Cboe Seeks Exemption to List 3x Bitcoin and Ether Futures ETFs

Cboe BZX filed with the Securities and Exchange Commission on Aug. 10 to request a case-specific exemption that would allow listing of six Volatility Shares funds designed to target three times the daily performance of underlying futures. The filing covers funds tied to Bitcoin, Ethereum, gold, silver, crude oil and natural gas.

An SEC notice dated Aug. 14 said the funds’ registration statement was not effective and the shares were not authorized for trading. Cboe’s standard commodity-trust listing rule, Rule 14.11(e)(4), allows Commodity-Based Trust Shares to list under generic standards but includes a clause excluding products that seek a multiple of a benchmark. To overcome that restriction, Cboe used a Section 19(b) filing asking the SEC to approve the proposed listing for the six funds.

Volatility Shares LLC would sponsor the funds as series of the VS Trust and is registered with the Commodity Futures Trading Commission as a commodity pool operator. The sponsor would manage daily operations. US Bancorp Fund Services is listed as transfer agent, fund accountant and administrator, and US Bank National Association would serve as custodian. The funds would operate as commodity pools registered with the CFTC rather than as investment companies under the Investment Company Act of 1940, but they still require an effective Securities Act registration statement and SEC approval of the listing before trading could begin.

For the Bitcoin and Ethereum funds, benchmarks would use near- and next-month futures contracts traded mainly on the Chicago Mercantile Exchange. The near-month position would be rolled into the following contract over five business days, with roughly 20% of the expiring position moved each day. The filing allows use of later-month futures, linked exchange-traded products or listed options if preferred contracts become unavailable because of price limits, margin requirements, position limits or risk controls.

Each fund would reset leverage every trading day. That daily-reset design makes longer-term returns dependent on the sequence of daily price moves, futures performance, roll costs, financing and operating expenses rather than a simple multiple of the long-term return of the underlying commodity. The filing highlights effects such as futures basis, roll execution, financing costs, operating expenses and tracking error as factors that can change shareholder returns.

Volatility Shares already offers 2x Bitcoin and Ethereum futures ETFs, which provide a live comparison for investors. The 2x Ether ETF reported a -48.81% net asset value return for the second quarter, a -79.61% one-year return and an average annualized loss of -96.15% from its June 4, 2024 inception through June 30. The 2x Bitcoin ETF reported a -29.76% quarterly NAV return and a -78.93% one-year return for the same period. The filing notes that those results do not predict how a 3x product would perform.

The filing also explains the trading needed to maintain daily leverage targets. In a simplified model, a 3x fund with starting assets A and initial exposure of 3A would require an approximate gross adjustment of 6Ar after a one-day benchmark return of r to restore three-times exposure. For a hypothetical $100 million fund, a 5% benchmark move implies roughly $30 million of additional buying or selling to rebalance exposure. The filing does not provide launch asset levels or flow forecasts, and actual execution would depend on fund size, market liquidity, investor creations and redemptions and the instruments used.

SEC approval of Cboe’s rule change request would resolve the exchange-rule issue created by the 3x leverage target but would not complete the separate registration and trading steps required before the funds could begin trading. The proposal remains pending with the commission.