The Securities and Exchange Commission released a notice on February 19, 2026, detailing a proposed rule change from MEMX LLC. The exchange seeks to amend its Rules 18.7 and 18.9, eliminating the 25,000 contract position and exercise limits for options on seven specific exchange-traded funds tied to Bitcoin and Ethereum. These include the Fidelity Wise Origin Bitcoin Fund, ARK 21Shares Bitcoin ETF, iShares Ethereum Trust ETF, Fidelity Ethereum Fund, Grayscale Ethereum Trust ETF, Grayscale Ethereum Mini Trust ETF, and Bitwise Ethereum ETF. Filed on January 30, 2026, as a non-controversial proposal under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, the change took immediate effect, with the SEC soliciting comments until March 12, 2026. This development reflects the evolving integration of cryptocurrency assets into traditional financial markets, potentially broadening trading opportunities while adhering to established regulatory frameworks.
Background and Evolution of Crypto ETF Options
MEMX's proposal builds on a series of prior filings that gradually incorporated crypto-based ETFs into options trading. In December 2024, the exchange gained approval to list options on the Fidelity Wise Origin Bitcoin Fund and ARK 21Shares Bitcoin ETF, initially subject to a 25,000 contract limit. Subsequent approvals in May and June 2025 extended this to Ethereum-based ETFs, maintaining the same restrictions. An August 2025 filing removed limits for certain Bitcoin ETFs, and a January 2026 update amended Rule 19.3(i) to allow generic listing of options on commodity-based trusts holding a single crypto asset, provided they meet criteria like a $700 million average daily market value and surveillance agreements.
These changes stem from broader market developments. The SEC's approval of spot Bitcoin ETFs in early 2024 and Ethereum ETFs later that year marked a shift, recognizing these products as sufficiently mature for derivatives trading. MEMX's current filing cites a similar proposal by Nasdaq ISE, LLC, approved in January 2026, which eliminated limits for comparable assets. As stated in the notice, 'The Crypto Assets all qualify for listing pursuant to section (5) of Exchange Rule 19.3(i),' ensuring they meet thresholds for global supply and surveillance.
Key Players and Regulatory Framework
The primary entities involved include MEMX LLC, a self-regulatory organization operating an options exchange, and the SEC, which oversees such filings to protect investors. MEMX's rules are incorporated into its affiliate MX2, LLC, expanding the proposal's reach. The filing references the Securities Exchange Act of 1934, particularly Section 6(b)(5), which requires exchange rules to prevent manipulation, promote fair trade, and protect the public interest.
Precedents play a crucial role. The proposal aligns with treatments for other commodity-based ETFs, such as those on gold or silver, where position limits are determined by general rules rather than fixed caps. For instance, the August 2025 MEMX filing (Release No. 103752) removed limits for Bitcoin ETFs like iShares Bitcoin Trust, arguing that robust surveillance mitigates manipulation risks. Critics, including some investor advocates, have expressed concerns in past SEC comments about crypto's volatility potentially amplifying market risks, while proponents, like industry groups, highlight enhanced liquidity and price discovery.
Implications for Market Participants
Removing the 25,000 contract limits could increase trading volume and liquidity for these options, allowing larger positions by institutional investors. Under amended Rules 18.7 and 18.9, limits would follow a tiered system based on the underlying asset's trading volume and shares outstanding, potentially reaching up to 200,000 contracts for high-volume ETFs. This standardization treats crypto ETFs akin to traditional ones, fostering competition among exchanges.
Short-term effects may include heightened interest from hedge funds and market makers, as evidenced by the ISE filing's note that 'the proposal would benefit competition' by enabling uniform rules. Long-term, it could integrate crypto further into mainstream finance, but it raises questions about systemic risks if crypto markets experience sharp fluctuations. Different perspectives emerge: Regulators emphasize surveillance to prevent fraud, while traders view it as reducing barriers. Consumer protection groups worry about retail investor exposure, though the filing asserts consistency with investor protection under the Act.
Statutory Basis and Competitive Considerations
MEMX justifies the change by arguing it prevents manipulative practices and promotes equitable trade, as required by Section 6(b)(5) of the Act. The notice states, 'The Exchange's proposal to permit the Crypto Assets... to be subject to the position limits set forth in Exchange Rule 18.7... promotes just and equitable principles of trade.' It imposes no undue burden on competition, mirroring ISE's approach and expecting similar adoptions by other exchanges.
The SEC waived the 30-day operative delay, citing the proposal's alignment with existing rules and lack of novel issues. This expedited process underscores the regulator's confidence in the framework, supported by surveillance sharing agreements.
In summary, this rule change represents a step toward normalizing crypto derivatives, balancing innovation with oversight. Potential next steps include monitoring comment submissions and possible SEC suspension within 60 days if public interest concerns arise. Ongoing debates may focus on expanding to other crypto assets or refining surveillance, while challenges like market volatility and regulatory harmonization persist. As crypto markets mature, such adjustments could shape broader financial ecosystems, with stakeholders watching for impacts on stability and accessibility.
