SEC Halts Nasdaq Bitcoin Options Approval Following CME Challenge

The U.S. Securities and Exchange Commission (SEC) has decided to pause Nasdaq's approval of cash-settled bitcoin index options, known as QBTC, as it re-evaluates the decision in light of a legal challenge from CME Group. This was disclosed in an order made public on July 31.

In May, the SEC had initially granted conditional approval for Nasdaq PHLX to list these bitcoin options. However, the product still requires exemptions from the Commodity Futures Trading Commission (CFTC) before it can officially be launched.

CME Group contested this approval in June, asserting that since bitcoin is classified as a commodity, the options linked to its value should fall under the jurisdiction of the CFTC rather than the SEC.

If CME's assertion holds true, the SEC may lack the authority to greenlight QBTC, which would compel Nasdaq to register as a futures or swaps venue regulated by the CFTC, or to redesign the contracts to align with a security, like a spot bitcoin exchange-traded fund.

Currently, CME operates regulated markets for bitcoin futures and options, while Nasdaq's QBTC would compete in the same trading space without being registered under the CFTC's regulations that govern CME.

CME's petition raised concerns that granting approval to Nasdaq could set a dangerous precedent, permitting securities exchanges to list derivatives on other commodities. The proposed contracts by Nasdaq would utilize CME CF benchmarks for both the underlying index and the final settlement price.

The SEC's order maintains the suspension of the approval and invites comments from interested parties until August 24. This suspension has been in effect since CME filed its challenge on June 11.

Initially, the SEC's approval in May anticipated that the CFTC would grant exemptions, allowing Nasdaq and the Options Clearing Corporation to offer the product via the securities market. However, CME argued that such exemptions cannot be utilized to shift regulatory oversight from one agency to another.

As it stands, QBTC will remain on hold while the full commission conducts a thorough review of the earlier approval.