The Securities and Exchange Commission (SEC) has approved a proposed rule change by the Philadelphia Stock Exchange (PHLX), known as Nasdaq PHLX, to list and trade options on the Nasdaq Bitcoin Index Options. The product, designated with the ticket symbol “QBTC,” will offer a new way for U.S. equity traders to gain or hedge Bitcoin exposure directly through regulated securities markets.
How the Nasdaq Bitcoin Index Options work
The QBTC options are cash-settled, European-style index options. This means they can only be exercised at expiration, not before. Importantly, each of these contracts represents $100 times the index value. Going further, the underlying index is the CME CF Bitcoin Real Time Index (BRTI), which represents a benchmark calculated every 200 milliseconds from order book data across major crypto exchanges, including Coinbase, Kraken, Gemini, and Bitstamp.
On the other hand, the final settlement of the options is based on the CME CF Bitcoin Reference Rate [New York Variant (BRRNY)], which aggregates trade data from a one-hour window ending at 4:00 p.m. Eastern Time (ET), in accordance with the market close at U.S. stock exchanges.
Position limits and trading rules
The SEC has established a maximum of 24000 contracts for each side (either puts or calls). The minimum trading increment will be $0.01, which will be similar to other micro index options like the Mini-S&P 500 (XSP). Strikes at or below $200 can have intervals of $2.50, and the exchange can also list additional strikes within 30 percent of the current index value above or below.
What investors need to know
The QBTC options do not represent ownership of Bitcoin (BTC) or a Bitcoin exchange-traded fund (ETF); rather, they are “purely derivative instruments,” as the holder only receives the cash difference between the settlement price and the strike price. To have in mind, trading cannot begin until the Commodity Futures Trading Commission (CFTC) grants exemptive relief [because options on a commodity index fall under the Commodity Exchange Act (CEA)] and the Comptroller of the Currency (OCC) clears the products.
To this point, the SEC acknowledged that the proposal requires “exemptive relief from the CFTC from the requirements of the CEA and the rules and regulations thereunder.”
According to the approval order, the BRTI and BRRNY are “representative of the underlying market, resistant to manipulation, and replicable by market participants.” As for this, analysis submitted to the SEC showed that during 24 months, BRRNY replication slippage exceeded 5 basis points (bps) on only 6.76 percent of days, and never exceeded 52 bps, even on the most volatile day.
What This Means for the Crypto Industry
This approval is a big step for bringing Bitcoin into the regular stock market world. Unlike other Bitcoin options that trade on futures or through ETFs, these Nasdaq options will sit right next to normal stock index options on a traditional exchange. For big institutional players, it’s a new, safe way to manage Bitcoin risk without having to deal with crypto exchanges or actually holding the coins. And for everyday traders, the micro-sized contracts make it much easier and cheaper to get involved.