The Cboe Exchange, Inc. is proposing to list binary options on a series of performance indicators at various major U.S. companies — such as iPhone sales for Apple Inc., daily users on Meta Platforms Inc. and net interest income at JPMorgan Chase & Co.
In a filing with the U.S. Securities and Exchange Commission (SEC), the exchange sets out its plans for listing and trading binary options based on key performance indicators (KPIs) reported by certain high-profile U.S. public companies.
Under the exchange’s current rules, it can list binary options on broad-based indices, but it’s now proposing to amend those rules to allow for new cash-settled options contracts that would be geared to specific financial or operating metrics reported by issuers in their SEC filings.
To start, it’s proposing contracts for 23 major U.S. issuers, with as many as seven different KPIs for certain issuers, and just a couple of metrics for others. For example, for Space Exploration Technologies Corp. (SpaceX), it’s proposing to just offer contracts on earnings per share and total revenues.
The proposed rule changes would set out the standardized terms for these instruments, such as payout amounts, strike prices, expiration dates, settlement details and requirements for determining whether the KPI condition is met or not.
In its filing, the Cboe said its proposed binary KPI options are designed for retail investors, and that it expects retail brokerage firms will provide investors with disclosure that makes the terms of the options clear to their customers on their trading interfaces.
It also suggests that the proposed new listings will be a more transparent way for investors to trade these sorts of instruments, compared with over-the-counter markets or other prediction market platforms.
“It would contribute to levelling the playing field with these alternative markets and provide investors with safeguards associated with [SEC] and [self-regulatory] oversight of the trading activity in these exchange-listed binary KPI options,” the filing said.
“Ultimately, the exchange believes the proposed rule change will provide investors with greater trading tools and opportunities and flexibility, resulting in investors having additional means to carry out their investment objectives and manage their risk exposures through products listed and traded on a national securities exchange,” it said.
The SEC filing seeks feedback on the proposal within the next 45 days.