Cboe Global Markets (BATS: CBOE) is seeking approval from the Securities and Exchange Commission (SEC) for new derivatives that will be linked to the key performance indicators (KPIs) of various companies, paving the way for traders to access a novel type of event contracts.
The operator of the exchange, with an established presence in prediction markets, is targeting the SEC for approval of yes/no contracts tied to 100 KPIs from 23 companies, including tech giants like Apple, cryptocurrency platforms like Coinbase Global, and other industry leaders such as Robinhood Markets, SpaceX, and Tesla.
“The Exchange intends to modify its Rules to allow the listing of binary KPI options. These options are cash-settled, European-style contracts that derive their exercise settlement value not from the issuer’s stock market price, but from whether a specific financial or operational metric disclosed by the issuer in an earnings filing submitted to the U.S. Securities and Exchange Commission (the ‘Commission’) meets or surpasses a predetermined strike level,” as stated in the filing Cboe submitted to the SEC.
The Cboe Options Exchange owner signaled its aspirations to offer yes/no event contracts based on economic data without venturing into the realm of sports event derivatives.
Cboe’s Strategy to Attract Pro Traders
Current platforms like Kalshi and Polymarket already provide a variety of company-specific event contracts; however, most of these derivatives are anchored in stock price fluctuations or corporate activities such as mergers and acquisitions.
Cboe seeks to elevate this proposition by delving deeper into financial specifics. The exchange is looking to get the green light for binary options based on Tesla’s free cash flow and deliveries of Model 3 units. Other proposed options include metrics such as transaction volume on Coinbase, iPhone sales from Apple, Nvidia’s revenue from data centers, and customer funding for Robinhood.
These contracts will be settled depending on whether the companies surpass those targets. For instance, Cboe might issue a contract concerning Apple’s sales of 10 million iPhones in Q3 — if that figure is exceeded, those betting on the “yes” side of the option would see a profit.
“The Exchange will determine the applicable KPI and its reporting period (for example, quarterly) at the time a binary KPI option is listed,” Cboe mentions in its regulatory submission. “If the relevant KPI is not reported or is unavailable on the expiration date (and will not be reported), settlement (including any payout associated with the exercise settlement amount) will be conducted according to the Clearing Corporation’s Rules.”
Should the SEC approve these binary options, it may provide Cboe a competitive advantage in attracting institutional clients in the prediction market sector — a demographic Cboe is already engaging through its operation of highly regarded derivatives exchanges.
Understanding Regulatory Dynamics
Unlike traditional prediction markets that fall under the jurisdiction of the Commodities and Futures Trading Commission (CFTC), Cboe must answer to the SEC, necessitating its request for new contract types to be directed at that agency.
This scenario doesn’t imply potential regulatory conflict. During a Senate Banking Committee hearing in February, SEC Chairman Paul Atkins acknowledged that most regulatory duties regarding prediction markets lie with the CFTC, but there would be instances where the SEC would take the lead or collaborate with the two commissions. Cboe’s application is a clear instance of the SEC asserting its domain.