about 0.284% of all Bitcoin in existence. ISE subsequently argued that this scale poses little risk of market disruption.
In addition to the request for increased limits on position sizes for IBIT, ISE is seeking to remove position and exercise limits for physically settled FLEX IBIT options as well. This would align the options with commodity-based ETFs such as SPDR Gold Trust (GLD). FLEX contracts are popular among large funds who use the instruments for custom hedges and structured exposures.
JPMorgan's Structured Note Linked to IBIT
IBIT has become a popular vehicle for traditional investors to gain exposure to crypto through regulated investment products. While there are other US spot Bitcoin ETFs in the market, IBIT is the largest in terms of cumulative inflows. Farside Investors data shows that IBIT has seen $62.680 billion in total inflows since its launch in early 2024. The second-biggest fund in this regard is Fidelity’s FBTC with $11.960 billion cumulative inflows.
Earlier this week, Wall Street banking giant JPMorgan filed a prospectus with the SEC for a structured note that allows investors to wager on the future price of Bitcoin using IBIT. JPMorgan’s proposed instrument will set a specific price level for BlackRock’s IBIT fund next month. In approximately a year, if IBIT is trading at a price equal to or greater than the set price, the notes will be automatically called. Investors will then also receive a guaranteed minimum return of 16%.
However, if IBIT’s price is lower than the set price a year from when the benchmark price is set next month, the notes will not be called. Participating investors will then have to ride the investment out until 2028. Should IBIT surpass JPMorgan’s next set price by the end of 2028, investors will earn 1.5x on their investment with no cap. This means that if Bitcoin’s price surges in 2028, investors will stand to earn a hefty return. JPMorgan will also offer investors up 30% downside protection up until 2028.
In the latest trading session, IBIT’s price jumped over 2%, data from Google Finance shows.