The exchange operator MEMX has submitted a proposed rule modification to the Securities and Exchange Commission (SEC) that, upon approval, would enable the organization to provide event contracts tied to corporate earnings reports and other vital performance metrics of publicly traded firms.
In a recent filing submitted to the SEC late Tuesday, the financial services entity proposed changes to an existing rule, permitting it to launch “Equities Based Exchange Prediction Contracts” (EPCs) — market derivatives focused on specific corporate measurements.
“MEMX’s EPCs are event contracts tied to publicly traded companies aimed at offering investors precise exposure to quantifiable metrics of a company’s financial standing, such as earnings, revenue, and sales, along with other key performance indicators,” as stated by the New York-based organization.
If the EPCs receive approval, MEMX will make these yes/no derivatives available to traders via Interactive Brokers, which is already recognized in the non-sports event contract industry. The expected launch date for these contracts is “early 2027.”
In-Depth Look at MEMX’s EPCs
Traders engaging with MEMX’s yes/no contracts will price these transactions between a penny and 99 cents, utilizing a methodology akin to traditional prediction markets.
“Because the paired bids for the yes/no contract must total the $1 exercise settlement amount, execution prices accurately reflect the market’s valuation of the two potential outcomes,” MEMX elaborates. “This provides investors with unique avenues for price discovery, financial exposure, and hedging strategies related to the most scrutinized publicly traded firms.”
MEMX has highlighted that these options will initially be available on the top 25 U.S. stocks ranked by market capitalization. This list includes major players like Nvidia (NASDAQ: NVDA), Apple (NASDAQ: AAPL), and Microsoft (NASDAQ: MSFT).
As it explores the prediction market category, MEMX is carefully avoiding contentious sports event contracts. However, its EPC offerings have the potential to become diverse, as the “other” category of performance metrics is vast. For instance, MEMX’s EPCs on an upcoming Apple earnings report could encompass derivatives not only for top and bottom line figures but also for metrics like iPhone sales or revenue from wearable technology.
Growing Interest Among Exchanges
The news of MEMX’s proposed rule change follows closely on the heels of Cboe Global Markets (BATS: CBOE), which recently sought approval to list event contracts based on company earnings and various other metrics. Cboe’s plan includes offering binary options tied to 100 critical performance indicators across 23 well-known publicly listed firms.
There appears to be a significant demand in the professional trading community, and potentially among informed retail traders, for the event contracts that both Cboe and MEMX aim to introduce. Traditionally, market participants—especially retail ones—have limited options for capitalizing on company earnings, typically resorting to holding shares or options during earnings announcements, which amounts to betting on outcomes and guidance updates.
The event contracts from Cboe and MEMX present a more nuanced approach to this scenario, potentially offering greater opportunities for traders.