SEC review keeps Nasdaq bitcoin index options on hold amid CME jurisdiction challenge

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Nasdaq bitcoin options delay

Highlights

On July 29, the SEC granted CME Group's petition for review, staying Nasdaq PHLX's bitcoin index options approval while the full Commission evaluates the jurisdictional challenge.
Nasdaq PHLX cannot launch the QBTC contracts until it receives CFTC exemptions enabling dual SEC and CFTC oversight, with written support or opposition due by Aug. 24.
CME argues bitcoin index options are commodity swaps falling solely under CFTC jurisdiction, warning that SEC approval could expand securities exchanges' reach to non-security commodity derivatives.

SEC review process and contract structure

As first reported by The Block, the SEC on July 29 grants CME Group's petition for review and keeps the earlier approval of Nasdaq PHLX's proposal stayed while the full Commission considers the challenge. Written statements supporting or opposing the approval are due Aug. 24, and the order does not say whether commissioners agree with CME's position.

The SEC's Division of Trading and Markets conditionally approved the proposal on May 22 under delegated authority, but Nasdaq still cannot begin trading the options without exemptions from the CFTC. Those exemptions would allow Nasdaq PHLX to list the contracts under concurrent SEC and CFTC oversight and let the Options Clearing Corporation clear them without registering as a CFTC-regulated derivatives clearing organization.

The proposed contracts, which would trade under the ticker QBTC, track the CME CF Bitcoin Real Time Index divided by 100. The index is calculated every 200 milliseconds from order-book data in qualifying bitcoin-U.S. dollar markets, while the European-style options settle entirely in U.S. dollars at expiration using the CME CF Bitcoin Reference Rate New York Variant, also divided by 100.

Jurisdiction dispute and market implications

CME argues in its petition that bitcoin is a non-security commodity and that options tied directly to its value are commodity option swaps that fall exclusively under the CFTC's jurisdiction. The exchange operator also says the CFTC cannot use an exemption to transfer that authority to the SEC, and that the SEC cannot oversee a product that lacks securities-related features.

CME further contends that the Division of Trading and Markets exceeds its delegated authority by adopting what it calls a novel reading of Section 717 of the Dodd-Frank Act. It asks the full Commission to vacate the approval, warning that the decision could allow securities exchanges to list options or futures linked to other non-security commodities under SEC rules.

Nasdaq first announces plans for the bitcoin index options with CF Benchmarks in 2024. Nasdaq says the product would give holders of spot bitcoin ETFs a way to hedge or adjust exposure on a national securities exchange and within the same margin regime as their ETF positions, while CME says approval would create direct competition with its own offerings and could add regulatory costs to its exchanges and clearing business.

Our earlier coverage of the CFTC’s enforcement action involving prediction-market trades highlighted how U.S. derivatives regulators are scrutinizing newer, event-based products tied to political outcomes. We noted that the case centered on allegations of manipulative trading and underscored the CFTC’s willingness to pursue market-conduct issues in areas that sit at the edge of traditional derivatives oversight.

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