Cboe Global Markets (BATS: CBOE) is asking regulators for permission to launch a new class of derivatives that allow investors to trade directly on corporate earnings and economic data.
The exchange operator, which already has a foothold in the prediction markets space, wants the SEC to approve yes/no contracts based on 100 KPIs of 23 companies, including Apple, Coinbase Global, Robinhood Markets, SpaceX and Tesla, among others.
“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,” according to a Cboe filing with the commission.
The owner and operator of the Cboe Options Exchange previously hinted it wanted to offer yes/no event contracts based on economic data and financial markets while staying out of the sports event derivatives arena.
Cboe Plan Could Entice Professional Traders
Prediction markets such as Kalshi and Polymarket currently offer an array of company-specific event contracts, but the bulk of those derivatives are based on stock price movements or corporate actions, including mergers and acquisitions.
Cboe is asking the Securities and Exchange Commission (SEC) to allow it to ratchet up that proposition by getting “in the weeds” so to speak. For example, the exchange operator is requesting approval to offer binary options on Tesla’s free cash flow and Model 3 deliveries.
Other proposed contracts include transaction volume on Coinbase, Apple iPhone sales, Nvidia data center revenue and Robinhood funded customers.
The contracts would settle based on whether or not the companies beat those metrics. In a hypothetical example, Cboe could post a contract on Apple selling 10 million iPhones in the third quarter. If that mark is exceeded, buyers of what amounts to be the “yes” side of that option would be profitable.
“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,” adds Cboe in its regulatory filing. “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.”
If the SEC approves the Cboe binary options, it could give the exchange operator a leg up in the prediction market competition for institutional customers – a client base Cboe is already catering to by running some of the world’s largest derivatives exchanges.
Regulatory Clarification
Traditional prediction markets, such as Kalshi and Polymarket, are regulated by the Commodities and Futures Trading Commission (CFTC), but companies like Cboe answer to the SEC. Hence the options exchange firm must approach the SEC about launching new contracts.
That doesn’t mean a regulatory turf war is brewing. At a February Senate Banking Committee hearing, SEC Chairman Paul Atkins noted most of the regulatory responsibility for prediction markets lies with the CFTC, but there will be occasions when the SEC takes the lead or when the two commissions collaborate. The Cboe request is an example of the SEC taking the lead.