The SEC has approved a Nasdaq Texas rule letting qualifying commodity-linked trusts hold up to 15% of net asset value in otherwise ineligible assets, including digital commodities beyond Bitcoin. Trusts must still keep at least 85% in qualifying holdings, and derivatives count by their full gross notional exposure, which can use up that allowance quickly.
SEC approves the 15% allowance
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, commodities, commodity-based assets, and securities that meet the rule's eligibility tests.
That 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. It does not allow a sponsor to put any asset it wants into that portion, and it does not approve a particular fund.
Derivatives can eat the allowance fast
The 15% limit applies to all otherwise ineligible holdings combined, and derivatives can 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. 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, giving the trust $140 million of total exposure for the test, but only the $100 million in Bitcoin qualifies toward the 85% requirement.
As a result, the qualifying portion falls to 71.42%, well below the required 85%. A sponsor must check compliance with the threshold each day and promptly notify Nasdaq Texas after a breach.
Active management comes with disclosure duties
The amendments also let Commodity-Based Trust Shares use actively managed strategies under the generic standards, where the rule previously contemplated only passive strategies. Active management does not give fund managers unrestricted control over the portfolio, however. Trusts must disclose their holdings on a free public website before regular trading opens, including quantities and percentage weights, and the exchange must halt trading if required portfolio information is not made available to all market participants at the same time.
Nasdaq Texas said its amendments are materially identical to changes the SEC approved for Nasdaq in July, and the order also cites comparable approvals for NYSE Arca and Cboe BZX. That makes this an alignment of exchange rules rather than a first-of-kind national policy.
Source: CryptoSlate
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