On 15 November 2024, the United States Commodity Futures Trading Commission Division of Clearing and Risk issued an advisory clarifying its position on the clearing of options on spot commodity-based ETFs. The advisory affirms that such ETF shares are likely to be considered securities under the US SEC framework and thus fall outside the US CFTC’s jurisdiction. The Options Clearing Corporation (OCC) will continue clearing these options under SEC regulation. The announcement directly impacts the growing ecosystem of ETFs based on cryptocurrencies, such as bitcoin and ethereum, alongside traditional commodity-based ETFs like gold and silver. Beyond its jurisdictional analysis, the advisory clarifies that commodity-based ETFs, including spot crypto ETFs, do not directly engage in commodity interests. Instead, they are structured as securities, providing investors with exposure to the underlying asset’s performance. The advisory excludes commodity pool ETFs, which are directly tied to commodity futures or swaps and remain under US CFTC jurisdiction.
The advisory asserts that shares of spot commodity ETFs are substantially likely to be classified as securities under existing statutory and judicial frameworks, placing them firmly under the oversight of the United States Securities and Exchange Commission. Consequently, the clearing and settlement of options on these ETFs will continue to be managed by the Options Clearing Corporation (OCC), which operates as a registered clearing agency under United States SEC supervision.
Spot commodity ETFs have been a part of the investment landscape since 2004, when ETFs based on precious metals like gold and silver first gained SEC approval. More recently, the rapid rise of cryptocurrency-based ETFs has expanded the market. In January 2024, bitcoin-based spot ETFs were listed and traded on national securities exchanges following SEC approval. Ethereum-based ETFs followed in May 2024, reflecting the growing acceptance of digital assets in mainstream finance.
The listing of these ETFs has created demand for derivative products such as options, which provide investors with tools to hedge their portfolios or speculate on price movements. The OCC, already the sole issuer of equity options, clears and settles these products, ensuring compliance with SEC regulations.
The advisory cites several key judicial precedents that reinforce the classification of ETF shares as securities, including SEC v. W.J. Howey Co. (1946) and Reves v. Ernst & Young (1990) , Reves v. Ernst & Young (1990), Pollack v. Laidlaw Holdings, Inc. (1994), Gary Plastic Packaging Corp. v. Merrill, Lynch, Pierce, Fenner & Smith (1985), U.S. v. Tucker (2003), Battig v. Simon (2001), SEC v. W.J. Howey Co. (1946), Glen-Arden Commodities, Inc. v. Constantino (1974). These rulings underpin the view that options on spot commodity ETFs, whether tied to traditional assets like gold or digital currencies like bitcoin, fall outside the CFTC’s jurisdiction.
United States CFTC has, in the past, provided exemptive orders allowing the trading of certain ETF-based products, including futures and options on precious metals ETFs. However, today’s announcement clarifies that these exemptions do not extend to the clearing of options, which remains the United States SEC’s domain.
Spot commodity ETFs are structured to hold physical commodities or digital assets. Their shares are either registered with the US SEC as securities, traded on national securities exchanges, issued by trusts holding underlying commodities or cryptocurrencies, designed to offer investors exposure to the performance of the underlying asset, with redemption features tied to the asset itself. This structure distinguishes spot commodity ETFs from commodity pool ETFs, which invest directly in commodity futures or derivatives and fall under the US CFTC’s jurisdiction.
With regulatory clarity from both the United States SEC and United States CFTC, market participants can expect a stable framework for the trading and clearing of options tied to bitcoin, ethereum, and other digital assets. US CFTC has offered legal clarity on the status of spot commodity ETFs, the document serves as a guidepost for regulators, investors, and market participants. By affirming that options on spot commodity ETFs, including crypto ETFs, are exclusively under US SEC oversight, the advisory provides legal certainty to market participants.
(Source: https://www.cftc.gov/PressRoom/PressReleases/9008-24, https://www.cftc.gov/csl/24-16/download)
