SEC Approves Rule Giving Commodity-Linked Trusts More Flexibility

The US Securities and Exchange Commission (SEC) has approved a new rule for Nasdaq Texas that gives qualifying commodity-linked trusts more flexibility in their investment portfolios. The rule, which was approved on September 3rd, allows these trusts to keep at least 85% of their net asset value in cash, cash equivalents, or commodities, commodity-based assets, and securities that meet the eligibility tests.

However, the remaining 15% can include specified digital commodities or securities that do not meet those tests. This means that a trust can put up to 15% into otherwise ineligible assets without losing access to the exchange's streamlined listing process.

The new rule applies to all otherwise ineligible holdings combined and counts derivatives' total underlying exposure, known as gross notional value, rather than just an option's price or the cash initially committed. For example, a trust holding $100 million of Bitcoin and 5,000 over-the-counter call options on a Bitcoin exchange-traded fund would have $140 million of total exposure for the test, but only the $100 million in Bitcoin qualifies toward the 85% requirement.

The SEC has illustrated the constraint with an example where a trust's qualifying portion falls to 71.42%, well below the required 85%. The exchange filing also limits which commodities can occupy the nonqualifying portion: they must be digital commodities under the rule's definition.