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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106370; File No. SR-NYSEARCA-2026-93]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of a Proposed Rule
Change to Permit the Listing of Binary KPI Options
September 15, 2026.
Pursuant to Section 19(b)(1)1 of the Securities Exchange Act of 1934 (“Act”),2 and Rule
19b-4 thereunder,3 notice is hereby given that on September 3, 2026, NYSE Arca, Inc. (“NYSE
Arca” or the “Exchange”) filed with the Securities and Exchange Commission (“Commission”) a
proposed rule change as described in Items I and II below, which Items have been prepared by
the Exchange. The Commission is publishing this notice to solicit comments on the proposed
rule change from interested persons.
I.
Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed
Rule Change
The Exchange proposes to amend its Rules to permit the listing of binary options
overlying key performance indicators (“KPIs”) reported by certain issuers of stock (“binary KPI
options”). The proposed rule change is available on the Exchange’s website at www.nyse.com
and at the principal office of the Exchange.
II.
Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the self-regulatory organization included statements
concerning the purpose of, and basis for, the proposed rule change and discussed any comments
it received on the proposed rule change. The text of those statements may be examined at the
1
15 U.S.C. 78s(b)(1).
2
15 U.S.C. 78a.
3
17 CFR 240.19b-4.
places specified in Item IV below. The Exchange has prepared summaries, set forth in sections
A, B, and C below, of the most significant parts of such statements.
A.
Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory
Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Rules to permit the listing of binary options
overlying KPIs reported by certain issuers of stock (“binary KPI options”). 4
Binary options are based on the same framework as traditional, standardized options
traded on the Exchange, except the payout of a binary option is an amount contingent upon the
occurrence of the option being in- or at-the-money rather than the degree to which the option is
in-the-money. As a result, payout at expiration of a binary option is an all-or-nothing occurrence.
Under current Exchange Rules, the Exchange may list binary return derivatives
(“ByRDS”).5 The Exchange proposes to amend its Rules to permit the listing of binary KPI
options. Binary KPI options are European-style, cash-settled options contracts listed on an
underlying KPI of an issuer whose exercise settlement value is determined not by the market
price of the issuer’s stock, but by whether a specific financial or operating metric reported by the
issuer in an earnings-related filing submitted to the U.S. Securities and Exchange Commission
(the “Commission”) meets or exceeds a pre-specified strike level.
4
The Exchange’s proposal is similar to recent proposals filed by Cboe Exchange, Inc. (“Cboe”) and MEMX
LLC (“MEMX”). See Securities Exchange Act Release No. 105877 (July 10, 2026), 91 FR 43418 (July 15,
2026) (SR-CBOE-2026-061) (“Notice of Filing of a Proposed Rule Change to Amend its Rules to Permit
the Listing of Binary Options Overlying Key Performance Indicators (“KPIs”) Reported by Certain Issuers
of Stock (“Binary KPI Options”)) and Securities Exchange Act Release No. 106182 (August 24, 2026)
(SR-MEMX-2026-25). In addition, the Exchange notes that the proposal is similar to the trading of BroadBased Index Binary Options approved on its related options exchange NYSE American (see NYSE
American Rules 18 (Broad-Based Index Binary Optionssm).
5
See NYSE ARCA Rules Section 8 (Binary Return Derivatives sm).
2
First, similar to ByRDS and NYSE American Options Broad-Based Index Binary
Options, the Exchange proposes to adopt Section 9 (Binary KPI Options) to describe binary KPI
options. The Rules in proposed Section 9 apply only to binary KPI options. All other Rules apply
to the trading of binary KPI options, except as otherwise provided or the context otherwise
requires.
Specifically, the Exchange proposes to adopt Rule 5.96-O (Applicability, Definitions).
Like other standardized options, binary KPI options have standardized terms that are established
by the Exchange. Standardized terms for binary KPI options include the exercise criteria that is
the condition or criteria of a binary KPI option, the exercise settlement amount (i.e., payout
amount), strike prices, expiration dates, settlement type as A.M.-settlement or P.M.-settlement,
the settlement style (as European), and the requirements used to determine if the KPI condition
or criteria of a binary KPI option has been met (the “payout determination requirement”). The
Exchange proposes to establish these terms in new Rule 5.96-O and additional provisions in
proposed 5.96-O(b), as described below.
The Exchange proposes to define a “binary KPI option” in new Rule 5.96-O(b) as a cashsettled option contract listed on an underlying KPI of an issuer with an exercise settlement
amount that is established at the creation of the option and with a settlement value that is
determined by whether a specific KPI disclosed by the issuer in an earnings-related filing
submitted to the Commission meets or exceeds its exercise price. Binary KPI options are paid
out if the reported value of the applicable KPI (1) equals or is greater than (as the payout
determination requirement) the exercise price for a call binary KPI option or (2) is less than (as
the payout determination requirement) the exercise price for a put binary KPI option. The
Exchange also proposes to provide that unless the context dictates otherwise, the terms
3
underlying security, equity, or index, or any variations of these terms, in the Rules mean KPI for
purposes of binary KPI options.
The Exchange proposes to define a “call binary KPI option” as an option contract that
returns an exercise settlement amount if the settlement value of the underlying KPI is at or above
the exercise price at expiration (i.e., in- or at-the-money).6
The term “Clearing Corporation” would mean the registered clearing agency designated
by the Exchange to clear binary KPI options. 7
The Exchange proposes to define “exercise price” (also referred to as “strike price”) as
the value8 to which the settlement value of the underlying KPI is compared to the exercise
settlement amount. For binary KPI options, the exercise price is the exercise threshold of an
option contract that establishes a number, value, or measure that is compared against the price of
the settlement value of the underlying index or the KPI to determine if the cash payout amount
(i.e., the exercise settlement amount) will be paid out. In other words, binary options will have a
threshold number as the exercise price that will be used to determine if the exercise criteria of the
binary option has been met and the option will be exercised (and if holders will receive the cash
payout amount). For binary KPI options, the exercise threshold will be a number that reflects or
is compared to the underlying KPI of the binary option.
6
See proposed Rule 5.96-O(b)(2).
7
See proposed Rule 5.96-O(b)(3). The definition of Clearing Corporation reflects that the Exchange may
designate the Options Clearing Corporation (“OCC”) or another registered clearing agency to clear binary
KPI options. References in this filing to the Clearing Corporation therefore are intended to be clearing
agency-neutral. The proposed definition does not alter the requirement that clearing and settlement occur
through a registered clearing agency subject to the applicable provisions of the Act and the rules and
oversight applicable to that clearing agency.
8
See proposed Rule 5.96-O(b)(4).The value of an exercise price is measured in the applicable units of the
KPI. For example, some KPIs are measured in U.S. dollars while others may be measured in percentages or
numbers.
4
The Exchange proposes to define the term KPI (or “key performance indicator”) as a key
financial or operating metric disclosed by an issuer in its earnings-related filings submitted to the
Commission (i.e., Form 8-K, Form 10-Q, or Form 10-K, as applicable).9
The Exchange proposes to define “put binary KPI option” as an option contract that
returns an exercise settlement amount if the settlement value of the underlying KPI is below the
exercise price at expiration (i.e., in-the-money).10
The Exchange proposes to define “settlement value” as the value of the underlying KPI
that is used to determine whether a binary KPI option is in-, at-, or out-of-the-money.11 The
proposed definition specifies that the “settlement value” is the value of the applicable KPI as
disclosed in the applicable issuer’s earnings-related filing submitted to, the Commission on
applicable expiration date (for both A.M.-settled and P.M.-settled binary KPI options).12 The
Exchange designates the applicable KPI and the relevant reporting period (for example, a
calendar quarter) at the time of listing a binary KPI option. Proposed paragraph (b) of the
settlement value definition provides if the applicable KPI is not reported or otherwise
unavailable on the expiration date (and will not be reported), settlement (including any payout of
the exercise settlement amount) will occur in accordance with the Rules of the Clearing
Corporation.
9
See proposed Rule 5.96-O(b)(6).
10
See proposed Rule 5.96-O(b)(7).
11
See proposed Rule 5.96-O(b)(8).
12
While the timing of an issuer’s official announcement informs whether the Exchange will establish a binary
KPI option as A.M.-settled or P.M.-settled (as further discussed below), the Exchange will use the KPI
value included in an issuer’s report submitted to the Commission (and not the press release announcing
earnings results, for example) as the settlement value. The Exchange understands, however, these values
are generally the same.
5
Additionally, proposed paragraph (c) of the settlement value definition states if an
applicable KPI is restated after the expiration date and settlement of a binary KPI option, the
settlement value (and the exercise settlement amount) of the binary KPI option does not change.
In other words, the value of the applicable KPI as reported by the issuer on the applicable
expiration date is final, and the amount paid (or not paid) at settlement will not change,
regardless of whether it is later restated by the issuer.
The Exchange proposes to adopt Rule 5.97-O(a) (Designation of Binary KPI Option
Contracts) to identify the binary KPI options that may be listed for trading on the Exchange.
Pursuant to proposed Rule 5.97-O(a), the Exchange may from time to time approve for listing
and trading on the Exchange any of the following binary KPI options contracts for the following
issuers:
Company
Apple, Inc.
Advanced Micro
Devices, Inc.
Alphabet Inc.
Amazon.com, Inc.
KPI (each financial metric is measured in $ unless
otherwise specified)
Earnings per share: diluted
Total net sales
Net sales by category: iPhone
Net sales by category: Services
Net sales by reportable segment: Americas
Net sales by reportable segment: Greater China
GAAP Diluted earnings per share
GAAP Revenue
Net Revenue: Data Center Segment
Net Revenue: Client and Gaming Segment
GAAP Operating Margin (%)
Diluted net income per share
Revenues
YouTube ads Revenues
Google Cloud Revenues
Diluted earnings per share
Total Net sales
AWS: Net sales
North America: Net sales
International: Net sales
Net Sales: Advertising services
6
Bank of America
Corporation
Diluted earnings per share
Total Revenue, net of interest expense
Net Interest Income
Provision for credit losses
Net Income
Citigroup Inc.
Diluted earnings per share
Total Revenue, net of interest expense
Net Interest Income
Total Provision for credit losses
Net Income
Coinbase Global, Inc.
Net income per share - Diluted
Total Revenue
Transaction Revenue
Total Trading Volume
Subscription and Services Revenue
Ford Motor Company
GAAP Earnings per share - Diluted
Total Revenues
Ford Pro Segment: Revenue
Ford Model e Segment: Revenue
Ford Blue Segment: Revenue
Intel Corporation
GAAP Earnings per share attributable to Intel diluted
Net revenue
Revenue: Client Computing Group (CCG)
Revenue: Data Center and AI (DCAI)
Revenue: Intel Foundry
GAAP operating margin (%)
JPMorgan Chase & Co. Earnings per share - diluted
Net revenue - reported
Net Interest Income
Provision for credit losses
Net Income
Marathon Digital
Earnings (Net loss) per share of common stock Holdings, Inc.
diluted
Revenues
Number of Blocks Won (# Bitcoin (BTC))
Energized Hashrate (EH) (# EH/s)
Total Bitcoin Holdings (# BTC)
BTC Produced (# BTC)
BTC Purchased (# BTC)
Meta Platforms, Inc.
Earnings per share: Diluted
Revenue
Family Daily Active People (DAP) (#)
Revenue: Advertising
Operating Margin (%)
Microsoft Corporation Diluted Earnings per Share
7
Revenue
Intelligent Cloud: Revenue
Microsoft Cloud revenue
More Personal Computing: Revenue
Netflix, Inc.
Earnings per share: Diluted
Revenues
United States and Canada (UCAN): Revenue
Europe, Middle East, and Africa (EMEA): Revenue
Operating Margin (%)
NVIDIA Corporation
GAAP Diluted earnings per share
Revenue
Data Center Revenue
Edge Computing Revenue
Automotive Revenue
Palantir Technologies
Earnings per share attributable to common
Inc.
stockholders, diluted
Revenue
Net Income
Closed Deals of at Least $1 Million (#)
Robinhood Markets,
Net income attributable to Robinhood common
Inc.
stockholders: Diluted
Total net revenues
Funded Customers (#)
Average Revenue Per User (“ARPU”)
Robinhood Gold Subscribers (#)
SoFi Technologies, Inc. Earnings per share attributable to common
stockholders – diluted
Total net revenue
Total net revenue – Technology Platform
Total net revenue – Financial Services
Total net revenue – Lending
Space Exploration
Earnings per share: Diluted
Technologies Corp
Total Revenues
Super Micro Computer, Net income per common share: Diluted
Inc.
Net sales
Gross Margin (%)
Cash flow used in operations
Net Income
Target Corporation
Diluted earnings per share
Net sales
Food & Beverage Net sales
Apparel & Accessories Net sales
Operating income: Rate (%)
Tesla, Inc.
Net Income per share of common stocks attributable
to common stockholders: diluted
Total Revenues
8
The Walt Disney
Company
Total Automotive Revenue
Model 3/Y Production (#)
Supercharger Connectors (#)
Free Cash Flow
Diluted earnings per share
Revenues
Entertainment Subscription Video On Demand
(SVOD) Operating Income
Revenues: Experiences
Segment operating income: Sports
The Exchange proposes to add Rule 5.97-O(b) to clarify that binary KPI options are a
separate class from other options overlying the stock of the issuer and are a separate class from
other binary KPI options with differently underlying KPIs for the same issuer. The Exchange
believes this is reasonable given that an individual KPI is the specific underlying of binary KPI
options, and generally options with different underlyings (e.g., different underlying security or
index) are different option classes.
Next, the Exchange proposes to adopt Rule 5.98-O (Terms of Binary KPI Option
Contracts) to describe the permissible terms of binary KPI option series. Proposed Rule 5.98-O
provides that binary KPI options listed and traded on the Exchange are designated as to
expiration date, exercise price, settlement type, settlement style, exercise settlement amount,
contract multiplier, and underlying KPI. After approving a particular binary KPI option class for
listing and trading on the Exchange, the Exchange from time to time may open for trading series
of options in that binary KPI option class.
Proposed Rule 5.98-O(a) states binary KPI options have European-style settlement.
Proposed Rule 5.98-O(a) further provides that the Exchange may designate the settlement type
9
for binary KPI options as A.M.-settled or P.M.-settled. Binary KPI options for issuers13 that
disclose their earnings results before the open of the Core Trading Session on a given trading day
are designated as A.M.-settled binary KPI options, and binary KPI options for issuers that
disclose their earnings results after the close of RTH on a given trading day are designated as
P.M.-settled binary KPI options. The Exchange notes that the proposed concepts of A.M.settlement and P.M.-settlement for binary KPI options differ compared to traditional options, for
which “P.M.-settled” generally means that the expiration of an option so designated will settle to
the closing price of the underlying security or index value and “A.M.-settled” generally means
that the expiration of an option so designated will settle to the opening price of the underlying.
While different than how these terms apply to standard and binary index options, the Exchange
believes the proposed description of A.M.-settlement and P.M.-settlement appropriately reflect
the earnings disclosure practices of issuers. Additionally, while the timing of the event that will
determine whether the Exchange designates a binary KPI option as A.M.-settled or P.M.-settled
is different than that for traditional options and binary index options, the trading hours on
expiration dates for each of A.M.-settled and P.M.-settled binary KPI options are consistent with
those of A.M.- settled and P.M.-settled index options (traditional and binary) today.
Proposed Rule 5.98-O(b) describes permissible expirations for binary KPI options.
Specifically, the proposed rule change will permit the Exchange to list series that expire on the
date the issuer announces its earnings results for the applicable reporting period (such as calendar
quarter). The expiration date for a binary KPI option will be the date on which an issuer discloses
the applicable KPI in its earnings results (for example, the date on which it issues an earnings
13
The Exchange determines whether an issuer discloses its earnings results before or after the close of the
Core trading hours on a given trading day based on publicly available information regarding the issuer’s
disclosure practice.
10
results press release) for the specified reporting period (with the specific expiration date to be
finalized when an issuer announces the date on which it will disclose its earnings results for that
reporting period).14 If that date is a Tuesday, Wednesday, Thursday, or Friday and the Exchange
is not open for business on that date, the expiration date will be the first business day
immediately prior to that day. If that date is a Monday and the Exchange is not open for business
on that date, the expiration date will be the first business day immediately following that
Monday. The disclosed KPIs relate to a specific reporting period (such as a calendar quarter),
which KPIs an issuer publicly announces on a date following the end of that reporting period.
While an expiration date for a binary KPI option will be a specific date, as is the case for
traditional options, the Exchange’s proposed designation of expiration dates for binary KPI
options will differ to reflect standard issuer disclosure practices. In some instances, an issuer
might not establish the specific date on which it will announce its earnings results for a reporting
period until weeks prior to the release date. Consequently, unlike standard equity and index
options that have an exact expiration date when strikes are first listed, a binary KPI option will
be listed for trading with a placeholder expiration date if the date the KPI information will be
released by the issuer is not publicly known. If a placeholder expiration date is required, it will
be set as the first trading day that is three months following the date of the prior quarterly release
date for a KPI (for KPIs announced quarterly) and six months following the date of the prior
semiannual release date for a KPI (for KPIs announced semiannually, if the Commission
14
For example, for a binary KPI option series, the Exchange may designate the reporting period for a series to
be the fourth quarter of 2026. The expiration date for that series would be the date on which the applicable
issuer establishes as the date it will announce earnings results for that quarter. The Exchange will issue a
Trader Update when the specific expiration date for a binary KPI option is finalized. Additionally, the
Exchange will maintain a reference data file for each issuer KPI on which the Exchange lists binary KPI
options (as will be described in the Exchange’s technical specifications available on its public website), and
that reference data file will be updated with the specific expiration date for a binary KPI option once
known.
11
approves proposed rules that would permit such reporting). Once the KPI issuer announces the
release date of the KPI information, the expiration date will be updated as the finalized
expiration date of the option contract. Ultimately, however, the expiration date for a binary KPI
option is an issuer’s earnings release date at the time the series is listed (even if the exact date is
unknown) until expiration.
The Exchange may designate binary KPI option series to expire up to 12 months from the
time they are listed and may list up to two expirations at one time for a binary KPI option (per
KPI per issuer). The Exchange may open for trading a series of binary KPI options at least one
business week prior to the expiration date of a binary KPI option. First, the proposed rule change
permits the Exchange to list binary KPI options to expire up to 12 months from the time they are
listed. The proposed rule change also limits the Exchange to list up to two expirations at one time
for binary KPI options.
The proposal to list expirations at least one business week prior to the expiration date of
binary KPI option (as well as the proposed language regarding shifting an expiration date to the
immediately business day before or after an expiration date that falls on a day the Exchange is
not open for business) is substantially similar to current Exchange rules applicable to binary
equity options,15 as well as the rules of another options exchange applicable to short term equity
options series.16 The Exchange believes it is appropriate to permit listing of binary KPI options
that expire up to 12 months from the time they are listed to accommodate different issuer
reporting periods (including semiannual reporting if the Commission approves recently proposed
rules to permit such reporting), as well as to permit the Exchange to list expirations for
15
See Rule 5.85-O(b).
16
See Cboe Rule 4.5(d).
12
consecutive calendar quarter periods or for a calendar quarter and annual reporting period at the
same time. As discussed above, issuers disclose KPIs in their periodic reports submitted to the
Commission.
Proposed Rule 5.98-O(c) describes the automatic exercise feature of binary KPI options.
Specifically, the proposed rule states that binary KPI options will be automatically exercised at
expiration if the settlement value of the underlying KPI is equal to or greater than the exercise
price of a call binary KPI option or less than the exercise price in the case of a put binary KPI
option.
Proposed Rule 5.98-O(d) describes the permissible exercise prices (or strike prices) the
Exchange may designate for series of binary KPI options. Proposed Rule 5.98-O(c)(1) describes
how the value of exercise prices of binary KPI options are measured. Specifically, the exercise
price of each binary KPI option series will be fixed at an amount equal to a value of the
underlying KPI. Because the value of certain KPIs may be very large (e.g., billions of dollars),
the Exchange proposes that the exercise price value of the underlying KPI will be divided by a
scaling factor based on the value of the KPI in the issuer’s most recent earnings-related
disclosure as of the time a binary KPI option class is listed) as follows:
•
if the most recently disclosed KPI value is greater than or equal to one trillion, the
exercise price equals that value divided by one trillion (e.g., for such KPIs, an
exercise price of 27.00 is equivalent to a KPI value of 27,000,000,000,000.00);
•
if the most recently disclosed KPI value is greater than or equal to one billion but
less than one trillion, the exercise price equals that value divided by one billion
(e.g., for such KPIs, an exercise price of 112.00 is equivalent to a KPI value of
112,000,000,000.00);
13
•
if the most recently disclosed KPI value is greater than or equal to one million but
less than one billion, the exercise price equals that value divided by one million
(e.g., for such KPIs, an exercise price of 900.00 is equivalent to a KPI value of
900,000,000.00);
•
if the most recently disclosed KPI value is greater than or equal to one thousand
but less than one million, the exercise price equals that value divided by one
thousand (e.g., for such KPIs, an exercise price of 42.00 is equivalent to a KPI
value of 42,000.00); and
•
if the most recently disclosed KPI value is less than one thousand, the exercise
price equals that value and is not divided by a scaling factor (e.g., for such KPIs,
an exercise price of 774.00 is equivalent to a KPI value of 774.00).17
The Exchange will apply a different scaling factor to newly listed binary KPI option
series for a new expiration only after the value of the KPI in the issuer’s earnings-related
disclosures has a value in a different scaling tier for four consecutive reporting periods or if the
Exchange deems it necessary in the interests of a fair and orderly market. Application of a
different scaling factor will not affect the exercise prices of any series of the binary KPI options
previously opened. For example, if the Exchange begins listing a new class of binary KPI
options and the most recently disclosed KPI value for the issuer at the time of that listing was for
the third quarter of 2026 and was $892,000, the exercise prices for that class of binary KPI
options will be scaled by 1,000, and thus exercise prices of 895, 995, and 1005, would represent
$895,000, $995,000, and $1,005,000, respectively. If the issuer discloses a KPI value of
17
When applying the scaling factor, the Exchange will not round the scaled KPI value and instead will
truncate the value so the scaled strike price value fits within standard strike listing format.
14
$1,020,000 in its fourth quarter 2026 earnings disclosure, the Exchange will continue to list
exercise prices scaled by 1,000. If the issuer then discloses KPI values of $1,112,000,
$1,237,000, and $1,064,000 for the first, second, and third quarters, respectively, of 2027, the
Exchange will begin scaling the exercise prices by 1,000,000 for the fourth quarter 2027
expirations (or for the first quarter 2028 expirations if the Exchange had already listed fourth
quarter 2027 expirations prior to the disclosure of the third quarter 2027 KPI value). The
Exchange believes this will permit consistency for listing scaled KPI values while allowing the
Exchange to update strike prices to reflect long-term changes to an issuer’s KPI values.
The Exchange will announce via Trader Update if the scaling factor applied to a binary
KPI options changes (for example, the KPIs will be scaled in billions rather than in millions).
Additionally, the Exchange will update this information in the Exchange’s technical
specifications regarding binary KPI options and reference data file that describes the terms of
binary KPI options, both of which will be available on the Exchange’s website (customers
receive notifications of such updates). This is consistent with how the Exchange provides
information regarding product information (including updates) for all options the Exchange lists
for trading.
It is possible for a KPI to have a negative value, such as earnings per share (which is
equivalent to a loss per share). Proposed Rule 5.98-O(c)(1)(B) provides the Exchange may list
binary KPI options series with exercise prices representing negative KPI values. For these series,
the exercise price will equal the absolute value of the KPI and will be scaled as described above.
For example, if an issuer’s earnings per share in the last reporting period was -$3.52 (and thus
was a loss per share), a binary KPI option for such issuer with a strike of 3.58 will reflect an
expected loss of $3.58 per share. The Exchange will incorporate into symbology for binary KPI
15
options whether the value of the strike price is positive or negative, including if the Exchange
lists binary KPI option series with both positive and negative strike prices. Whether a symbol
reflects a positive or negative value will be available on contract specifications as well as the
reference data file for the specific binary KPI option on the Exchange’s public website.
Proposed Rule 5.98-O(d)(2) provides the minimum interval between strike prices for
binary KPI options series is:
•
0.01 where the strike price is less than 10;
•
0.10 where the strike price is 10 or greater but less than 100;
•
1.00 where the strike price is 100 or greater but less than 1,000;
•
10.00 where the strike price is 1,000 or greater but less than 10,000; and
•
100.00 where the strike price is 10,000 or greater.
As discussed above, while KPI values above 1,000 are generally scaled, there may be
circumstances in which the Exchange lists strikes above 1,000 or even 10,000 given the
Exchange’s proposal to maintain a lower scale level until a KPI value is consistently above a
certain level (e.g., above one billion for four consecutive quarters). This may occur when a KPI
value is near the top of a scaling range; for continuity, the Exchange will continue listing strike
prices using the lower scaling factor and not change to a higher scaling factor until the KPI value
is regularly within that higher range. Suppose a KPI value is 995,000,000; in this case, strike
prices will be scaled by 1,000,000. Thus, the Exchange may list binary KPI options above and
below 995 (995,000,000 divided by 1,000,000). However, there is potential that the KPI may
increase to above 1,000,000,000. As proposed, the Exchange may list strike prices, for example,
of 1,000 (representing 1,000,000,000) and above, for expirations until the KPI value is above
1,000,000,000 for four consecutive reporting periods. To reduce confusion, the Exchange would
16
not scale strike prices using different scaling factors within a single expiration (and would not
change the scale until the KPI value is consistently at the higher level). Therefore, it is possible
the Exchange may list strikes greater than 1,000. Similarly, while strikes above 10,000 may be
rare, given the Exchange proposes to maintain a lower scale level until a KPI value is
consistently above a certain level (e.g., above one billion for four consecutive quarters, as
proposed), depending on market factors and demand, it is possible (although unlikely) the
Exchange may determine it is appropriate to list strikes above 10,000 if market factors or
expectations signify a significant increase of the KPI value. The proposed strike intervals
accommodate the listing of binary KPI options in these circumstances before the Exchange shifts
the strike prices for an issuer’s KPI to a different scaling level.
The proposed strike intervals are generally consistent with current Exchange Rules for
other options, which provide for larger strike intervals as the values of strike prices increase.
Given the scaling factor for larger KPI values, it may appear the proposed rule change will
permit smaller strike intervals for larger KPI values if those intervals are considered solely on a
nominal basis. However, that is not the case if the actual values of the strike intervals are
considered. The corresponding actual value of the strike interval for a strike price that was
subject to a larger scale value is higher than the actual value of the strike interval for a strike
price that was subject to a smaller scale value. For example, suppose a strike price of 950
represents $950 million. The proposed rule change would permit strike intervals of $1.00.
However, that $1.00 corresponds to $1,000,000. In other words, if the Exchange listed strikes of
950, 951, and 952, the difference in values of those strikes are $1 million, not $1 (i.e., the strikes
represent values of $950,000,000, $951,000,000, and $952,000,000). Similarly, suppose a strike
price of 3 represents $3,000,000,000. The proposed rule change would permit strike intervals of
17
$0.01. However, that corresponds to $10,000,000. If the Exchange listed strikes of 3.00, 3.01,
and 3.02, the difference in values of those strikes are $10,000,000, not $0.01 (i.e., the strikes
represent values of $3,000,000,000, $3,010,000,000, and $3,020,000,000, respectively). As a
result, the permissible strike intervals for strike prices representing values in the billions are
actually larger than the permissible strike intervals for strike prices representing values in the
millions. This is consistent with the general premise underlying current strike intervals that larger
strike intervals apply to larger strike values.
Proposed Rule 5.98-O(e) describes the automatic exercise feature of binary KPI options.
Specifically, the proposed rule states that binary KPI options will be automatically exercised at
expiration if the settlement value of the underlying KPI is equal to or greater than the exercise
price of a call binary KPI option or less than the exercise price in the case of a put binary KPI
option.
Proposed Rule 5.98-O(f) describes the initial series of a binary KPI option the Exchange
may open for trading. Specifically, the Exchange may open for trading one or more binary KPI
option series with a fixed KPI value as the strike price, with approximately the same number of
strike prices being opened above and below the at-the-money KPI value (i.e., the value of the
KPI in the issuer’s most recent earnings-related disclosure) at the time the binary KPI options are
opened. The Exchange will list strike prices for binary KPI option series that are reasonably
close to the at-the-money KPI value at the time of listing. A strike is “reasonably close” to the atthe-money KPI value if (1) for KPIs less than or equal to 10, it is no more than 100% above or
below the at-the-money KPI value; and (2) for KPIs greater than 10, it is no more than 30%
above or below the at-the-money KPI value. The Exchange may also open binary KPI option
series that are more than 30% above or below the at-the-money KPI value (if the KPI is greater
18
than 10) provided demonstrated customer interest exists for such series, as expressed by
institutional, corporate or individual customers or their brokers.
The Exchange may add new series of binary KPI options series when the Exchange
deems it necessary to maintain a fair and orderly market or to meet customer demand. To the
extent the Exchange lists binary KPI options series for an expiration before then-currently listed
binary KPI options expire (and thus before the applicable issuer has disclosed the KPI value for
the reporting period immediately preceding the reporting period for these newly listed options),
the Exchange may list additional series after the KPI value for the immediately preceding
reporting period is disclosed using that disclosed KPI value as the at-the-money KPI. For
example, before expiration of a binary KPI options series set to expire on the date of an issuer’s
disclosure of its third quarter earnings results, the Exchange lists series of that binary KPI option
to expire on the date of an issuer’s disclosure of its fourth quarter earnings results (using the KPI
from the second quarter earnings results as the at-the-money KPI value). After the issuer
discloses its third quarter earnings results, including the applicable KPI, the Exchange may list
additional series for the fourth quarter binary KPI options using the third quarter KPI result as
the at-the-money KPI value. Any additional strike prices the Exchange lists will be reasonably
close (as defined above) to the at-the-money KPI value at the time of listing.
Continuing the above example, suppose the Exchange lists binary KPI options for the
fourth quarter before the binary KPI options for the third quarter have expired. As proposed, the
Exchange would list strikes above and below the at-the-money strike, which at the time of listing
would be the settlement value KPI from the issuer’s second quarter earnings results disclosure,
as that is the most recently available KPI. If the KPI for the option was net sales, and the second
quarter value was $45.093 billion, the at-the-money strike would be 45.10, and the Exchange
19
could list strikes within 50% of that value, and additional series based on customer demand or
market changes. After the Exchange lists those series, the issuer announces its third quarter
earnings results, including net sales of $57.241 billion. As proposed, after that announcement,
the Exchange may list additional strikes within 50% of $57.24 to reflect the change in value of
the underlying (as well as additional series based on customer demand or market changes).
This proposed framework for listing and adding series is similar to the framework in
current Rules for listing and adding series of equity options. While the proposed strike intervals
are narrower than these rules, the permissible ranges are also narrower. The Exchange
acknowledges the proposed framework would still permit the Exchange to list a large number of
strikes per KPI per expiration. However, the Exchange intends to apply its standard strike listing
practices to binary KPI options. Specifically, the Exchange generally lists strikes at wider
intervals as they move farther away from the at-the-money value, while listing more granular
intervals for strikes closer to the at-the-money value. The Exchange also generally delists
granular strikes that are deep out-of-the-money if the Exchange determines they are sufficiently
covered by wider strike intervals that are close in value.
These proposed provisions regarding the listing of binary KPI option series are similar to
provisions regarding permissible series of other options. The Exchange believes it is reasonable
to list binary KPI options for a new reporting period prior to the expiration of then-listed binary
KPI options for the immediately preceding reporting period (e.g., listing binary KPI options for
the fourth quarter before expiration of binary KPI options for the third quarter), and thus before
the settlement value of the applicable KPI is known for the immediately preceding reporting
period for these options, to permit investors to roll positions from one expiration to the next. As
proposed, once the settlement value for the immediately preceding reporting period is known
20
(the third quarter in this example), the Exchange may list additional series of the binary KPI
options that reflect that KPI value. This is consistent with current practice if there is a change
(including a substantial change) in the price of underlying security or value of an underlying
index. For example, Rule 6.4-O(a) provides that the Exchange may open additional series of a
short-term option series overlying a security when the market price of the underlying security
moves substantially from the exercise price or prices of the series already opened, subject to the
“reasonably close” parameters set forth in that rule. Disclosure of, as an example, the third
quarter KPI value after the fourth quarter binary KPI options series were listed based on the
second quarter KPI value (if the third quarter KPI value differs from the second quarter KPI
value) is similar to the move in the price of an underlying security, which may result in the
Exchange listing additional series based on the updated price of the underlying security.
Similarly consistent with current practice for other options (as set forth in Rule 6.4-O,
Commentary .07(d), for example), opening of binary KPI options based on this later-disclosed
KPI value will not affect any other series of options of the same binary KPI options class
previously opened.
Proposed Rule 5.98-O(f) provides that the contract multiplier for each class of binary KPI
options is one.
The Exchange proposes to add new Rule 5.99-O (Determination of Settlement Value) to
establish that binary KPI options that are “at-the-money,” “in-the-money,” or “out-of-themoney” are a function of the settlement value of the underlying KPI in relation to the type of
binary KPI option (i.e., put or call) and the exercise price. As described above, the settlement
value for a binary KPI option is the value of the KPI as disclosed in the applicable issuer’s
earnings related filing. While the timing of an announcement of a KPI value factor into the
21
determination of whether the Exchange lists a binary KPI option as A.M-settled or P.M.- settled,
the Exchange will source the settlement value from the filing the issuers submits to the
Commission. Generally, companies issue press releases that contain earnings results and near
contemporaneously submit a Form 8-K to the Commission with the press release as an exhibit.
Therefore, it is unlikely the value of the KPI in the Commission filing will differ from the value
in the initial announcement; however, the value in the Commission filing will be the ultimate
settlement value.
Proposed Rule 5.100-O (Adjustment) provides that binary KPI option contracts are
subject to adjustment only in accordance with and to the extent specified in the Rules of the
Clearing Corporation. When any such adjustment has been determined, the Exchange will
announce this adjustment via Trader Update, which will become effective as of the time
specified in that announcement.
As described above, binary KPI options would be cleared by the Clearing Corporation,
which would serve as the central counterparty to each transaction and facilitate standardized
clearing, settlement, and contract administration processes pursuant to its Rules. Consistent with
this centralized clearing framework, proposed Rule 5.100-O provides that binary KPI options
would be subject to adjustment only in accordance with and to the extent specified in the Rules
of the Clearing Corporation. When any such adjustment has been determined, the Exchange will
announce this adjustment via Trader Update, which will become effective at the time specified in
that announcement. The Exchange believes that limiting contract adjustments to those provided
under the Rules of the Clearing Corporation provides a clear and transparent framework under
which any adjustments to binary KPI options would be administered. A registered clearing
agency designated to clear binary KPI options would be subject to Commission oversight and
22
would possess expertise in the clearance and settlement of financial products. Because binary
KPI options represent a novel product type, the Exchange anticipates that the Clearing
Corporation would develop adjustment procedures designed to address the unique characteristics
of these contracts and the types of events that may require adjustment. To the extent the Clearing
Corporation adopts new adjustment procedures for binary KPI options, those procedures would
be subject to the applicable regulatory process, including review and approval by the
Commission, as applicable, before the Exchange commences trading in the product.
Next, the Exchange proposes to Rule 5.101-O to provide that binary KPI options, may be
traded on the Exchange from 9:30 A.M. to 4:00 P.M. 18 Further, the last day of trading for P.M.settled binary KPI options is the day of expiration, and the last day of trading for A.M.-settled
binary KPI options is the trading day prior to expiration.
The Exchange recognizes it is possible, although unusual and unlikely, that KPI
information may become available at unexpected times. The proposed rules address the impact
on trading and expiration that such disclosure may have. First, the proposed rule change provides
if the Exchange confirms an issuer discloses the KPI prior to the expiration date, trading in the
applicable binary KPI options series will cease, and the expiration date for the option accelerates
to a date on or shortly after the date of that disclosure in accordance with the Rules of the OCC. 19
This may occur if, for example, the applicable issuer releases the KPI information in advance of
the expiration date of the option. If the issuer releases KPI information after the expiration date,
which may be the case if, for example, the issuer’s earnings are delayed, trading in the option
18
Unless otherwise specified, all times in this proposal are Eastern Time.
19
The proposed acceleration of binary KPI options is similar to the existing acceleration process for equity
options when the underlying security of such options has been converted entirely to cash. See OCC Rule
807.
23
will not be impacted and will cease as of the expiration date. While the expiration date will not
change, expiration processing of such options will be delayed until the KPI information becomes
available, in accordance with the rules of the Clearing Corporation. Additionally, the proposed
rule change provides if there is an unofficial disclosure of the KPI prior to the expiration date,
the Exchange may determine to halt (and resume) trading in the applicable binary KPI options
series in accordance with Rule 953NY. In certain circumstances, the expiration date for the
option may accelerate in accordance with the Clearing Corporation rules; if this occurs, trading
in the binary KPI will cease. This proposed provision addresses the unlikely event that KPI
information becomes available through sources other than the issuer in advance of the expiration
date. If the Exchange determines the KPI information reported from the unofficial source is
unreliable, trading in the binary KPI option may resume until it expires.
The Exchange believes proposed Rule 5.101-O(d), which provides that for binary KPI
options, the System initiates the opening rotation at 9:30 A.M., is consistent with the opening
auction framework already applicable to other index options listed on the Exchange and ensures
that binary KPI options open for trading in an orderly and transparent manner.
The Exchange proposes to amend Rule 6.72-O to establish the minimum increment for
bids and offers on orders for binary KPI options, which may not be less than $0.01.
The Exchange proposes to adopt Rule 5.102-O (Position Limits for Binary KPI Options)
to set forth position limit requirements for binary KPI options. The Exchange proposes to adopt
Rule 5.102-O to provide that in determining compliance with Rule 6.8 (Position Limits), the
position limit for binary KPI options is the same as the applicable position limit for the stock of
the issuer per expiration and 100 binary KPI option contracts equal one standard option contract.
24
Per proposed rule 5.102-O(b), positions in binary KPI options on the same KPI that have
different expiration dates are not aggregated, and positions in binary KPI options for the same
issuer with different underlying KPIs are not aggregated. In addition, the Exchange proposes to
adopt Rule 5.102(c) to provide that Binary KPI options are not aggregated with non-binary
options contracts overlying the stock of the issuer. Finally, per Rule 5.102-O, with respect to
binary KPI options, a binary KPI option short position coupled with a binary KPI option short
call position, regardless of the KPI option strike, shall be exempt from the established position
limits proscribed in Rule 6.8-O.
The Exchange also proposes to adopt Rule 5.103-O (Reporting of Positions) Positions in
binary KPI options shall be reported pursuant to Rule 6.6-O, except, in computing reportable
binary KPI options thereunder, aggregation of positions shall be in accordance with Rule 5.102O. The proposed Rule 5-103-O further provides that for purposes of this report, 100 binary KPI
option contracts equal one standard option contract. The Exchange believes this is reasonable
given that binary KPI options have a multiplier of 1 while standard equity option contracts have
a multiplier of 100.
Except as otherwise described above, all binary KPI options will be listed and traded on
the Exchange in a substantially similar manner as standard equity and index options and binary
index options are permitted to be listed and traded under current Rules. The Rules that apply to
the listing and trading of non-binary options on the Exchange, including those related to
customer accounts, margin requirements and trading halt procedures, 20 which are designed to
prevent fraudulent and manipulative acts and practices, will apply to the listing and trading of
20
Binary KPI options will not be tied to the trading state of the underlying issuer stock and thus, trading in
binary KPI options will not be affected by halts in the underlying issuer stock. The binary KPI options will
halt in accordance with Rule 6.65-O
25
binary KPI options. The Exchange has analyzed its capacity and represents that it believes the
Exchange has the necessary systems capacity to handle any potential additional message traffic
associated with the listing of binary KPI options.
The Exchange will support electronic trading, floor trading, and complex orders. Trading
in Flexible Execution (“FLEX”) options will not be offered. The Exchange may determine to
support particular order types, order instructions, or times-in-force on a class-by-class basis.
Consistent with current practice, if the Exchange modifies the applicability of any functionality
or order instructions for binary KPI options, it will notify ATP Holders via Trader Update.
The Exchange will send quotation and transaction price information for binary KPI
options to The Options Price Reporting Authority (“OPRA”) in the same manner it sends this
information to OPRA for all other options the Exchange lists. Additionally, the Exchange
understands from OPRA that it will disseminate information regarding binary KPI options in the
same manner it does for all other options the Exchange lists. The Exchange intends to follow
OPRA’s standard capacity monitoring process for binary KPI options (in accordance with OPRA
instructions), which includes submission of quarterly capacity projections (the Exchange will
include its projected binary KPI option volume in the applicable submission). Further, the
Exchange understands from OPRA that no technical changes are required to accommodate the
reporting to OPRA of quotation and transaction information regarding binary KPI options (the
Exchange represents, if later required by OPRA, it will adhere to any new technical requirements
OPRA deems necessary to accommodate binary KPI options).21
21
The Exchange understands OPRA may need to update how it disseminates open interest information for
binary KPI options, as its current process incorporates information from OCC and references in this filing
are clearing agency-neutral.
26
The Exchange does not believe Option Trade Permit (“OTP”) Holders and OTP Firms
will experience any capacity issues as a result of this proposal and represents that it will monitor
the trading volume associated with binary options and the effect (if any) of binary options on
market fragmentation and the capacity of the Exchange’s automated system.
The Exchange represents that the same surveillance procedures applicable to all other
options currently listed and traded on the Exchange will apply to binary KPI options, and that it
has the necessary systems capacity to support the option series. The Exchange’s existing
surveillance and reporting safeguards are designed to deter and detect possible manipulative
behavior and other improper trading In addition, the Exchange has a Regulatory Services
Agreement with the Financial Industry Regulatory Authority, Inc. (“FINRA”). Pursuant to a
multi-party 17d-2 joint plan, all options exchanges allocate regulatory responsibilities to FINRA
to conduct certain options-related market surveillances.22 The Exchange is also a member of the
Intermarket Surveillance Group (“ISG”) under the ISG Agreement. ISG members work together
to coordinate surveillance and investigative information sharing in the stock, options, and futures
markets. Further, the Exchange will implement any new surveillance procedures it deems
necessary to effectively monitor the trading of binary KPI options.
The Exchange will report any information regarding binary KPI options required to be
reported to the Consolidated Audit Trail (“CAT”) in the same manner it reports this information
22
Section 19(g)(1) of the Act, among other things, requires every self-regulatory organization (“SRO”)
registered as a national securities exchange or national securities association to comply with the Act, the
rules and regulations thereunder, and the SRO’s own rules, and, absent reasonable justification or excuse,
enforce compliance by its members and persons associated with its members. See 15 U.S.C. 78q(d)(1) and
17 CFR 240.17d-2. Section 17(d)(1) of the Act allows the Commission to relieve an SRO of certain
responsibilities with respect to members of the SRO who are also members of another SRO. Specifically,
Section 17(d)(1) allows the Commission to relieve an SRO of its responsibilities to: (i) receive regulatory
reports from such members; (ii) examine such members for compliance with the Act and the rules and
regulations thereunder, and the rules of the SRO; or (iii) carry out other specified regulatory responsibilities
with respect to such members.
27
to CAT for all other options the Exchange lists. 23 The Exchange represents, if later required by
FINRA CAT, it will adhere to any new technical requirements FINRA CAT deems necessary to
accommodate binary KPI options).
Pursuant to the Options Order Protection and Locked/Crossed Market Plan (“Linkage
Plan”),24 participant exchanges to the Linkage Plan established a framework to provide order
protection. The Linkage Plan (and Exchange Rules 6.92-O through 6.96-O regarding intermarket
linkage) applies during all trading sessions during which multiply listed options trade. Rule 6.96Oaddresses order routing away from the Exchange to promote compliance with the Linkage
Plan. If the proposed binary KPI options become multiply listed options, Users may designate an
order for routing (or not available for routing), and the Exchange System is designed to, at all
times, prevent trade-throughs and avoid displaying locked/crossed markets in accordance with
the Linkage Plan (and Exchange Rules 6.94-O through 6.96-O regarding intermarket linkage).
Upon launch, binary KPI options will clear through the Clearing Corporation as that term
is defined in proposed Rule 5.96-O. In doing so, the proposal would bring these securities
products within the established regulatory infrastructure applicable to listed options, including
exchange trading and surveillance, standardized disclosure, and centralized clearance and
settlement through a registered clearing agency, as further described below. Additionally, binary
KPI Options would be cleared through a registered clearing agency, which would serve as the
23
CAT reporting requirements will apply to broker-dealers with respect to binary KPI options in the same
manner as they apply to any other options the Exchange lists. The Exchange understands from FINRA
CAT there will be no changes to the reporting specifications for broker-dealers to accommodate the
reporting of information regarding binary KPI options to CAT.
24
The Linkage Plan requires U.S. options exchanges to establish a framework for providing order protection
and addressing locked and crossed markets in eligible options classes. The Linkage Plan is a national
market system plan approved by the Commission pursuant to Section 11A of the Act and Rule 608
thereunder. The full text of the Linkage Plan is available at
https://www.theocc.com/getcontentasset/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/dfc3d011- 8f63-43f69ed8-4b444333a1d0/options_order_protection_plan.pdf.
28
central counterparty to each transaction and facilitate risk mitigation through established
clearing, settlement, contract adjustment, and other standardized operational processes.
The Options Listings Procedure Plan (the “OLPP”) sets forth procedures to facilitate the
listing and trading of standardized options. This plan currently describes procedures with respect
to options issued by and cleared at the OCC. If the Exchange ultimately does not designate the
OCC as the Clearing Corporation for the purposes of the definition set forth in proposed Rule
5.96-O, the Exchange will take steps necessary and within its authority to amend the OLPP to
reflect listing procedures applicable to binary KPI Options to the extent not cleared by the OCC.
The Exchange represents it will not list for trading binary KPI options until the registered
clearing agency designated as the Clearing Corporation is authorized and operationally ready to
clear the options and until all applicable filings and documents of the Clearing Corporation
related to securities event contracts being cleared through the Clearing Corporation are approved
by the Commission or effective after review by the Commission, as applicable.
As discussed in further detail below, the Exchange intends for binary KPI options to be
treated as listed standardized options. Rule 9b-1 under the Act establishes a disclosure
framework for standardized options pursuant to which investors receive a disclosure document
describing the terms, characteristics, and risks of the product before trading. Depending on which
registered clearing agency is designated as the Clearing Corporation, the applicable Rule 9b-1
disclosure document may be based on an existing options disclosure document utilized by that
clearing agency, as modified or supplemented, as appropriate, or another comparable disclosure
document prepared in connection with the clearance of securities event contracts. In either case,
the disclosure document would contain substantially similar information regarding the terms,
characteristics, risks, settlement mechanics, and other material features of securities event
29
contracts and would be tailored, as necessary, to address the product’s unique features and
distinctions from traditional listed options. The Exchange believes that disclosure through the
Rule 9b-1 framework would better serve the informational needs of investors than a traditional
prospectus because securities event contracts are standardized options for which the principal
investor considerations relate to the contract’s terms, payout structure, settlement mechanics, and
trading characteristics rather than the disclosure typically provided in connection with an
offering of a corporate issuer’s securities.
The Exchange will not commence listing and trading of securities event contracts until a
registered clearing agency is authorized and operationally ready to clear the contracts; the
applicable disclosure document under Rule 9b-1 is in place; any necessary changes relating to
CAT, FINRA, OPRA, the Linkage Plan, and OLPP have been completed; and the Exchange has
issued an implementation notice to Members.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6(b) of
the Act,25 in general, and furthers the objectives of Section 6(b)(5) of the Act, 26 in that it is
designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the mechanism of a free and
open market and a national market system and, in general, to protect investors and the public
interest. In addition, the Exchange believes that the proposed rule change is consistent with the
Section 6(b)(5)27 requirement that the rules of an exchange not be designed to permit unfair
25
15 U.S.C. 78f(b).
26
15 U.S.C. 78f(b)(5).
27
15 U.S.C. 78f(b)(5).
30
discrimination between customers, issuers, brokers, or dealers.
Binary KPI Options Are Securities and Standardized Options
As an initial matter, the Exchange’s proposal is identical to the proposal made by the
Cboe to list binary KPI options. 28 The Exchange believes that the binary KPI options proposed
herein would be “securities” under the Act. 29 Section 3(a)(10) of the Act30 defines the term
“security” to include, among other instruments, “any… option… on any security… including any
interest therein or based on the value thereof.” 31
Standardized options are generally offered based on the price of the underlying security
or index and include puts, calls, and other complex instruments whose value is based on the price
of the underlying security or securities. The binary KPI options will operate in substantially the
same manner as these binary options but with a different underlying. The Exchange’s proposal
would expand the universe of listed options to include contracts based on proposed KPIs,
including net income, net sales, net interest income, provision for credit losses, and specified
expense metrics, that relate to the valuation of the issuer’s stock. Such options contracts would
reference financial metrics that are material to the value of the underlying security and are
therefore included in the issuer’s financial reports submitted to the Commission, including Form
8-K, Form 10-K and Form 10-Q filings.
In addition, the Exchange believes that trading such instruments as binary KPI options
would promote a fair and orderly market and facilitate new investment and hedging opportunities
28
See Securities Exchange Act Release No. 105877 (July 10, 2026) (SR-CBOE-2026-061) (“Notice of Filing
of a Proposed Rule Change to Amend its Rules to Permit the Listing of Binary Options Overlying Key
Performance Indicators (“KPIs”) Reported by Certain Issuers of Stock (“Binary KPI Options”))
29
The Exchange also believes that binary KPI options are also “securities” under the Securities Act of 1933,
as amended (the “Securities Act”). See 15 U.S.C. 77b(a)(1).
30
15 U.S.C. 78c(a)(10).
31
Id.
31
on a Commission-regulated exchange. In certain cases, financial instruments may contain
features similar to both options contracts and security-based swaps. As compared to
characterizing an instrument as a security-based swap, which would typically be traded
bilaterally in the over-the-counter (“OTC”) market, categorizing an instrument as an options
contract comes with a more robust set of regulatory requirements and market practices that the
Exchange believes would aid in the development of such binary KPI options. To the extent there
is uncertainty regarding how best to characterize these contracts under the statute, the Exchange
believes that the best interpretation is the one that promotes innovation and competition while
providing robust investor protection guardrails on a regulated exchange.
As discussed above, the Exchange is proposing to list and trade binary KPI options. The
Exchange currently trades standardized options (puts and calls) based on the price of an
underlying NMS stock. Binary KPI options would be different from these contracts in primarily
two respects: (1) binary KPI options contracts would have a fixed or “binary” payout at
expiration, regardless of the magnitude of the difference between the option’s exercise price and
the settlement value for the underlying; and (2) the price of such contracts would be based on the
issuer achieving financial metrics that are material to the price of the underlying stock rather than
the stock’s share price itself. The Exchange does not believe that either of those differences is
germane to whether this product is an options contract as defined in the Act.
The Exchange notes that options as defined in Section 3(a)(10) encompass not only
options on a security but further include options on any interest in a security or based on the
value thereof. This broad statutory language is sufficient to support the trading of binary KPI
options on a Commission-regulated options exchange, including contracts that reference an
issuer’s earnings, revenues, sales, or other financial metrics on which investors traditionally base
32
investment decisions. Such options contracts would reference financial metrics that are material
to the value of the underlying security and are therefore included in the issuer’s financial reports
submitted to the Commission, including Form 8-K, Form 10-K and Form 10-Q filings.
This is consistent with the Commission’s own interpretation of the statute when
analyzing its application to similar products offered by another national securities exchange.
Consider the Commission’s approval of proposals by Cboe to list and trade: (1) credit default
options;32 and (2) credit default basket options.33 As the Commission explained in its order
approving credit default options for trading on Cboe, “credit default options… are binary options
that are automatically exercised upon the occurrence of specified credit events or expire
worthless.”34 While such products were therefore different in certain important respects from
existing options contracts, “[a]fter careful analysis, the Commission [found] that credit default
options are options based on the value of a security or securities” 35 and also “options on an
interest in, or based on the value of an interest in, a security or securities.” The Commission
made a similar finding when it later approved Cboe’s proposal to introduce credit default basket
options.
All of this would also be true of the proposed binary KPI options. Similar to Cboe’s
credit default options and credit default basket options, the proposed binary KPI options are
“binary options that are automatically exercised upon the occurrence of specified… events or
32
See Securities Exchange Act Release No. 55871 (June 6, 2007), 72 FR 32372 (June 12, 2007) (SR-CBOE2006-84).
33
See Securities Exchange Act Release No. 56275 (August 17, 2007), 72 FR 47097 (August 22, 2007) (SRCBOE-2007-26).
34
See supra note 34.
35
Id.
33
expire worthless.”36 The Commission has repeatedly found that contracts with a binary payout
structure may nevertheless be properly classified as options contracts under the Act and, while
most options contracts have historically had a variable payment structure, such a structure is not
required by the Act, which does not specify a particular payment structure. In addition, while in
some cases binary options offered by other securities exchanges have referenced the price of
some underlying security or index, such binary options also encompass contracts like the ones
discussed above.
The Commodity Exchange Act’s (“CEA”) lends further support to the classification of
binary KPI options as securities. Specifically, pursuant to Section 3(a)(68) of the Act, 37 a
“security-based swap”38 is a “swap”39 as defined in the Commodity Exchange Act that is based
on: (1) “an index that is a narrow-based security index, including any interest therein or on the
value thereof;”40 (2) “a single security or loan, including any interest therein or on the value
thereof;”41 or (3) “the occurrence, nonoccurrence, or extent of the occurrence of an event relating
to a single issuer of a security or the issuers of securities in a narrow-based security index,
provided that such event directly affects the financial statements, financial condition, or financial
obligations of the issuer.”42 In turn, the Commodity Exchange Act defines “swap” to include
“any agreement, contract, or transaction… that is a put, call, cap floor, collar, or similar option of
36
Id.
37
15 U.S.C. 78c(a)(68).
38
Id.
39
7 U.S.C. 1a(47).
40
15 U.S.C. 78c(a)(68)(A)(ii)(I).
41
15 U.S.C. 78c(a)(68)(A)(ii)(II).
42
15 U.S.C. 78c(a)(68)(A)(ii)(III).
34
any kind that is for the purchase or sale, or based on the value, of 1 or more… securities.” 43
This is also the case with the binary KPI options identified in the proposal. The KPIs
selected are “material to the value” of a particular security, and payouts of binary KPI options
are conditioned on those terms. Indeed, the nexus between the proposed KPIs and the value of
the underlying security is, if anything, more direct than in the case of CD options. Whereas CD
options reference a credit event (a contingency that may or may not affect the market value of
the reference security depending on recovery rates and market conditions), binary KPI options
reference the issuer’s actual reported financial or operating performance and are the metrics
investors consider when determining the value of a stock. Unlike an external event that merely
holds the potential to trigger potential financial consequence for a security, each of the proposed
KPIs (whether measured at the consolidated or segment level) ultimately constitutes a material
component of the issuer’s financial results that itself forms the basis for investors’ measurements
of a company’s (and its stock’s) intrinsic value.
Each binary KPI option proposed herein provides a cash payout based on the disclosed
KPI, some of which are directly tied to a pecuniary interest in a security, such as earnings per
share and others of which are indirectly tied to the pecuniary interest of a security, such as the
issuer’s net revenue and income, which determine the issuer’s capacity to generate returns for
security holders. A stockholder’s pecuniary interest in a security is not limited to contractual
payment rights (such as declared dividends) but encompasses the right to benefit from the
issuer’s earnings capacity, as reflected in the market price of the security. Binary KPI options
based on earnings metrics therefore reference a core component of the stockholder’s pecuniary
interest.
43
15 U.S.C. 78c(a)(68)(A)(ii)(III).
35
Classifying binary KPI options as securities options under the Act is consistent with the
Commission’s established regulatory framework for binary options, including investor protection
objectives, and preserves the integrity of antimanipulation restrictions, insider trading
prohibitions, and material nonpublic information controls. More specifically, because these
contracts are tied to Commission disclosure rules and regulations and material nonpublic
information (“MNPI”) risks that are substantially identical to those present in traditional
securities trading, aligning binary KPI options with the securities regulatory framework
preserves the integrity of insider trading prohibitions and the Commission’s disclosure regime.
Listing binary KPI options on a registered national securities exchange subjects trading activity
to SRO and Commission surveillance for, among other things, manipulative trading and insider
trading, affording investors the full protections of the federal securities laws. Further, classifying
binary KPI options as security options under the Act allows these contracts to be offered by the
same liquidity providers that offer listed options today, all of whom are Commission-registered
and regulated broker-dealers who are also subject to FINRA and exchange SRO oversight, and
allows such contracts to be traded by the same retail customer base that trade binary options (and
KPI-related contracts) today.
For these reasons, the Exchange believes that binary KPI options, as proposed, are
appropriately classified as binary options eligible to trade on a registered national securities
exchange and as standardized options subject to the disclosure framework established by Rule
9b-1. This classification reflects the economic substance and standardized structure of the
product, is consistent with the Act and the Commission’s prior interpretations, and is designed to
prevent fraudulent and manipulative acts and practices, promote just and equitable principles of
trade, foster regulatory and clearing coordination, and protect investors and the public interest
36
consistent with Section 6(b)(5) of the Act. 44
Proposal
The Exchange believes the proposal is consistent with Section 6(b) of the Act, in general,
and furthers the objectives of Section 6(b)(5) of the Act,45 in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just and equitable principles
of trade, to foster cooperation and coordination with persons engaged in facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the public interest.
Specifically, the Exchange believes the proposed rule change will remove impediments to
and perfect the mechanism of a free and open market and a national market system, and, in
general, protect investors and the public interest because it establishes a clear and transparent
framework for a new category of listed options (binary KPI options) that are tied to financial and
operating metrics of issuers that are publicly disclosed in required Commission reports.
Currently, investors wishing to position their investment strategies around earnings
announcements must rely primarily on equity options, whose pricing is affected by a wide range
of variables beyond the reported financial or operating measure of interest (e.g., implied
volatility, delta, time value, and general market movement). Binary KPI options allow investors
to take a targeted, defined-risk position directly on a specific financial or operating measure (i.e.
a KPI) for a particular reporting period. The Exchange believes this additional investment tool
will protect investors and the public interest because it will promote market efficiency, enable
more precise price discovery around earnings events, allow investors to hedge against potential
44
15 U.S.C. 78f(b).
45
15 U.S.C. 78f(b).
37
idiosyncratic risks, and remove a gap in current national securities exchange-listed products
available to market participants.
The Exchange believes the proposed list of issuers and KPIs on which the Exchange may
list binary KPI options will prevent fraudulent and manipulative acts and practices, remove
impediments to and perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest. First, as noted above, the
Exchange is proposing to list binary KPI contracts based on specific financial and operating
metrics reported by the following issuers in their earnings-related disclosures submitted to the
Commission: Apple, Inc.; Advanced Micro Devices, Inc.; Alphabet Inc.; Amazon.com, Inc.;
Bank of America Corporation; Citigroup Inc.; Coinbase Global, Inc.; Ford Motor Company;
Intel Corporation; JPMorgan Chase & Co.; Marathon Digital Holdings, Inc.; Meta Platforms,
Inc.; Microsoft Corporation; Netflix, Inc.; NVIDIA Corporation; Palantir Technologies Inc.;
SoFi Technologies, Inc.; Space Exploration Technologies Corp.; Super Micro Computer, Inc.;
Target Corporation; Tesla, Inc.; and The Walt Disney Company. The Exchange believes offering
investors an additional investment tool on a national securities exchange related to some of the
most actively traded stocks and options will perfect the mechanism of a free and open market
and benefit investors by allowing them to further refine their investment strategies, including
using these options to hedge idiosyncratic, even-specific risk embedded in the specific KPIs (as
further discussed below), for these actively traded companies.
The Exchange believes the proposed universe of issuers will prevent fraudulent and
manipulative acts and practices, because the proposed issuers are large, well-capitalized, and
widely followed issuers with highly liquid underlying securities and options markets. As noted in
38
its filing to amend its rules to permit the listing of binary KPI options, 46 Cboe noted that during
May 2026, each of the issuers exceeded $3 billion in market capitalization and ranked among the
top 200 U.S. companies by average daily options or stock volume, with the exception of Space
Exploration Technologies Corp (commonly referred to as SpaceX), which had not been trading
for a full calendar month but which the Exchange believes will satisfy these measures with its
first month of trading results based on its volumes since it began trading. 47
Securities with high market capitalizations and liquid markets are generally less
susceptible to manipulation because of the substantial capital required to artificially influence
prices of those securities. The depth and breadth of trading activity for securities with significant
market capitalizations, such as the stocks of the proposed issuers, make it unlikely that a single
market participant would be able to exert undue influence on the price of such a stock, as large
volumes of buyers and sellers are what ultimately continuously reflect the true market value of
the stock. The Exchange believes the KPIs of issuers with high market capitalizations proposed
to underlie binary KPI options are similarly less susceptible to manipulation because any attempt
to distort a financial metric of such an issuer would require an enormous and economically
impractical deployment of capital, which would likely exceed the fixed payout of a binary KPI
option. Therefore, like stocks of large-cap issuers, KPIs of large-cap issuers are less susceptible
to manipulation due to the structural barriers that would make manipulating KPI values
operationally difficult and financially irrational (in addition to the rigorous financial oversight to
which these issuers are subject, as further discussed below).
46
See Securities Exchange Act Release No. 105877 (July 10, 2026), 91 FR 43418 (July 15, 2026) (SRCBOE-2026-061) (“Notice of Filing of a Proposed Rule Change to Amend its Rules to Permit the Listing
of Binary Options Overlying Key Performance Indicators (“KPIs”) Reported by Certain Issuers of Stock
(“Binary KPI Options”))
47
As noted by Cboe, the ADV of SpaceX stock between June 12 and June 22, 2026 was approximately
290,009,963 shares. The market capitalization of SpaceX as of June 22, 2026 was $2.145 trillion.
39
In addition to the proposed issuers being highly capitalized and having actively traded
stocks and options on such stocks, the Exchange also believes the proposed limited universe of
issuers for binary KPI options to those proposed will prevent fraudulent and manipulative acts
and practices because each issuer is subject to periodic reporting requirements under the Act.
Therefore, each of the proposed issuers must file annual reports on Form 10-K, quarterly reports
on Form 10-Q, and current reports on Form 8-K with the Commission, which as discussed above
disclose information the issuer believes is necessary for an investor to understand its financial
condition, changes in financial condition and results of operations, which can include KPIs.
Further, each issuer maintains audited financial statements prepared in accordance with U.S.
Generally Accepted Accounting Principles (“GAAP”) and is subject to executive certification
requirements under the Sarbanes-Oxley Act. As a result, the settlement-determining KPI values
for each eligible issuer are produced within the Commission’s supervisory jurisdiction, are
publicly verifiable from a Commission-regulated source and are subject to relevant anti-fraud
provisions under the Act, which the Exchange believes will reduce the potential for manipulation
of the underlying KPIs as well as the applicable issuer’s stock.
Further, the Exchange believes the proposed limited universe of issuers will introduce
binary KPI options in a well-developed, well-understood, and transparent Commission-regulated
market environment. Each issuer is among the most widely followed, actively traded, and
extensively analyzed issuer in its respective sector, with deep and liquid equity and derivatives
markets and a broad institutional and retail investor base. The depth of existing market activity
surrounding these issuers supports fair and orderly pricing by ensuring that binary KPI options
are listed in markets where price discovery is well-established, liquidity is readily available, and
participants have broad access to the information necessary to form and express informed views
40
on KPI outcomes. The Exchange believes the continuous public scrutiny to which these issuers
are subject substantially reduces the likelihood that any market participant could obtain or
maintain an informational advantage sufficient to manipulate the settlement value of the binary
KPI options.
The Exchange believes the proposed KPI metrics will similarly prevent fraudulent and
manipulative acts and practices, remove impediments to and perfect the mechanism of a free and
open market and a national market system, and, in general, protect investors and the public
interest. The Exchange’s proposal limits eligible KPIs to GAAP and non-GAAP measures and
other statistics related to an issuer’s financial condition and operational results, all of which the
proposed issuers disclose in their earnings-related filings (i.e., Forms 8-K, 10-Q, and 10-K)
submitted to the Commission. As such, the settlement values of the proposed binary KPI options
are derived exclusively from information that issuers deem as material information required to be
disclosed in reports submitted to the Commission. These metrics are routinely referenced and
tracked in the investment community and are figures that the market recognizes as a meaningful
and central indicator of issuer performance. The Exchange believes that the inclusion of wellestablished metrics as eligible KPIs expands the value of binary KPI options for investors
without compromising the integrity of trading processes, including the settlement process.
The proposed KPI metrics are among the most widely followed and extensively analyzed
measures for the proposed issuers. Specifically, the Exchange proposes to be able to list a binary
KPI option on earnings per share (prepared in accordance with GAAP) for each proposed issuer.
This metric is among the most widely followed and extensively analyzed figures in public
company financial disclosure and is disclosed in each issuer’s periodic Commission filings.
Similarly, the Exchange proposes to list binary KPI options on revenue, prepared in accordance
41
with the applicable GAAP, for each issuer. As is the case for earnings per share, revenue is a
widely followed financial metric for publicly reporting companies and is the subject of extensive
analyst coverage.
The Exchange proposes KPIs representing revenues broken out by appliable reportable
segment, business unit, or product category, including cloud and artificial intelligence
infrastructure revenues, streaming and geographic subscription revenues, automotive segment
revenues, financial services segment revenues, consumer product category revenues, and digital
asset exchange transaction and subscription revenues, among others, for several of the proposed
issuers. Each such metric is a GAAP-defined figure required to be disclosed in the issuer’s
periodic Commission filings. The Exchange understands these metrics enable market participants
to express views on specific high-profile business lines that are extensively covered by analysts
and subject to a high volume of publicly available forecasts.
The Exchange proposes KPIs for the proposed financial institution issuers that are
specific to financial institution income statement presentation, including net interest income,
provision for credit losses, and net income. Each such metric reflects the distinct GAAP
reporting framework applicable to banking institutions and is subject to the same periodic
disclosures as other proposed KPIs.
The proposed rule change also includes operating margin, gross margin, or cash flow
from operations KPIs for several issuers, each of which is computed directly from GAAP
financial statement line items disclosed in the issuer’s periodic Commission filings. These
metrics provide market participants with insight into issuer profitability and capital generation
and complement other revenue and earnings figures when market participants are evaluating the
value of an issuer and its stock.
42
The Exchange also proposes several non-financial operational KPIs that issuers disclosed
in their periodic Commission filings, including relevant production volumes, network and
infrastructure counts, user engagement metrics, deal counts, digital asset trading volume, and
digital asset mining and holdings metrics. Each designated non-financial operational metric is
closely tied to the core economic activity of the respective issuer’s business and is a figure that
the issuer has affirmatively chosen to disclose to the public as a key indicator of business
performance. Issuers typically designate and disclose such metrics precisely because they are
understood by the market to be among the most meaningful measures of their business activities.
As discussed above, this is consistent with Commission guidance that an issuer should include
KPIs in these report that the issuer believes an investor needs to gain understanding of its
financial condition, changes in financial condition and results of operations, as such KPIs present
the “pulse” of the issuer’s business. The market significance of these metrics is further reflected
in the extensive analyst coverage and investor attention, particularly near each reporting date.
Each metric is subject to executive certification as part of the periodic report in which it appears
and is widely tracked by financial data services and equity research analysts.
Overall, the Exchange believes that the proposed well-established, publicly reported
metrics as eligible KPIs will expand the value of binary KPI options for investors without
compromising the integrity of trading processes, including the settlement process. As a result, the
Exchange believes the proposed KPIs will protect investors and the public interest as it will
permit the Exchange to offer investors additional investment and hedging tools on the Exchange
that investors can incorporate into their investment strategies regarding the proposed issuers.
The Exchange believes the proposed contract terms for binary KPI options will promote
just and equitable principles of trade, remove impediments to and perfect a free and open market
43
and national market system, and protect investors. As discussed above, the Exchange believes
the proposed contract terms for binary KPI options are standardized option terms. Like standard
option contracts and binary index option contracts currently listed for trading on the Exchange,
each proposed binary KPI option will be a call or a put, will have an underlying, exercise price,
an expiration date, a settlement type, a settlement style, and a multiplier. As is the case for binary
index options, each proposed binary KPI option will have an exercise settlement amount paid
depending on how the settlement value of the underlying compares to the exercise price.
The proposed binary KPI options will function in a substantially similar manner to binary
index options, with the proposed contract terms substantially similar to the contract terms of
binary index options. The proposed definitions of binary KPI option, call binary KPI option,
exercise price, and put binary KPI option are the same as those terms for binary index options (as
previously approved by the Commission), differing only in reference to the underlying (KPI v.
index).
The proposed definition of settlement value for binary KPI options is generally similar to
the definition for binary index options (as previously approved by the Commission), with certain
differences necessary to be addressed due to the different nature of a KPI as the underlying. The
Exchange believes the proposed $1 exercise settlement amount is reasonable given the retail
nature of the proposed binary KPI options and merely adds specificity to the Rules for binary
KPI options. The Exchange notes binary KPI options differ from standardized index options
(which are also cash-settled) in that the exercise settlement amount is $1.00 rather than the cash
difference amount between the settlement value of the index and the strike price of an option.
Since the $1.00 exercise settlement amount will be paid out to the option holder if the criteria of
the binary KPI option have been met, binary KPI options utilize a fixed exercise settlement
44
amount.
The Exchange proposes new Rule 5.96-O to list the specific binary KPI contracts with
the KPI criteria for each option contract. Such KPI criteria are established as the set KPI events
that will be used to determine an option contract should be exercised by comparing the strike
price of the binary KPI option to the KPI value. The Exchange believes these proposed contracts
(including the issuers and KPIs) are consistent with the Act for the reasons set forth above.
The Exchange believes the proposed expirations for binary KPI options will remove
impediments to and perfect the mechanism of a free and open market and a national market
system because they will align with the reporting periods for which the proposed issuers disclose
earnings results and submit corresponding reports to the Commission. These expirations will,
therefore, permit investors to incorporate binary KPI options into their investment strategies that
correspond to issuers’ earnings results. Further, as discussed above, the Exchange believes
aligning expirations with Commission-regulated sources will reduce the potential for
manipulation of the underlying KPIs, which will ultimately protect investors and the public
interest.
The proposed rule establishes a strike regime for binary KPI options similar to that for
traditional options. As is the case for traditional options and binary index options, the proposed
rule change establishes permissible strike intervals, the amounts of which increase as the value of
the strike increases. Additionally, the Exchange proposes to list initial and additional series
pursuant to a similar framework as traditional equity options. The differences in the proposed
strike regime compared to that of standard equity and index options are necessary and
appropriate to reflect the static nature of KPIs (unlike underlying equities and indexes, the values
of which change throughout the trading day) and the timing of their disclosure. As noted above,
45
the Exchange intends to list binary KPI options aligned with the cadence of the KPI
announcements as their expiration cycle (generally quarterly). The Exchange intends to list for
trading binary KPI options with expirations for the then-current reporting period (e.g., third
quarter) as well as the following period (e.g., fourth quarter) prior to the expiration of the binary
KPI options for the then-current reporting period.
As the Exchange does for standard options, the Exchange lists strikes (subject to its
Rules) based on relevant market information — including the then-current value of the
underlying — and customer demand. As described above, the Exchange intends to do the same
for binary KPI options by listing strikes relative to the then current value of the underlying KPI.
The Exchange believes it is consistent with just and equitable principles of trade to permit the
Exchange to list strikes for a new expiration based on the most recently disclosed KPI value,
which may not be for the immediately preceding reporting period, and then add strikes based on
the disclosed KPI for the immediately preceding reporting period (which would be the settlement
value for binary KPI options that expire in the prior reporting period). This will enable the
Exchange to respond to changes in market conditions in the same manner it is able to do today to
respond to changes in values of (and market conditions related to) other underlyings. The
Exchange believes this flexibility is appropriate for binary KPI options because the value of a
KPI changes only when an issuer discloses that KPI, which generally happens every three
months, unlike other underlyings that change every trading day. While this proposed strike
listing regime differs from that of other options, the concept is the same, which is to permit the
Exchange to list strikes reflective of the then-current value of the underlying. It is possible the
changed value of an underlying KPI may be more sudden and pronounced than changes in the
value of an underlying equity or index (which are susceptible to sudden value changes);
46
however, like the listing rules for equity and index options, the proposed rules permit the
Exchange to list strikes to reflect potentially significant changes in the value of the underlying.
The Exchange believes the proposed scaling of strike prices is reasonable and will protect
investors, as it will permit the Exchange to list strike values in amounts similar to current strike
values for other options. As noted above, values of certain KPIs may be large (e.g., in the
billions). The proposed scaling will permit the Exchange, for example, to list a strike of 27 rather
than 27,000,000,000, which the Exchange believes will be simpler for investors to understand (as
it will be made clear that 27 will reflect billions in this example) and consistent with current
strike levels. The proposed scaling also permits the strike prices for binary KPI options to fit
within current system capabilities regarding strike price values. The Exchange believes scaling
rather than modifying its systems (and potentially causing investors to modify their systems) will
benefit investors by allowing them to trade binary KPI options in the same manner as they trade
other options today.
The Exchange believes the proposed strike intervals promote just and equitable principles
of trade because it will permit the Exchange to list commercially meaningful strikes that will
permit investors to tailor their trading strategies with precision. The Exchange acknowledges the
proposed strike intervals are smaller than those in current Rules for other types of options.
However, the Exchange believes the precision is appropriate and necessary given the nature of
KPIs and the proposed options. The purpose of binary KPI options is to permit investors to take
discrete and precise positions on KPIs. Therefore, the Exchange needs the ability to list strikes
with the precision necessary to permit investors to take these positions. For example, earnings
per share is generally a relatively small number (under $10). While strike intervals for other
options are limited to $0.50 intervals, that would not be meaningful in the context of binary KPI
47
options when investors are looking to take positions for a specific KPI, which will be measured
in penny intervals. Therefore, the Exchange believes smaller strike intervals will benefit
investors because they will allow the Exchange to list binary KPI options that will enable
investors to use these options in the precise nature for which they are intended and provide
sufficient flexibility for the Exchange to list series to respond to changes in market conditions
and customer demand, while other rules will place bounds around the strikes the Exchange may
list.
Further, as discussed above, the proposed strike intervals are consistent with current rules
for other options, which provide for larger strike intervals as the value of strike prices increases.
Given the scaling factor for larger KPI values, while it may appear the proposed rule change will
permit smaller strike intervals for larger KPI values, that may be true on a nominal basis but is
not the case if the actual value of the strike intervals is considered. The corresponding actual
value of the strike interval for a strike price that was subject to a larger scale value is higher than
the actual value of the strike interval for a strike price that was subject to a smaller scale value.
As a result, the permissible strike intervals for strike prices representing higher KPI values are
actually larger than the permissible strike intervals for strike prices representing lower KPI
values. This is consistent with general premise underlying current strike intervals that larger
strike intervals apply to larger strike values and, therefore, the Exchange believes the proposed
rule change will promote just and equitable principles of trade.
The Exchange believes this proposed rule change clearly describes the proposed terms of
binary KPI options, such as with respect to expirations (including the Exchange’s announcement
of the specific expiration date after binary KPI options series for that expiration are listed) and
exercise prices (including the scaling factor, negative values, and potential changes to that
48
scaling factor for a binary KPI option class) for all investors. As discussed above, these terms
and changes to such terms will be described in Exchange notices, technical specifications
(including binary KPI option reference data files), and contract specifications (all of which are
posted on the Exchange’s public website and thus available to all investors). Exchange ATP
Holders and retail brokerage firms are highly sophisticated investors that intake information
regarding other Exchange-listed options (including changes) in the same manner that the
Exchange plans to release this information for binary KPI options. Therefore, the Exchange
expects retail customers to have access to all relevant information regarding the terms of binary
KPI options they choose to trade, including changes to expiration dates and exercise price values
as announced by the Exchange.
The proposed rule change specifies a multiplier of one for binary KPI options rather than
require the Exchange to designate a multiplier of at least one as the rules for binary index options
do. This proposed multiplier is consistent with the definition of contract multiplier for binary
index options (as that requires a multiplier of at least one) and merely adds specificity to the
Rules.
The Exchange believes proposed Rule 5.101-O, which establishes Regular Trading Hours
for binary KPI options is consistent with the Act, protects investors, and prevents fraudulent and
manipulative practices. The Exchange believes the proposed structure ensures that trading in
binary KPI options ceases before the earnings announcement that determines settlement. The
distinction between A.M.- and P.M.-settled contracts mirrors the settlement terms already
applicable to binary index options, as well as other Exchange products.
The Exchange believes proposed Rule 6.71-O(d), which addresses bid and offer
conventions for binary options with multipliers other than 100, will provide clarity and
49
consistency in market quotations relative to the notional size of the option, promotes investor
understanding of the cost and value of binary KPI option contracts. Therefore, the Exchange
believes the proposed rule change is consistent with just and equitable principles of trade because
it creates a pricing structure that reflects the notional value of an option based on its multiplier.
The Exchange believes proposed Rule 5.101-O(e), which provides that for binary KPI
options, the System initiates the opening rotation at 9:30 A.M., removes impediments to a free
and open market by applying the same proven opening process to binary KPI options that
governs other listed options classes on the Exchange. Additionally, unlike equity options, for
which the underlying opens for trading and can trigger the opening rotation, KPIs do not trade,
so triggering the opening rotation based on a set time is reasonable for binary KPI options.
The Exchange believes excluding binary KPI options from the obvious error provisions
in Rule 6.85-O is consistent with the Act and promotes just and equitable principles of trade
because the standard obvious error framework, which evaluates whether an execution price
deviates from a “theoretical value” by a prescribed amount, is incompatible with the structure of
binary KPI options. Binary KPI options have no continuously observable theoretical value
(unlike equity and index options) prior to the date of the earnings-related disclosure. Rather, their
exercise settlement amount is fixed at either a pre-specified dollar amount or zero, depending
entirely on whether the reported KPI satisfies the exercise condition, which itself is based on a
single, publicly verifiable metric, disclosed in Commission filings. Applying an obvious error
framework premised on theoretical value calculations to a product with a binary, fixed payout
would be technically inapplicable and could produce unjust or arbitrary results. Moreover,
because settlement of binary KPI options is determined by issuer-reported metrics disclosed
through Commission filings (i.e., figures produced pursuant to established accounting standards,
50
subject to independent audit, and certified under the Sarbanes-Oxley Act), the settlement process
is itself governed by a comprehensive external regulatory framework. The Exchange believes
that establishing any alternative dispute mechanism in this context would be not only
unnecessary, but potentially disruptive to market integrity, as it may introduce an element of
post-hoc discretion into a settlement process that is expressly designed to be objective, verifiable,
and rule-bound.
The Exchange believes the proposed amendments related to position limits for binary
KPI options are consistent with the Act because they establish a rational position limit
framework for binary KPI options that protects against manipulation while facilitating legitimate
trading activity in a novel product. The Exchange believes that setting the position limit for
binary KPI options as the same as the applicable position limit for the stock of the issuer, with
100 binary KPI option contracts equaling one standard option contract, is appropriate. As
proposed, binary KPI options with a multiplier of one will count toward applicable limits on a
proportional basis relative to standard equity options on the issuer’s stock, which carry a
multiplier of 100.
The Exchange further believes the proposal is reasonable given the nature of binary KPI
options and their relationship to the underlying issuer. Because binary KPI options have a fixed
maximum notional value and settle on an all-or-nothing basis based on a KPI of the issuer rather
than the price of the issuer’s stock as with a standard equity option, the Exchange believes the
proposed position limits appropriately reflects the distinct structure of these contracts and limits
the potential for any single market participant to exert undue influence over binary KPI option
settlement. With respect to binary KPI options, the economic risk of a position is binary, in that
the contract either settles in-the-money at $1.00 or out-of-the money at $0.00. Additionally, with
51
respect to binary KPI options, the maximum notional exposure per contract is fixed in advance; it
cannot exceed $1.00 multiplied by the contract multiplier. Moreover, unlike stock prices or index
values, binary KPI option positions would not influence a company’s financial or operational
outcomes; the number of option contracts outstanding or trading volume, for instance, has no
effect on revenue or operational metrics.
Further, the Exchange’s proposal to provide that positions in binary KPI options on the
same KPI with different expiration dates and positions in binary KPI options for the same issuer
with different underlying KPIs are not aggregated reflects the distinct structure of binary KPI
options. Each binary KPI option expiration corresponds to a separate event tied to a specific
issuer reporting period. Thus, the Exchange believes aggregating positions across different
expiration dates would not accurately reflect the risk profile of these positions and would impose
an unnecessary burden on market participants seeking exposure to company KPI events across
different reporting periods. In determining that position limits should not be aggregated across all
binary KPI options referencing a single issuer, the Exchange analyzed the degree to which KPIs
of a given issuer are correlated with one another.
Similarly, the Exchange believes it is reasonable to provide that binary KPI options are
not aggregated with non-binary options contracts overlying the stock of the issuer. Because
binary KPI options and equity options overlying the same issuer have different risk profile (i.e.,
binary KPI options settle based on a KPI of the issuer rather than its stock price), the Exchange
believes it would be inappropriate and misleading to require aggregation of these positions for
purposes of position limits. As noted above, binary KPI options are based solely on whether a
single, specified-issuer KPI meets a discrete threshold at a defined future date, and their value
reflects the market’s probability assessment of that singular outcome. Standard equity options, on
52
the other hand, reflect a broad array of factors bearing on the price of the underlying security,
including macroeconomic conditions and sector dynamics, of which any individual KPI is only
one component. Because the two products are not priced off of a common reference and do not
represent economically equivalent or fungible exposures, aggregating positions across them
would not meaningfully advance the prevention of manipulative practices with respect to the
underlying security.
The Exchange further notes that this proposed non-aggregation framework is not
unprecedented. Rule 5.86-O(b) provides that positions in binary return derivatives shall not be
aggregated with options contracts on the same or similar underlying security. The Exchange
believes that there was no need to aggregate positions across the two product types to prevent
manipulative practices involving the underlying.
Finally, the Exchange believes the amendments to the hedge exemption provision in
proposed Rule 5.102-O(d) is consistent with the Act because it facilitates legitimate hedging
activity in binary KPI options. Because a market participant simultaneously holding a short put
and short call position in binary KPI options has taken opposing sides of the potential binary
outcome (i.e., the short call is at risk if the KPI is met and the short put is at risk if the KPI is not
met), the Exchange believes such a position represents a defined, bounded risk profile that does
not present the same potential for manipulation or market disruption that position limits are
designed to prevent. The Exchange therefore believes the hedge exemption as proposed will
encourage market-making activity and liquidity provision in binary KPI options while protecting
investors and the public.
The Exchange also believes the proposed adoption of Rule 5.103-O consistent with the
Act. By establishing tailored reporting requirements for binary KPI options, the Exchange will
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be able to monitor ATP Holder positions effectively and detect any accumulation of positions
that may approach or exceed applicable limits, to the benefit of investors. The Exchange believes
it is consistent with just and equitable principles of trade for 100 binary KPI option contracts to
equal one standard option contract for purposes of determining whether the report in proposed
Rule 5.103-O is required given the size of binary KPI contracts. As discussed above, proposed
binary KPI options have a multiplier of one, while standard option contracts have a multiplier of
100. Therefore, the notional value of a binary KPI option is significantly less than the notional
value of standard option contracts. For example, 200 contracts with a value of $1.00 with a
multiplier of 100 would equate to $20,000 notional value, while 200 binary KPI option contracts
with a value of $1.00 (which is the fixed maximum value of a binary KPI option contract) with a
multiplier of one would equate to $200 notional value. Counting 100 binary KPI contracts as one
standard option contract for purposes of this report effectively calibrates the reporting
requirement so that investors are required to submit the report for an economically equivalent
number of contracts, which promotes just and equitable principles of trade.
The Exchange believes the proposal will provide the Exchange and regulators with
visibility into large position concentrations in binary KPI options, preserving the ability to
identify unusual activity and respond to any unforeseen concerns, while calibrating the threshold
to a metric that is meaningful for this contract given its smaller multiplier relative to that of
standard equity options. The Exchange believes this reporting framework, coupled with the
position limits amendments, provides a fully adequate regulatory framework for these
instruments.
Further, as noted above, the Exchange believes it has an adequate surveillance program in
place to detect potentially manipulative trading in binary KPI options. The Exchange notes that
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manipulation of the reported KPI would constitute securities fraud and expose the issuer to
liability under federal securities law, separate and apart from any exchange-related violation.
The Exchange believes the proposed binary KPI options will serve as a vehicle to hedge
idiosyncratic, event-specific risk embedded in the specific KPIs. Standard equity options are
calibrated to the price of the underlying security and capture a full spectrum of factors or risks
which may affect issue value, such as macroeconomic conditions or sector dynamics. Because
equity option pricing incorporates this full spectrum, a participant seeking to hedge exposure to a
single, discrete KPI outcome cannot do so precisely using standard equity options. Because
settlement of a binary KPI option is determined solely by whether a specified-issuer KPI meets a
defined threshold, the contract effectively isolates certain individual risks an investor may seek
to manage. For example, consider an investor holding a long-term position in a particular issuer
stock, who believes the issuer’s quarterly revenue will fall short of expectations (for reasons
unrelated to the issuer’s long-term prospects). The investor may utilize the binary KPI option to
hedge precisely against the near-term risk without disruption to the underlying equity position.
This targeted hedging utility represents a distinct and additive function relative to existing listed
products, which the Exchange believes will serve the interests of investors and provide an
efficient mechanism for managing event-specific, KPI-driven risk.
The Exchange believes the proposed rule change will facilitate transactions in securities,
remove impediments to and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public interest, because it will provide
investors with a securities exchange-listed investment choice for these instruments, offering price
transparency and the regulatory protections of a national securities exchange. The Exchange
believes the proposed rule change will permit investors to manage their risk exposures and carry
55
out their investment objectives on a securities exchange with more flexibility and broader
applicability. The Exchange also believes the proposed rule change will promote competition, as
it will meet demands of investors that currently may trade products structured in substantively
the same manner as the proposed binary KPI options in other markets (as further discussed
below). Binary KPI options would provide investors with a straightforward means of expressing
a directional view on key financial and operating metrics. The Exchange further believes the
proposed rule change is consistent with the protection of investors and the public interest, as
binary KPI options would be subject to the Exchange’s existing rules governing the listing and
trading of options. The Exchange believes expanding the universe of binary options will benefit
investors, particularly retail investors and other investors who prefer simplicity, as a
complementary offering to current exchange-traded options.
The proposed rule change will permit the Exchange to list binary KPI options on a
national securities exchange as alternatives to products that are structured in substantially the
same manner as binary options currently available in the OTC market and on other platforms.
The Exchange understands investors have traded binary options similar to the proposed binary
options in OTC markets for many years but may prefer to trade such options in a listed
environment to receive the benefits of trading listing options. These benefits include: (1)
enhanced efficiency in initiating and closing out positions; (2) increased market transparency;
and (3) heightened contra-party creditworthiness. The Exchange believes the proposed rule
change may encourage liquidity to shift from the OTC market onto the Exchange, which the
Exchange believes would increase market transparency as well as enhance the process of price
discovery conducted on the Exchange through increased order flow. The proposed rule change is
intended to provide a market for binary KPI options as a standardized product without the credit
56
risk of an individual issuer. By providing a listed and standardized market for more classes of
binary options, the Exchange seeks to attract investors who desire the simplicity of a binary
option with the certainty and safeguards of a regulated and standardized marketplace.
Additionally, unlike an OTC binary option, counter-party credit risk for Exchange-listed binary
KPI options is significantly reduced through the issuance and guarantee of the contracts by a
registered clearing agency. Further, as an exchange-traded option, binary options will have the
advantage of liquidity provided by Market-Makers, which the Exchange believes may lead to
tighter spreads than those in the OTC market. The Exchange also believes that standardization
will enable more interested parties to become market participants.
In addition to the OTC market, various market platforms that are not registered as
national securities exchanges currently offer products structured in substantively the same
manner as binary options that the Exchange may list pursuant to current Rules and as proposed.
These platforms offer binary option products overlying securities indexes, which may be settled
at varying points of the day (not just at the open and close of the trading day). However, as these
venues are not national securities exchanges, they do not offer investors the benefits of
centralized liquidity, market transparency, or securities regulations intended to protect investors.
The Exchange believes listing competitive products on a national securities exchange would
create a centralized and standardized marketplace for these products, which promotes price
discovery and transparency, within an established regulatory framework designed to afford
investors in securities with important protections. In other words, the Exchange believes its
proposal offers a more transparent platform than the OTC market or other market platforms
offer. It would contribute to leveling the playing field with these alternative markets and provide
investors with safeguards associated with Commission and SRO oversight of the trading activity
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in these exchange-listed binary KPI options.
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. The Exchange believes the proposed rule
change will offer market participants a simplified, transparent, and limited risk investment choice
overlying securities and securities indexes, which may be more aligned with their specific timing
needs and investment and hedging strategies and risk tolerances. The Exchange believes it
benefits the investing public to continue to enhance its listed product offerings to respond to
continuously changing needs of investors and to a continuously changing competitive
environment.
B.
Self-Regulatory Organization’s Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on
competition that is not necessary or appropriate in furtherance of the purposes of the Act. The
Exchange does not believe that the proposed rule change will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the purposes of the Act,
because binary KPI options will be available to all market participants who wish to trade such
options on the same terms and in the same manner (including with respect to the payout terms
and amount). All market participants will be subject to the same rules applicable to binary KPI
options, as described in this proposed rule change. Except as set forth in the proposed rule
change, binary KPI options will trade in the same manner as other options, including binary
index options, on the Exchange.
The Exchange does not believe the proposed rule change will impose any burden on
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intermarket competition that is not necessary or appropriate in furtherance of the purposes of the
Act, because other options exchanges may propose similar products. Additionally, as noted
above, substantively similar products to binary KPI options, as proposed, are available in the
OTC market and various other markets.
The Exchange notes that it operates in a highly competitive market in which market
participants can readily direct order flow to competing venues who offer similar products. The
Exchange believes the proposed rule change will provide investors with a comparable alternative
to the OTC market and other venues. The Exchange believes it may be a more attractive
alternative to the OTC market and these other venues, as market participants will benefit from
being able to trade these options in an exchange environment, which provides, among other
things: (1) enhanced efficiency in initiating and closing out positions; (2) increased market
transparency; and (3) heightened contra-party creditworthiness. As a result, the Exchange
believes that the proposed rule change may relieve any burden on, or otherwise promote,
competition, as it will allow the Exchange to offer a securities exchange-listed alternative to the
products currently available in these other markets.
C.
Self-Regulatory Organization’s Statement on Comments on the Proposed Rule
Change Received from Members, Participants, or Others
No written comments were solicited or received with respect to the proposed rule change.
III.
Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Within 45 days of the date of publication of this notice in the Federal Register or within
such longer period up to 90 days (i) as the Commission may designate if it finds such longer period
to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents,
the Commission will:
A.
by order approve or disapprove such proposed rule change, or
59
B.
institute proceedings to determine whether the proposed rule change should be
disapproved.
IV.
Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning
the foregoing, including whether the proposed rule change is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments:
•
Use the Commission’s internet comment form
(https://www.sec.gov/rules/sro.shtml); or
•
Send an email to rule-comments@sec.gov. Please include file number
SR-NYSEARCA-2026-93 on the subject line.
Paper Comments:
•
Send paper comments in triplicate to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2026-93. This file number
should be included on the subject line if email is used. To help the Commission process and
review your comments more efficiently, please use only one method. The Commission will post
all comments on the Commission’s internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the filing will be available for inspection and copying at the principal office of the
Exchange. Do not include personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject to copyright protection.
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All submissions should refer to file number SR-NYSEARCA-2026-93 and should be submitted
on or before [INSERT DATE 21 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL
REGISTER].
For the Commission, by the Division of Trading and Markets, pursuant to delegated
authority.48
Sherry R. Haywood,
Assistant Secretary.
48
17 CFR 200.30-3(a)(12).
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.