SEC gives Bitcoin-heavy trusts a new 15% window to venture beyond existing listing rules

The US Securities and Exchange Commission has approved a Nasdaq Texas rule that gives qualifying commodity-linked trusts more flexibility over what they can hold while allowing actively managed strategies.

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, or commodities, commodity-based assets, and securities that meet the rule's eligibility tests. The remaining 15% can include specified digital commodities or securities that do not meet those tests.

In practice, that means a trust can put up to 15% into otherwise ineligible assets without losing access to the exchange's streamlined listing process. For a Bitcoin-heavy trust, for example, that could provide room for other digital assets or certain derivatives. It does not allow a sponsor to put any asset it wants into the 15% portion, and it does not approve a particular fund.

The 15% limit applies to all otherwise ineligible holdings combined. Derivatives can also use up that allowance quickly because the rule counts their total underlying exposure, known as gross notional value, rather than just an option's price or the cash initially committed.

The SEC illustrated the constraint with a trust holding $100 million of Bitcoin and 5,000 over-the-counter call options on a Bitcoin exchange-traded fund. Those options represent another $40 million of exposure under the rule. That gives the trust $140 million of total exposure for the test, but only the $100 million in Bitcoin qualifies toward the 85% requirement.

The qualifying portion therefore falls to 71.42%, well below the required 85%. The example shows that even a Bitcoin-heavy portfolio can fail the test when its options position becomes large enough.

A sponsor must check compliance with the 85% threshold each day and promptly notify Nasdaq Texas after a breach. The exchange filing also limits which commodities can occupy the nonqualifying portion: they must be digital commodities under the rule's definition.

The main benefit for fund sponsors is a faster listing process. Once the SEC has approved an exchange's rules and generic listing standards for a type of product, Rule 19b-4(e) allows a product that meets those standards to begin trading without going through a separate SEC approval process for that individual product. A product that falls outside the standards can still seek approval through an individual filing.

Nasdaq Texas said its amendments are materially identical to changes the SEC approved for Nasdaq in July. The Texas order also cites comparable approvals for NYSE Arca and Cboe BZX, making this an alignment of exchange rules rather than a first-of-kind national policy.

The amendments also allow Commodity-Based Trust Shares to use actively managed strategies under the generic standards. Previously, the rule contemplated only passive strategies.

Active management does not give fund managers unrestricted control over the portfolio. Trusts must disclose their holdings on a free public website before regular trading opens, including quantities and percentage weights. The exchange must halt trading if required portfolio information is not made available to all market participants at the same time, and people with access to nonpublic portfolio information must follow procedures designed to prevent its misuse.

The order follows earlier regulatory work on active Bitcoin structures, including the options-based income strategy described in CryptoSlate's June coverage.

For fund sponsors, the new rule expands what can use Nasdaq Texas's streamlined listing process without eliminating its portfolio limits. At least 85% must still meet the exchange's eligibility tests, while everything outside those tests must fit within the remaining 15%.