BOX Exchange: Cash Instead of Shares for Fancy Options Trading
Published Date: 4/17/2025
Notice
Summary
BOX Exchange wants to update its rules to let certain FLEX Equity Options settle in cash instead of stocks. This change affects traders using these options and aims to make trading smoother and more flexible. The proposal was filed in April 2025 and is open for public comments before it can take effect.
Analyzed Economic Effects
5 provisions identified: 2 benefits, 2 costs, 1 mixed.
Cash Settlement Allowed for Certain FLEX ETFs
BOX proposes to allow some FLEX Equity Options whose underlying is an ETF to settle in cash instead of by delivering shares. To qualify, the ETF must have an average daily notional value of $500,000,000 or more and an average daily volume (ADV) of at least 4,680,000 shares; the Exchange identified 43 ETFs that met those tests as of February 1, 2025.
Position and Exercise Limits Apply
Cash-settled FLEX ETF Options would be subject to BOX position limits in Rule 3120 and exercise limits in Rule 3140, and positions in cash-settled FLEX ETF Options would be aggregated with physically-settled options on the same ETF for limit calculations. The Exchange notes specific position-limit amounts for qualifying ETFs (for example, SPY would have a 3,600,000 contract limit, QQQ 1,800,000, and many ETFs 250,000).
Exchange Trading May Replace OTC Contracts
BOX expects that some investors who trade OTC cash-settled ETF options (like hedge funds and proprietary trading firms) may move to exchange-traded cash-settled FLEX ETF Options. Exchange trading would clear through The Options Clearing Corporation (OCC), which the Exchange says reduces counterparty credit risk and increases transparency.
Biannual ETF Eligibility and 50-ETF Cap
BOX will determine eligible ETFs for cash-settled FLEX terms twice a year using the prior six months of trading data on January 1 and July 1; newly qualifying ETFs would be permitted for cash settlement beginning February 1 and August 1. The Exchange will allow cash settlement as a contract term for no more than 50 ETFs and, if more than 50 meet the thresholds, will select the top 50 by average daily volume.
Certain Bitcoin ETF FLEX Options Prohibited
BOX would not authorize FLEX Equity Option classes (cash- or physically-settled) on the iShares Bitcoin Trust, the Grayscale Bitcoin Trust, the Grayscale Bitcoin Mini Trust, the Bitwise Bitcoin ETF, the Fidelity Wise Origin Bitcoin Fund, or the ARK 21Shares Bitcoin ETF. If BOX later decides to allow FLEX trading on those ETFs, it will file a separate 19b-4 rule change with the SEC.
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