The Securities and Exchange Commission has published a notice soliciting public comments on a proposed rule change filed by Nasdaq ISE, LLC, a self-regulatory organization. Filed on November 13, 2025, and detailed in the Federal Register on November 26, 2025, the proposal seeks to amend exchange rules governing position and exercise limits for options on the iShares Bitcoin Trust ETF, known as IBIT. This development occurs amid growing investor interest in cryptocurrency-linked financial products, potentially facilitating greater market participation while addressing concerns over manipulation and liquidity. The SEC's review process underscores the evolving regulatory landscape for digital asset derivatives, with implications for how exchanges balance innovation with investor protection.
Background on IBIT and Options Trading
IBIT, an exchange-traded fund holding Bitcoin, launched on the Nasdaq Stock Market in January 2024 following SEC approval. Options on IBIT began trading on ISE in November 2024, initially subject to a 250,000 contract position limit under ISE Options 9, Sections 13 and 15. These limits aim to prevent manipulative practices by capping the number of options an investor can control, balancing hedging needs against risks like market disruption. The proposal emerges from observed increases in IBIT's trading volume and market capitalization, which reached over $86 billion by September 2025, surpassing many traditional ETFs. Key players include Nasdaq ISE as the proposing exchange, the SEC as the regulator, and market participants such as liquidity providers and institutional investors who have driven demand.
Key Elements of the Proposed Rule Change
The core of ISE's filing is a request to elevate position and exercise limits for IBIT options to 1,000,000 contracts. This aligns with limits for options on other high-volume ETFs, including iShares MSCI Emerging Markets (EEM), iShares China Large-Cap (FXI), and iShares MSCI EAFE (EFA). ISE argues that IBIT's average daily volume of 44.6 million shares and substantial market cap justify the increase, reducing manipulation risks due to enhanced liquidity. Additionally, the proposal amends rules for Flexible Exchange (FLEX) options on IBIT, removing position limits for physically settled FLEX contracts while maintaining aggregation with non-FLEX positions for cash-settled ones. This change would treat IBIT similarly to commodity-backed ETFs like SPDR Gold Shares (GLD) and iShares Silver Trust (SLV), which lack such FLEX limits.
Relevant Legal Precedents and Political Context
Position limits draw from the Securities Exchange Act of 1934, particularly Section 19(b), requiring exchanges to justify changes that promote fair markets. Precedents include the SEC's 2024 approval of Bitcoin ETF listings and a 2025 ISE rule change eliminating initial 25,000 contract limits for IBIT options (Release No. 103564). Politically, the proposal reflects broader federal efforts to integrate cryptocurrencies into regulated markets, influenced by executive actions under President Trump, who supported digital asset innovation. However, it contrasts with Commodity Futures Trading Commission rules for Bitcoin futures, which impose delta-equivalent limits but allow more flexibility. Different perspectives emerge: proponents, including exchanges and investors, view higher limits as essential for hedging and liquidity, while critics, such as consumer protection advocates, worry about unchecked speculation amplifying volatility.
Potential Implications
In the short term, approval could enhance trading efficiency, enabling market makers to provide tighter spreads and deeper liquidity in IBIT options. Data from ISE's analysis shows IBIT ranking high in market cap and volume comparisons, suggesting minimal disruption risk—for instance, a full exercise of 1,000,000 contracts would represent just 0.284% of total Bitcoin supply. Long-term effects might include migration from over-the-counter markets to exchanges, improving transparency and price discovery. However, without robust surveillance, risks of manipulation persist, though ISE affirms its systems, including Intermarket Surveillance Group cooperation, are adequate. Perspectives vary: institutional investors favor the change for risk management, while regulators emphasize ongoing monitoring to protect retail participants.
The proposal highlights tensions in regulating innovative products, with potential to set precedents for other crypto derivatives.
