On January 21, 2026, Nasdaq PHLX LLC submitted a proposed rule change to the Securities and Exchange Commission, effective immediately, to amend its trading rules for options on specific exchange-traded funds holding Bitcoin and Ethereum. The filing, published in the Federal Register on January 26, 2026, eliminates a 25,000-contract position and exercise limit for these options and removes prohibitions on flexible exchange options trading. This development marks a step toward integrating cryptocurrency-linked derivatives into mainstream financial markets, potentially increasing investor participation while maintaining regulatory oversight.
Background and Regulatory Evolution
The proposal builds on a series of approvals and filings related to options on crypto asset ETFs. Nasdaq PHLX references prior actions by its affiliate, Nasdaq ISE LLC, which began listing options on products like the iShares Bitcoin Trust ETF in September 2024. Subsequent expansions included options on the Grayscale Bitcoin Trust and others, initially subject to restrictive limits to address concerns over market manipulation and volatility.
Key players include Nasdaq PHLX as the self-regulatory organization proposing the change, the SEC as the approving authority, and underlying ETF issuers such as BlackRock (iShares), Grayscale, Bitwise, Fidelity, ARK Invest, and VanEck. These ETFs hold Bitcoin or Ethereum, with their options trading now aligned under generic listing standards adopted by ISE in October 2025. That rule, under Options 4, Section 3(h)(vi), allows listing if the trust meets criteria like a $700 million average daily market value for the crypto asset and surveillance sharing agreements.
This evolution reflects broader SEC approvals for spot crypto ETFs, starting with Bitcoin products in early 2024, which faced initial scrutiny due to the assets' decentralized nature and price swings. For instance, ISE's July 2025 approval to lift limits on iShares Bitcoin Trust options cited improved market maturity and surveillance tools.
Key Changes to Trading Rules
The rule change targets options on 12 specific ETFs: seven Bitcoin-focused (iShares Bitcoin Trust, Grayscale Bitcoin Trust, Grayscale Bitcoin Mini Trust BTC, Bitwise Bitcoin ETF, Fidelity Wise Origin Bitcoin Fund, ARK 21Shares Bitcoin ETF, VanEck Bitcoin ETF) and five Ethereum-focused (iShares Ethereum Trust, Fidelity Ethereum Fund, Bitwise Ethereum ETF, Grayscale Ethereum Trust, Grayscale Ethereum Mini Trust).
Primarily, it removes the 25,000-contract cap on positions and exercises, applying instead the standard limits in Options 9, Sections 13 and 15. These vary based on factors like trading volume and shares outstanding, often reaching up to 250,000 contracts for highly liquid options. The filing states this adjustment ensures these products 'qualify for listing pursuant to Options 4, Section 3(h)(vi)' and should be 'treated similar to all other options.'
Additionally, the proposal lifts restrictions on FLEX options, which allow customized terms like expiration dates and strike prices. Previously barred for these crypto ETFs, FLEX trading is now permitted, including cash-settled and physically settled variants. However, the change eliminates aggregation of FLEX and non-FLEX positions for limit calculations, aligning with rules for other equities.
Supporting this, the exchange notes that all listed ETFs meet the generic criteria, including surveillance agreements through the Intermarket Surveillance Group.
Legal and Policy Context
This filing operates under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, allowing immediate effectiveness for non-controversial changes that do not burden competition or harm investors. It draws on precedents like SEC approvals for commodity-based trusts, such as gold and silver ETFs, which transitioned from restricted to standard trading rules as markets matured.
Politically, the push for crypto integration has gained traction amid evolving federal policies. While no direct executive orders are cited, the broader context includes efforts during the Trump administration to foster innovation in digital assets, though regulatory caution persists due to risks like fraud. Different perspectives emerge: proponents, including industry groups, argue that relaxed rules enhance liquidity and price discovery, as evidenced by ISE's filings showing robust trading volumes. Critics, such as consumer protection advocates, worry about amplified volatility in retail portfolios, pointing to past crypto market crashes.
The SEC's solicitation of comments in the notice underscores ongoing debates, inviting input on whether the changes adequately protect against manipulation.
Implications for Markets and Investors
In the short term, removing limits could boost trading volumes on PHLX, attracting institutional investors seeking hedging tools for crypto exposure. Data from prior ISE approvals indicate that unrestricted options on iShares Bitcoin Trust saw increased activity without significant disruptions.
Long-term effects may include greater market depth for crypto derivatives, potentially influencing spot prices of Bitcoin and Ethereum. However, this could heighten systemic risks if correlated with broader financial markets. From an investor standpoint, expanded FLEX options offer customization, benefiting sophisticated traders, but may complicate oversight for regulators.
Perspectives vary: exchanges like PHLX view it as promoting fair competition, while some analysts caution that without stringent surveillance, it risks echoing issues in unregulated crypto spots. The filing asserts consistency with the Act by preventing manipulation and fostering open markets.
The proposed changes by Nasdaq PHLX to integrate options on select Bitcoin and Ethereum ETFs into standard trading frameworks highlight a maturing regulatory landscape for cryptocurrencies. Key takeaways include the alignment with generic listing standards and the potential for enhanced market efficiency. Moving forward, ongoing SEC reviews and public comments could shape further adjustments, with challenges centering on balancing innovation against investor protections. Debates may focus on expanding similar rules to other crypto assets or refining surveillance amid evolving global standards.
