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SEC OKs more flexibility for Bitcoin-heavy commodity-linked trusts

The new rule lets qualifying trusts use a streamlined listing process for up to 15% of otherwise ineligible holdings, but gross-notional derivatives exposure can quickly reduce a trust’s qualifying percentage below 85%.

Reported · Written up by our desk · Market Structure

The US Securities and Exchange Commission approved a Nasdaq Texas rule that gives qualifying commodity-linked trusts more flexibility in what they can hold while still using an exchange listing route designed to be faster than product-by-product SEC review.

Under the Sept. 3 approval order, a qualifying Commodity-Based Trust Share must keep at least 85% of its net asset value in cash, cash equivalents, eligible commodities and commodity-based assets, or securities that meet the rule’s eligibility tests. The remaining 15% may be allocated to specified digital commodities or to securities that do not meet those tests, for purposes of exchange access.

For Bitcoin-heavy trusts, the allowance can be used for other digital assets or certain derivatives, but the SEC’s order highlights that derivatives can consume the limit quickly. The rule measures derivatives using gross notional value, and Nasdaq Texas must be notified if a trust breaches the daily 85% threshold, according to CryptoSlate.

The SEC also used an example to show how leverage can break eligibility: a trust with $100 million in Bitcoin plus $5,000 over-the-counter call options on a bitcoin ETF, representing $40 million of exposure, would have $140 million of total exposure against the test. In that scenario, only the $100 million in Bitcoin counts toward the 85% requirement, dropping the qualifying portion to 71.4%, which would fail the test.

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