SEC delays decision on IBIT options; why the 4x limit increase has been postponed until the end of February

The U.S. Securities and Exchange Commission (SEC) recently announced a delay in ruling on the rule change proposal submitted by Nasdaq ISE, with a new deadline set for February 24, 2026. The core of this proposal is to significantly increase the position and exercise limits for iShares Bitcoin Trust (IBIT) options from the current 250,000 contracts to 1,000,000 contracts, a fourfold increase. What does this delayed decision reflect?

What is the IBIT Options Position Limit

IBIT is a spot Bitcoin ETF that has become a primary tool for institutional investors to allocate Bitcoin since its approval in 2024. The options position limit is a safety valve set by exchanges to prevent systemic risk—limiting the maximum open interest of a single options contract within a specific period. The current limit of 250,000 contracts means that the open interest of a single IBIT options contract in the market cannot exceed this number.

What does the proposed new limit of 1,000,000 contracts represent? It indicates that the capacity of the options market will expand fourfold, accommodating more institutional investors’ hedging needs.

Why is the SEC delaying the decision

The SEC extended the decision deadline from the original date to February 24, citing the need for sufficient time to review “the impact of significantly relaxing the limits on the market.” This statement reveals several key pieces of information:

Market structure complexity

While the IBIT options market has grown rapidly, it remains an emerging sector compared to traditional options markets. The potential chain reactions from a fourfold limit increase require thorough assessment, including:

• Whether options volatility will fluctuate significantly
• Whether arbitrage mechanisms can operate effectively
• Whether new systemic risks might emerge

Institutional demand confirmation

The delay itself also reflects the authenticity of this demand. If the demand were insufficient, the SEC might outright reject it. But choosing to delay rather than deny suggests that the proposal has its merits. According to recent reports, traditional financial giants like Morgan Stanley and Bank of America are heavily entering the Bitcoin market, and their hedging needs are indeed increasing.

Background: Accelerating Institutional Entry

This delay is set against the backdrop of the accelerating financialization of Bitcoin. Recent developments include:

• Morgan Stanley has submitted applications for Bitcoin and Solana ETFs (January 6, 2026)
• U.S. banks are allowing clients to allocate up to 4% of their portfolios to Bitcoin
• Spot ETFs like IBIT are becoming mainstream asset allocation tools

As more institutional investors enter, they require more options tools to manage risk. The current 250,000 contracts limit has become a bottleneck, restricting market depth and liquidity.

Potential Market Impact

If the SEC approves this proposal by February 24, the effects could be multi-layered:

Expansion of the options market

A larger position limit means the options market can handle more trading volume, potentially leading to a significant improvement in options liquidity. This is beneficial for institutional investors needing large-scale hedging.

Optimization of Bitcoin price discovery

Options markets are often considered important venues for price discovery. A deeper options market could help Bitcoin prices reflect market expectations more effectively.

Accelerated institutional allocation

Lifting the limits provides larger asset management firms with more convenient tools, potentially speeding up their Bitcoin allocation processes.

Summary

The SEC’s delay is not a rejection but a cautious approach. This decision reflects regulators balancing two objectives: on one hand, supporting the financialization of the Bitcoin market; on the other, ensuring market safety. Given the background of increasing institutional participation, the likelihood of this proposal being approved is relatively high. The February 24 deadline gives market participants ample time to anticipate. For investors optimistic about Bitcoin’s financialization, this delay itself may be a positive signal.