NYSE Withdraws "Cryptocurrency ETF Options" Position and Exercise Limits, Opening Wide Operating Space for Institutions

According to the Federal Register scheduled for release on Monday, NYSE Arca and NYSE American, subsidiaries of the New York Stock Exchange, have submitted rule change applications to the U.S. Securities and Exchange Commission (SEC) to fully remove the original limit of 25,000 contracts for Bitcoin and Ethereum spot ETF options positions and exercise caps. This marks the completion of such adjustments across all major options exchanges in the United States.

Notably, the SEC has exempted these two applications from the standard 30-day waiting period, allowing the changes to take effect immediately upon submission.

This regulatory easing covers 11 mainstream cryptocurrency ETF options products in the market, including BlackRock’s iShares Bitcoin Trust (IBIT), Fidelity’s FBTC, ARK 21Shares’ ARKB, as well as Bitcoin and Ethereum ETF products under Grayscale and Bitwise.

Furthermore, the new rules also remove product restrictions, permitting these cryptocurrency ETFs to trade as “FLEX Options” (customized options allowing investors to set non-standard contract terms such as strike price and expiration date).

After the lifting of restrictions, the position limits for these options will revert to the standard frameworks of each exchange, primarily based on trading volume and outstanding shares. For highly liquid large ETFs, the limit could potentially rise significantly to 250,000 contracts or more.

From Conservative Defense to Full Release

When cryptocurrency ETF options first debuted in November 2024, regulators set a strict cap of 25,000 contracts as a precaution. Many analysts considered this regulation overly conservative; Bloomberg senior ETF analyst Eric Balchunas pointed out that despite these restrictions, BlackRock’s IBIT created nearly $1.9 billion in notional exposure on its first day of options trading, demonstrating strong market demand.

Crypto market maker Kbit CEO Ed Tolson also noted that with Bitcoin futures and perpetual contracts having open interest around $40 billion, this cap posed limited actual liquidity constraints. However, such restrictions were inconsistent with the treatment of other commodity ETF options, prompting major exchanges to actively push for their removal earlier this year.

This wave of deregulation has been remarkable: in January, Nasdaq’s ISE and PHLX exchanges were the first to submit applications, followed by MIAX later that month; in February, MEMX joined the effort; and by March, Cboe had also proposed its own amendments. Now, with NYSE Arca and NYSE American successfully approved, all major U.S. options exchanges have completed this adjustment.

The SEC also stated that the NYSE proposals did not introduce new regulatory concerns, as other exchanges had already implemented similar changes.

Opening Doors for Institutional Investors with Greater Flexibility

Market participants generally believe this deregulation will have a particularly profound impact on institutional investors. Removing position limits enables institutions to execute more efficient hedging strategies, basis trading, and options coverage.

Meanwhile, Nasdaq’s ISE is actively proposing to the SEC to raise the position cap for BlackRock’s IBIT options to 1 million contracts. This application is currently in its fifth revision. If approved, IBIT’s options market size would approach the derivatives trading levels of the largest U.S. equity ETFs.