SEC Approves Cboe Listing of 3x Bitcoin and Ether Funds

The SEC on Oct. 2 approved Cboe BZX Exchange’s proposed rule to list six Volatility Shares funds, including products targeting three times the daily moves of Bitcoin and ether. The SEC’s approval order clears an exchange listing hurdle; it does not mean the funds have started trading.

The six funds are tied to Bitcoin, ether, gold, silver, crude oil and natural gas. Each aims to deliver three times the daily performance of a benchmark based on futures contracts for its asset, before fees and expenses. They are series of the VS Trust, sponsored by Volatility Shares LLC.

What did the SEC approve?

The SEC approved Cboe’s request to list and trade the fund shares under its rule for commodity-based trust shares. Cboe filed the proposal on Aug. 10, and the SEC published it for comment on Aug. 19. The approval applies a product-specific exception: the exchange’s standard listing rules do not allow these commodity-based shares to target a multiple of an asset’s return, so Cboe sought approval for this proposal.

The order says the funds must meet the other initial and ongoing listing requirements. It also describes exchange surveillance, public pricing and portfolio information, and trading halts as parts of the framework. The approval permits Cboe to list the shares once the remaining requirements are met; it does not set a launch date.

How do the funds aim for three times the daily move?

Each fund uses futures contracts in its benchmark to build exposure to its reference asset. The contracts represent an agreement tied to a price at a later date; the fund also holds cash and cash equivalents as collateral or margin. If benchmark futures rise 2% in a day, a fund’s target is a 6% gain that day, before fees and expenses. A 2% fall means a target loss of 6%.

The Decrypt report on the approval notes that the shares cannot trade until each fund’s registration statement takes effect. The products are exchange-traded products based on futures exposure, rather than funds that hold Bitcoin or ether directly.

Why does the daily reset matter?

The three-times target applies to each day, not to the total move over a longer period. The fund resets its exposure daily, so the order of gains and losses affects the compounded result. For example, a 10% fall followed by a 10% rise leaves an asset down 1%; multiplying each day’s move by three would leave a 3x fund down 9% before fees.

The change is that Cboe now has SEC approval to list the six proposed products. The next step for traders to watch is whether and when each fund’s registration statement takes effect.

References

• SEC’s approval order — sec.gov
• Decrypt report on the approval — decrypt.co