CBOE Requests SEC Approval for In-Kind Transactions in Bitcoin and Ethereum ETFs

The CBOE BZX Exchange has officially submitted a 19b-4 filing to the U.S. Securities and Exchange Commission (SEC), seeking approval for amendments to the Bitcoin (BTC) and Ether (ETH) exchange-traded funds (ETFs). The filing proposes changes to the 21Shares Core Ethereum ETF and the ARK 21Shares Bitcoin ETF.

For context, the 19b-4 filings are submitted by exchanges on behalf of ETF issuers as part of the SEC’s review process. Once accepted, these filings are published in the Federal Register, initiating formal regulatory review.

Focus on Authorized Participants (APs)

In a recent post on X, ETF Store President Nate Geraci shared CBOE’s regulatory request. Notably, if the SEC approves CBOE’s changes, BTC and Ether ETFs will allow in-kind creations and redemptions, making the process more efficient. These ETFs are already permitted to trade under BZX Rule 14.11(e)(4).

Cboe files 19b-4 to permit in-kind creations & redemption on BOTH the ARK 21Shares Bitcoin ETF & 21Shares Core *Ethereum* ETF… pic.twitter.com/lQklURfNbU

— Nate Geraci (@NateGeraci) January 27, 2025

The amendment specifically targets Authorized Participants (APs) and does not apply to retail investors. In-kind transactions would enable APs to exchange ETF shares for the underlying assets instead of cash, potentially improving market efficiency by reducing the complexity and costs of transactions. This method would eliminate the need to sell Bitcoin before acquiring ETF shares.

Industry responses to CBOE’s filing have been mixed. One expert believes the change could smooth market operations by reducing friction between ETFs and the broader cryptocurrency market. Another analyst sees it as a sign of growing institutional involvement and market development.

SEC Approvals and CBOE’s Regulatory Journey

Before the SEC’s approval of spot bitcoin ETFs, firms were working through technical details related to the redemption process for these products. Initially, the SEC favored a cash redemption model that required issuers to sell Bitcoin and return the proceeds in cash. However, the SEC later approved spot BTC ETFs with in-kind redemptions in January 2024, followed by the approval of spot Ether ETFs in May.

In addition, on October 2024, the SEC approved rule changes allowing options trading on spot Bitcoin ETFs. As a result, CBOE secured the green light to list options on ten Bitcoin ETFs, though the Grayscale Bitcoin Mini Trust (BTC) was excluded.

CBOE has previously submitted several 19b-4 filings, but not all have been approved by the SEC. For instance, the SEC rejected filings for two proposed spot Solana ETFs, leading to their removal from CBOE’s listings.