Proposal Aims to Meet Institutional Demand

The Nasdaq ISE exchange has filed a proposal with the Securities and Exchange Commission (SEC) to significantly increase the position limits for options on BlackRock’s iShares Bitcoin Trust (IBIT). The plan seeks to raise the ceiling from 250,000 contracts to 1 million, a fourfold increase that would align the Bitcoin ETF with some of the world’s most heavily traded funds.

Position limits are designed to prevent any single investor from gaining excessive control over a security’s options market. According to the exchange’s filing, the current 250,000-contract limit is already constraining trading activity for market makers and institutional firms that use options for hedging and yield-generating strategies. Nasdaq argues that IBIT’s market capitalization, daily trading volume, and liquidity are comparable or superior to other major ETFs that already benefit from higher limits, such as those tracking emerging markets and Chinese large-cap stocks.

This move follows a previous increase in January 2025, when the limit was raised from 25,000 to 250,000 contracts after IBIT’s trading volume surpassed 100 million shares. The consistent growth in options volume for the ETF throughout the year provides further justification for the proposed change.

Market Impact and Broader Implications

Industry experts anticipate that the SEC is likely to approve the proposal. Vincent Liu, chief investment officer at Kronos Research, suggested such adjustments are routine once an asset demonstrates it can support significant trading volume. He expects the higher limits to result in deeper order books and tighter spreads, creating a more efficient market for IBIT options.

The proposal also includes a provision to remove position and exercise limits entirely for physically settled FLEX options on IBIT. These flexible contracts allow large institutions to create customized hedging instruments. Nasdaq aims to align these rules with similar commodity-based ETFs, like the SPDR Gold Trust, which have no such limits on their FLEX options.

To address potential concerns about market manipulation, the filing notes that even a fully exercised position of 1 million contracts would represent just 0.284% of all Bitcoin in circulation. The exchange contends that this scale poses minimal risk of market disruption, especially given the ETF’s robust creation and redemption mechanism. With IBIT having already surpassed the crypto exchange Deribit as the largest venue for Bitcoin options open interest, the proposed change signals the growing integration of crypto assets into mainstream financial markets.