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Highlights
- US SEC has approved options trading for Ethereum spot ETFs.
- The approval come in the form of a rule change for the iShares Ethereum Trust.
- A previous rule change saw the approval of staking on Fidelity's Ethereum ETF
After a series of regulatory back-and-forth, the US Securities and Exchange Commission (SEC) has approved options trading for an Ethereum spot exchange-traded fund (ETF). The Ethereum spot ETFs will offer investors leverage with limited capital while serving as a hedging vehicle to protect against price drops.
US SEC Issues Thumbs Up For Options Trading On Ethereum Spot ETFs
The US SEC has approved Nasdaq’s application for a rule amendment on the iShares Ethereum Trust (ETHA) to allow options trading. According to a press release, Nasdaq can list and trade options on the shares of the Ethereum spot ETF following the rule change.
Per the announcement, Nasdaq says the options will provide investors with a low-cost investing tool for exposure to ETH. The options will be settled using American-style exercise while operating in the same manner as traditional ETFs.
Flowing from the approvals, investors will be able to hedge risks via puts as a layer of protection against ETH price drops. Furthermore, the rule change will offer low-cost exposure to ETH via calls compared to outright ETF purchases. Investors will have the option to sell covered calls for passive income during low volatility.
Aware of the possibilities of manipulation, Nasdaq limits the Ethereum spot ETFs’ trust and exercise limit to 25,000 contracts. The SEC’s approvals extend to Bitwise Ethereum ETF (ETHW), Fidelity Ethereum Fund (FETH), and the Grayscale Ethereum Trust (ETHE).
The US SEC has previously approved staking on Fidelity’s ETH ETF, underscoring changing stances by the securities regulator. The SEC has also ruled that dollar-backed stablecoins are not securities extending the same decision to memecoins and PoW mining tokens
SEC Says Options Trading Amendment Adheres To Securities Law
The SEC’s regulatory horse trading with Nasdaq ended with the securities regulator approving the proposed amendments. The Commission notes that the proposal for options trading is in line with section 6(b)(5) of the Securities Act preventing fraudulent acts.
For starters, the SEC is satisfied that the security underlying the options is widely held and actively traded. Furthermore, the SEC agrees with Nasdaq’s position and exercise limit of 25,000 contracts as an additional layer of protection against manipulation for the Ethereum spot ETF.
While the SEC is aware of the dangers of exposing retail traders to options given steep price drops, it notes that existing rules on broker-dealer conduct will apply in addition to FINRA’s rules. The underlying asset has suffered a massive decline in recent weeks with ETH hanging to $1,500 after a double-digit drawdown in 7 days.
The SEC still has a mountain of paperwork on its desk following the latest options trading approval. Several XRP spot ETFs are waiting for approval from the securities watchdog with Nate Geraci saying it is only a matter of time.
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