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Key Takeaways
- SEC kept Nasdaq’s Bitcoin index options approval stayed while the full Commission reviews CME’s challenge.
- CME argues the contracts fall under exclusive CFTC jurisdiction because Bitcoin is a non-security commodity.
- The ruling could determine whether securities exchanges can list derivatives tied directly to non-security commodities.
The Securities and Exchange Commission (SEC) granted CME Group’s petition to review a Division of Trading and Markets approval order for Nasdaq PHLX’s cash-settled Bitcoin index options, keeping the approval stayed while the full Commission reconsiders it.
CME argues the contracts are commodity option swaps that fall exclusively under Commodity Futures Trading Commission (CFTC) oversight.
CME Petition Triggered Automatic Stay on June 11
On May 22, Nasdaq’s proposal was approved by the Division of Trading and Markets under delegated authority of the SEC. CME filed notice of its intention to petition for review on June 11, which triggered an automatic stay under the Commission’s Rules of Practice, and filed the full petition on June 18.
The Commission granted that petition in a July 29 order, filed July 31 and published in the Federal Register on August 3. Written statements supporting or opposing the approval are due August 24. The order does not indicate whether commissioners agree with CME’s arguments, and no deadline has been set for a final decision.
Nasdaq could not have launched the product regardless. The contracts require CFTC exemptions allowing Nasdaq PHLX to offer them under concurrent SEC and CFTC oversight and permitting the Options Clearing Corporation to clear them without registering as a CFTC-regulated derivatives clearing organization. The exchange also needs OCC approval to update the Options Disclosure Document.
CME Argues Bitcoin Options Fall Under Exclusive CFTC Oversight
CME’s petition argues that Bitcoin is a non-security commodity, making options based directly on its value commodity option swaps under exclusive CFTC jurisdiction.
The exchange operator contends the CFTC cannot use an exemption to hand that jurisdiction to the SEC and that the SEC cannot assume oversight of a product with no securities-related features.
CME also argues the Division exceeded its delegated authority by adopting a novel interpretation of Section 717 of the Dodd-Frank Act. It warned the decision might let securities exchanges list options or futures linked to other non-security commodities under SEC rules, so it asked the full Commission to rescind the approval.
The petition also states the approval would let Nasdaq’s product compete directly with CME’s offerings and could impose new regulatory costs on CME’s exchanges and clearing business.
QBTC Would Track a CME Benchmark Divided by 100
The proposed contracts, trading under the ticker QBTC, would track the CME CF Bitcoin Real Time Index divided by 100. That index is calculated every 200 milliseconds using order-book data from qualifying Bitcoin-dollar markets, and it underpins CME’s own Bitcoin futures and options.
Final settlement would use the CME CF Bitcoin Reference Rate New York Variant, also divided by 100, a once-daily benchmark based on Bitcoin-dollar transactions in the hour ending at 4 p.m. New York time.
The options would be European-style, exercisable only at expiration, and settle entirely in U.S. dollars. The proposed guidelines establish a 24,000-contract position and exercise limit.
Nasdaq first announced plans for Bitcoin index options with CF Benchmarks in 2024. The contracts differ from options already trading on spot Bitcoin ETFs, where the underlying instruments are securities.
QBTC would instead reference an index tracking Bitcoin itself, which created the jurisdictional question now before the Commission.
Ruling Could Define Where Bitcoin Index Options Can Trade
Statements are due August 24, after which the Commission will decide whether to affirm, modify, or vacate the approval. No timetable has been set for that decision, and the approval remains stayed pending further order.
Nasdaq has argued the options would let spot Bitcoin ETF holders hedge or adjust exposure on a national securities exchange within the same margin regime as their ETF positions. A ruling in CME’s favor would confine Bitcoin-linked derivatives to CFTC-registered venues.
Upholding the approval would establish a path for securities exchanges to list products referencing non-security commodities under SEC rules, the precedent CME’s petition warns against.
