The US Securities and Exchange Commission has approved a Nasdaq Texas rule allowing qualifying commodity-linked trusts to allocate up to 15% of their portfolios to otherwise ineligible holdings while maintaining access to a faster listing process.
Under the Sept. 3 approval order, Commodity-Based Trust Shares must maintain at least 85% of their net asset value in cash, cash equivalents, qualifying commodities, commodity-based assets, and eligible securities. The remaining 15% may consist of specified digital commodities or securities that fall outside those tests. For a Bitcoin-heavy trust, this creates room for alternative digital assets or specific derivatives, though fund sponsors do not have unrestricted asset choices and individual funds are not automatically approved.
The 15% allowance applies to all combined ineligible holdings. Derivatives utilize this allowance based on their total underlying exposure, known as gross notional value, rather than initial cash commitments or option prices. The SEC highlighted an example where a trust holding $100 million in Bitcoin alongside $40 million in over-the-counter call options on a Bitcoin exchange-traded fund calculates $140 million in total exposure. In this scenario, the qualifying Bitcoin portion drops to 71.42% of the total, breaching the required 85% threshold.
Trust sponsors must monitor compliance with the 85% threshold daily and immediately notify Nasdaq Texas in the event of a breach. Nonqualifying commodities are restricted to digital commodities defined under the rule.
The primary advantage for sponsors is a streamlined listing process. Rule 19b-4(e) permits products that satisfy generic exchange listing standards to begin trading without undergoing individual SEC approval processes.
Nasdaq Texas stated that its amendments are materially identical to changes approved for Nasdaq in July, aligning with comparable approvals for NYSE Arca and Cboe BZX. Furthermore, the amendments permit Commodity-Based Trust Shares to implement actively managed strategies under generic standards, shifting away from previously mandated passive strategies.
Active management requires strict disclosures. Trusts must publish portfolio holdings, including quantities and percentage weights, on a free public website before regular trading commences. Exchanges must halt trading if required portfolio information is unavailable to all market participants simultaneously, and individuals possessing nonpublic portfolio data must adhere to misuse prevention procedures.
