The US Securities and Exchange Commission (SEC) has approved a rule change submitted by Nasdaq ISE, LLC, allowing the listing and trading of options on the iShares Ethereum Trust (ETHA). 

This approval, announced on April 9, 2025, follows months of regulatory scrutiny and public comment, and marks a significant milestone in integrating digital asset-based products into mainstream financial markets.

The approved rule change, modified by Amendment No. 1, introduces a framework for physically settled, American-style options on ETHA shares. These contracts will operate under the same standards applied to other exchange-traded fund (ETF) options, including rules governing expirations, exercise prices, and trading halts.‍

Conservative Position Limits Set

One of the key components of the amendment is the imposition of a 25,000-contract position and exercise limit per market side. This conservative cap is intended to minimize the potential for market manipulation and disruption while allowing institutional and retail investors to hedge or gain exposure to ether-linked assets.

According to data submitted by the Exchange, the 25,000-contract limit represents less than 4.4% of the Trust’s outstanding shares as of late 2024. The Trust had over 57 million shares outstanding and more than 93,000 shareholders. 

The proposed cap also equates to less than 0.03% of the total market capitalization of the global ether supply, reinforcing the SEC's view that such limits would not significantly impact ether markets.‍

Surveillance and Regulatory Safeguards

The SEC emphasized that robust surveillance mechanisms are in place to monitor trading activity and prevent abuse. Nasdaq ISE will use existing surveillance systems and work with affiliated exchanges, the Financial Industry Regulatory Authority (FINRA), and the Intermarket Surveillance Group to detect any potential manipulation or abnormal trading behaviors.

Additionally, the new options will be excluded from FLEX trading, giving the SEC the opportunity to evaluate any future proposals for flexible exchange options on the Trust separately.‍

Market Activity Supports Approval

Supporting the approval, the SEC noted ETHA's healthy trading volume and market participation. From July to December 2024, the Trust averaged over 5.3 million shares in daily trading volume with a notional average daily value of nearly $128 million. The Trust’s market capitalization stood at approximately $1.16 billion as of October 2024.

In comparison to other securities with similar volumes and capitalization, ETHA's proposed limits fall below those applied to many existing ETF options, which can range as high as 250,000 contracts. The SEC cited this as evidence that the proposed limit is both appropriate and protective of market stability.

The SEC also acknowledged concerns raised by public commenters, particularly regarding the risks of exposing retail investors to the volatility of ether. In response, the Commission reiterated that existing broker-dealer suitability rules and FINRA guidelines already provide essential safeguards for retail investors participating in options markets.

The Commission granted accelerated approval of Amendment No. 1, concluding that the proposed rule change is consistent with the Securities Exchange Act. The move adds another regulated derivative instrument linked to a digital asset, marking a continued shift toward mainstream acceptance of crypto-based financial products.