Notice2026-07596
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Its Rules Related to Binary Options
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 20, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 75 (Monday, April 20, 2026)</title>
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[Federal Register Volume 91, Number 75 (Monday, April 20, 2026)]
[Notices]
[Pages 21045-21054]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07596]
[[Page 21045]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105247; File No. SR-CBOE-2026-032]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend Its Rules Related to Binary
Options
April 15, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 2, 2026, Cboe Exchange, Inc. (``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to amend its Rules related to binary options. The text of the proposed
rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Commission's website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>), the
Exchange's website (<a href="https://www.cboe.com/us/options/regulation/rule_filings/bzx/">https://www.cboe.com/us/options/regulation/rule_filings/bzx/</a>), 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 Exchange 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 these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its Rules related to binary options.
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. Current Rule 4.16 permits the Exchange to
list binary options on broad-based indexes.\3\ Current Rule 4.16(b)
defines a binary option as a European-style option contract having an
exercise settlement amount \4\ that is established at the creation of
the option. Under current Rules, binary options are paid out if the
settlement value \5\ of the underlying broad-based index equals,
exceeds, or is less than the exercise price, depending on the type of
option (i.e., call or put). A call binary option is an option contract
that returns an exercise settlement amount if the settlement value of
the underlying broad-based index is at or above the exercise price \6\
at expiration (i.e., in- or at-the-money), while a put binary option is
an option contract that returns an exercise settlement amount if the
settlement value of the underlying broad-based index is below the
exercise price at expiration (i.e., in-the-money).\7\ The Exchange
designates binary options as to expiration date, exercise price,
exercise settlement amount, contract multiplier, and underlying broad-
based index.\8\
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\3\ Pursuant to current Rule 4.16(a), Rule 4.16 applies to
binary options only, and all Rules apply to the trading of binary
options, except as otherwise provided or the context otherwise
requires.
\4\ The exercise settlement amount for a binary option is the
amount of cash that a holder will receive upon exercise of the
contract. The exercise settlement amount is a set amount equal to
the exercise settlement value multiplied by the contract multiplier.
The exercise settlement value will be an amount determined by the
Exchange on a class-by-class basis and shall be equal to $10 or
$1,000 or a value between those values, unless otherwise adjusted
per Rule 4.6. See current Rule 4.16(b) (definition of ``exercise
settlement amount''). Pursuant to current Rule 4.16(f), binary
option contracts are subject to adjustment only in accordance with
and to the extent specified in the By-Laws and Rules of The Options
Clearing Corporation (``OCC''). The contract multiplier is the
multiple applied to the exercise settlement value to arrive at the
total exercise settlement amount per contract, which is established
on a class-by-class basis and shall be at least one. See current
Rule 4.16(b) (definition of ``contract multiplier''). The Exchange
intends to amend the minimum exercise settlement value to be $1
(rather than $10) in a separate rule filing.
\5\ The settlement value for a binary option is the value of the
underlying broad-based index that is used to determine whether a
binary option is in, at, or out of the money. For binary options on
a broad-based index on which traditional options on the same broad-
based index are A.M.-settled, the ``settlement value'' is the
reported opening level of such index as derived from the prices of
the underlying securities on such day and as reported by the
Reporting Authority for the index. For binary options on a broad-
based index on which traditional options on the same broad-based
index are P.M.-settled, the ``settlement value'' is the reported
closing level of such index as derived from the prices of the
underlying securities on such day and as reported by the Reporting
Authority for the index. See current Rule 4.16(b) (definition of
``settlement value''). Binary options that are ``at-the-money,''
``in-the-money,'' or ``out-of-the-money'' are a function of the
settlement value of the underlying broad-based index in relation to
the type of binary option (i.e., put or call) and the exercise
price. See current Rule 4.16(e).
\6\ With respect to a binary option, the exercise price is the
value to which the settlement value of the underlying broad-based
index is compared to determine whether the holder of a binary option
is entitled to have the option be paid out. See current Rule 4.16(b)
(definition of ``exercise price'').
\7\ See current Rule 4.16(b) (definitions of ``call binary
option'' and ``put binary option'').
\8\ See Rule 4.16(c)(2).
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Currently, the Exchange may from time to time approve for listing
and trading on the Exchange binary option contracts on a broad-based
index that has been selected in accordance with Rule 4.10 and the
Interpretations and Policies thereunder.\9\ The Exchange may add new
series of options of the same class as provided for in Rule 4.13 and
the Interpretations and Policies thereunder. Additional series of the
same binary option class may be opened for trading on the Exchange when
the Exchange deems it necessary to maintain an orderly market or to
meet customer demand (the opening of a new series of binary options on
the Exchange will not affect any other series of options of the same
class previously opened).\10\ After a particular binary option class
has been approved for listing and trading on the Exchange, the Exchange
from time to time may open for trading series of options on that class.
In order to afford investors maximum flexibility, binary option series
may expire from one day up to 36 months from the time they are
listed.\11\ Binary options will be quoted based on the existing strike
intervals utilized for traditional, non-binary index options \12\ with
minimum price variations, established by class, to be no less than
$0.01.\13\
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\9\ See current Rule 4.16(c)(1). Binary options are a separate
class from other options overlying the same broad-based index. The
maintenance listing standards with respect to options on broad-based
indexes set forth in Rule 4.10 and the Interpretations and Policies
thereunder apply to binary options on broad-based indexes as well.
See Rule 4.16(d).
\10\ See current Rule 4.16(c)(4).
\11\ See current Rule 4.16(c)(3).
\12\ See Rule 4.13, including Interpretation and Policy .01.
\13\ See Rule 5.4(c)(1).
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The proposed rule change moves the Rule provisions regarding binary
[[Page 21046]]
options from current Rule 4.16 to new Chapter 4, Section H, which
section will relate specifically to binary options. Specifically, the
proposed rule change: \14\
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\14\ In addition to substantive changes to current Rule 4.16
described below, the proposed rule change made nonsubstantive
changes to simplify the current provisions (including eliminate
redundancies) and make the provisions more plain English.
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<bullet> moves current Rule 4.16(a) to the introductory language
for proposed Section H;
<bullet> moves the defined terms in current Rule 4.16(b) to
proposed Rule 4.70;
<bullet> moves the provisions from current Rule 4.16(c)(1) and (d)
regarding the listing and maintenance criteria for binary options to
Rule 4.71(a);
<bullet> moves the provision regarding binary options being a
separate class from the traditional options with the same underlying
from current Rule 4.16(c)(1) to Rule 4.71(b);
<bullet> moves the provision regarding the designated terms of
binary options from current Rule 4.16(c)(2) to the introductory
language of proposed Rule 4.72; \15\
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\15\ The Exchange deleted from current Rule 4.16(c)(2) the
provision stating only binary option contracts approved by the
Exchange and currently open for trading on the Exchange may be
purchased or sold on the Exchange, as that is a general, true of all
options approved for listing on the Exchange.
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<bullet> moves the provision regarding settlement of binary options
from current Rule 4.16(c)(2) to proposed Rule 4.72(a);
<bullet> moves the provision regarding permissible expirations of
binary options from current Rule 4.16(c)(3) to proposed Rule 4.72(b);
<bullet> moves the provision regarding additional series of binary
options from current Rule 4.16(c)(4) to proposed Rule 4.72(c);
<bullet> moves the provision regarding the determination of the
settlement value from current Rule 4.16(e) to proposed Rule 4.73;
<bullet> moves the provision regarding adjustment of binary options
from current Rule 4.16(f) to proposed Rule 4.74; and
<bullet> moves the provision regarding the availability of Flexible
Exchange (``FLEX'') options for binary options from current Rule
4.16(g) to proposed Rule 4.21(c).
While there is no current definition of the term ``market
capitalization ratio'' in the Rules, that term is effectively defined
in current Rule 8.36(b) as the ratio of the market capitalization of a
broad-based index underlying a binary to the market capitalization of
the S&P 500 Index. The proposed rule change creates a defined term of
``market capitalization ratio'' in proposed Rule 4.70, which means the
ratio of the market capitalization of an index to the market
capitalization of the S&P 500 Index. This is equivalent to the meaning
of that term in the current Rules but expanded to apply to any index
rather than just broad-based index, as the proposed Rules regarding all
binary options reference that term.
In addition to the relocation of and nonsubstantive changes to the
provisions of current Rule 4.16 regarding binary options as described
above, the proposed rule change amends the current Rules regarding the
availability of binary options to (1) expand the scope of binary
options to any index (rather than just broad-based indexes); and (2)
permit A.M.-settlement and P.M.-settlement for all binary options.
First, the proposed rule change would make binary options available
on all indexes that are otherwise eligible for traditional, non-binary
options trading on the Exchange. Currently, the Exchange may list
binary options only on broad-based index options. Proposed Rule 4.71(a)
provides that the Exchange may from time to time approve for listing
and trading on the Exchange binary option contracts on an index that
satisfies the initial listing criteria in Rule 4.10 and the
Interpretations and Policies thereunder. The maintenance listing
criteria in Rule 4.10 and the Interpretations and Policies thereunder
apply to binary index options. In other words, the Exchange may list
binary options on any index on which the Exchange may list traditional
(i.e., non-binary) options pursuant to Rule 4.10.\16\ Based on
available competitive products (as further discussed below) and demand
from investors, the Exchange believes the proposed expansion of binary
option classes will provide more investors with access to a securities
exchange-listed product with the simplified, limited risk structure of
binary options.
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\16\ Pursuant to proposed Rule 4.21(c) (as is the case today for
binary index options on broad-based indexes pursuant to current Rule
4.16(g)), binary options on indexes that are eligible for trading on
the Exchange will be eligible for trading as FLEX options (as
provided for in Chapter 4, Section C), even if the Exchange does not
list and trade non-FLEX binary options or non-FLEX traditional
options on such index. For purposes of Rule 4.21, the applicable
exercise settlement value is designed by the parties to the
contract, the parties may not designate an exercise style other than
European-style, and the term ``index multiplier'' refers to the
contract multiplier.
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Second, the Exchange proposes to amend the Rules regarding
permissible settlements of binary options. Pursuant to proposed Rule
4.72(a), the Exchange may designate binary options as A.M.-settled or
P.M.-settled. Current Rule 4.16(c)(2) provides that binary options on
broad-based index options for which traditional (i.e., non-binary)
options on the same broad-based index are A.M.-settled will be A.M.-
settled, and binary options on broad-based indexes for which
traditional options on the same broad-based index are P.M.-settled will
be P.M.-settled. Currently, nearly all of the traditional index (broad-
based and narrow-based) options the Exchange lists for trading can be
both A.M.-settled and P.M.-settled.\17\ Therefore, current Rule 4.16
would permit the Exchange to list A.M.-settled and P.M.-settled binary
options overlying most indexes on which the Exchange lists non-binary
options. Permitting both A.M.- and P.M.-settlement for binary index
options for all indexes will afford investors further flexibility
(coupled with the flexibility of permissible expirations, as noted
above) with respect to their investment strategies, regardless of the
index option market in which investors participate. Additionally, the
Exchange believes it is appropriate to be able to list A.M.- and P.M.-
settled binary index to provide investors with the same flexibility
currently available for alternative products (as further discussed
below).
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\17\ See Rule 4.13(a)(4), (e), and Interpretation and Policy
.13. Currently, the Exchange lists the following index options: S&P
500 Index options (``SPX options''), Mini-S&P 500 Index options
(``XSP options''), S&P 500 Scored and Screened Index (``SPESG
options''), Mini-S&P 500 Equal Weight Index Options (``SPEQX
options''), Cboe Volatility Index Options (``VIX options''), Dow
Jones Industrial Average options (``DJX options''), S&P 100 Index
options (``OEX options''), Russell 2000 Index options (``RUT
options''), Mini-Russell 2000 Index options (``MRUT options''), Cboe
Bitcoin U.S. ETF Index options (``CBTX options''), Cboe Mini Bitcoin
U.S. ETF Index options (``MBTX options''), and the Cboe Magnificent
10 Index options (``MGTN options ''). All of these index options may
have A.M.-settled series and P.M.-settled series except OEX options
(P.M.-settled only), VIX options (A.M.-settled only), and DJX
options (A.M.-settled only, although the Exchange recently proposed
to permit P.M.-settlement for DJX options, see Securities Exchange
Act Release No. 104644 (January 21, 2026), 91 FR 3284 (January 26,
2026) (SR-CBOE-2026-005)).
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[[Page 21047]]
In connection with the proposed rule change described above to
permit P.M.-settlement for all binary index options, the Exchange
proposes to amend Rule 5.1(b)(2)(C) to provide that on their last
trading day, RTH for P.M.-settled binary index options may be effected
on the Exchange between 9:30 a.m. and 4:00 p.m.\18\ (as opposed to the
9:30 a.m. to 4:15 p.m. RTH for non-expiring binary index options). The
primary listing markets for the component securities comprising the
indexes underlying options listed on the Exchange close trading in
those securities at 4:00 p.m. The primary listing exchanges for the
component securities disseminate closing prices for the component
securities, which are used to calculate the exercise settlement value
of these indexes. The Exchange believes that, under normal trading
circumstances, the primary listing markets have sufficient bandwidth to
prevent any data queuing that may cause any trades that are executed
prior to the closing time from being reported after 4:00 p.m. If
trading in expiring P.M.-settled binary index options continued an
additional fifteen minutes until 4:15 p.m. on their last trading day,
these expiring options would be trading after the exercise settlement
value for those expiring options was calculated. Therefore, in order to
mitigate potential investor confusion and the potential for increased
costs to investors as a result of potential pricing divergence at the
end of the trading day, the Exchange believes it is appropriate to
cease trading in the expiring P.M.-settled binary index options at 4:00
p.m., which is currently the case for P.M.-settled non-binary index
options. The Exchange does not believe the proposed rule change will
impact volatility on the underlying cash market comprising the indexes
at the close on expiration days, as it already closes trading on the
last trading day for expiring P.M.-settled non-binary index options
overlying the same indexes at 4:00 p.m. The Exchange does not believe
this has had an adverse impact on fair and orderly markets on
expiration days for the underlying securities comprising the
corresponding indexes.
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\18\ All times set forth in this rule filing are Eastern Time.
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The Exchange also proposes to amend the position limits for binary
options in Rule 8.36. Current Rule 8.36 provides that the position
limit for binary options on a broad-based index will be 15,000
contracts (or 15,000 times the ratio of 10,000 to the exercise
settlement amount) if traditional (i.e., non-binary) options on the
same broad-based index have no position limit pursuant to Rule 8.31.
For binary options on a broad-based index for which traditional options
on the same broad-based index do have a position limit pursuant to Rule
8.31, the position limit for the binary option is:
<bullet> 10,000 contracts if the market capitalization ratio for
the index is greater than or equal to 0.50;
<bullet> 5,000 contracts if the market capitalization ratio is less
than 0.50 but greater than or equal to 0.25; or
<bullet> 2,500 contracts if the market capitalization ratio is less
than 0.25 but greater than or equal to 0.10.\19\
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\19\ The rule provides that the Exchange would need to seek
approval from the Securities and Exchange Commission (the
``Commission'') prior to establishing position limits for binary
options on broad-based indexes that have a market capitalization
ratio that is less than 0.10.
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For binary options that have an exercise settlement amount that is
not equal to $10,000, the position limit is the ratio of 10,000 to the
exercise settlement amount multiplied by the applicable amount set
forth above.
The proposed rule change expands the fixed and formulaic limits to
all indexes that may underlie binary options as proposed and applies
the proposed position limits on an expiration basis.\20\ Specifically,
the proposed rule change amends Rule 8.36(a) to provide that the
position limit for binary options for which the traditional options on
the same index have no position limit pursuant to Rules 8.30 through
8.33, as applicable,\21\ is the number of contracts equal to 15,000
times the ratio of 10,000 to the exercise settlement amount per
expiration.\22\ The proposed rule change amends Rule 8.36(b) to provide
that for binary options for which traditional options on the same index
have a position limit pursuant to Rules 8.30 through 8.33, as
applicable, the position limit is the number of contracts equal to the
ratio of 10,000 to the exercise settlement amount multiplied by the
number of contracts set forth in the table below (based on the market
capitalization ratio of the underlying index) per expiration: \23\
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\20\ The proposed rule change also makes nonsubstantive changes
to simplify the rule language.
\21\ Rules 8.31 through 8.33 provide position limits for the
various categories of indexes options the Exchange may list for
trading.
\22\ For example, if the binary option exercise settlement
amount is $10,000, then the position limit is 15,000 contracts per
expiration; if the binary option exercise settlement amount is
$1,000, then the position limit is 150,000 contracts per expiration;
and if the binary option exercise settlement amount is $12,000, then
the position limit is 12,500 contracts per expiration.
\23\ The proposed rule change does not include a provision
regarding the need to seek Commission approval prior to establishing
position limits for binary options on broad-based indexes that have
a Market Capitalization Ratio less than 0.10, as the proposed rule
change seeks to establish position limits for all such indexes,
rendering such a provision moot.
------------------------------------------------------------------------
Number of
Market capitalization ratio of underlying contracts
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Greater than or equal to 0.50........................... 10,000
Less than 0.50 but greater than or equal to 0.25........ 5,000
Less than 0.25 but greater than or equal to 0.10........ 2,500
Less than 0.10 but greater than or equal to 0.005....... 1,500
Less than 0.005 but greater than or equal to 0.0025..... 1,000
Less than 0.0025........................................ 500
------------------------------------------------------------------------
For reference, the table below sets forth the approximate market
capitalizations that would equate to the above ratios based on a market
capitalization of the S&P 500 Index of $62.5 trillion as of February
20, 2026:
------------------------------------------------------------------------
Market capitalization ratio of Range of underlying Number of
underlying market capitalizations contracts
------------------------------------------------------------------------
Greater than or equal to 0.50.. Greater than or equal 10,000
to $31.3 trillion.
Less than 0.50 but greater than Less than $31.3 5,000
or equal to 0.25. trillion but greater
than or equal to $15.6
trillion.
[[Page 21048]]
Less than 0.25 but greater than Less than $15.6 2,500
or equal to 0.10. trillion but greater
than or equal to $6.3
trillion.
Less than 0.10 but greater than Less than $6.3 trillion 1,500
or equal to 0.005. but greater than or
equal to $312.5
billion.
Less than 0.005 but greater Less than $312.5 1,000
than or equal to 0.0025. billion but greater
than or equal to
$156.3 billion.
Less than 0.0025............... Less than $156.3 500
billion.
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Pursuant to current Rule 8.36(c), positions in binary options on
the same broad-based index with different exercise settlement amounts
will be aggregated with each other but, pursuant to current Rule
8.36(d), will not be aggregated with non-binary option contracts on the
same broad-based index.\24\ The proposed rule change amends these
provisions to apply to all binary options on all indexes.
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\24\ Additionally, binary options on broad-based indexes will
not be aggregated with non-binary option contracts on an underlying
stock or stocks (the Exchanges makes a nonsubstantive change to make
this security or securities to be consistent with the first sentence
of the subparagraph) included within such broad-based index or with
binary index options on any other broad-based index. See current
Rule 8.36(d) (proposed Rule 8.36(c)).
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Current Rule 8.36(f) provides that binary options are not subject
to the hedge exemption to the standard position limits in Rule 8.30 and
instead exempt certain qualified hedge exemption strategies and
positions from the position limits established in Rule 8.36(a) and (b).
The proposed rule change amends Rule 8.36(f) to provide that
notwithstanding Rules 8.36(a) and (b), position limits for the hedged
positions and strategies defined below are equal to five times the
position limit established under proposed Rule 8.36(a) and (b)(5) (if
the market capitalization ratio of the underlying index is greater than
or equal to 0.005) or three times the position limit established under
proposed Rule 8.36(b)(5) (if the market capitalization ratio of the
underlying index is less than 0.005). The following strategies and
positions would qualify for these increased position limits (which are
the strategies and positions exempt from position limits for binary
options established in current Rule 8.36):
<bullet> a binary option position ``hedged'' or ``covered'' by an
appropriate amount of cash to meet the settlement obligation (e.g.,
$1,000 for a binary option with an exercise settlement amount of
$1,000);
<bullet> a binary option position ``hedged'' or ``covered'' by a
sufficient amount of a related or similar security to meet the
settlement obligation; and
<bullet> a binary option position ``hedged'' or ``covered'' by a
traditional option covering the same underlying index (which includes,
among other strategies, a vertical spread with strikes reasonably close
\25\ to the binary option strike) sufficient to meet the settlement
obligation.
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\25\ The Exchange will determine strikes that are ``reasonably
close'' in the same manner it currently does pursuant to Rule 4.13.
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Pursuant to Rule 8.42(h), binary options are not subject to
exercise limits. This is currently the case for binary index options on
broad-based indexes and will be the case for binary index options on
non-broad-based indexes. Binary options, as discussed above, are
European-style and are automatically exercised at expiration if the
settlement value of the underlying index is equal to or greater than
the exercise price of a call binary option or less than the exercise
price in the case of a put binary option.\26\
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\26\ See Rule 6.20(g). Because binary options are automatically
exercised, Rule 6.21 regarding exercise notices does not apply to
binary options.
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With respect to reports related to position limits, proposed Rule
8.43(f) provides that in computing reportable binary options under Rule
8.43, as is the case today for binary index options on broad-based
indexes:
(1) positions in binary options on the same index that have
different exercise settlement amounts are aggregated;
(2) positions in binary options are not aggregated with non-binary
option contracts on the same or similar underlying security or index;
(3) positions in binary index options are not aggregated with non-
binary option contracts on an underlying security or securities
included within the underlying index; and
(4) positions in binary options on one index are not aggregated
with binary options on any other index.
All binary options as proposed will not be subject to Rule 8.46(b)
and Interpretation and Policy .01 regarding certain restrictions on
options transactions and exercises. Rule 8.46(b) applies only to
American-style options (as noted above, binary options are European-
style), and Rule 8.46, Interpretation and Policy .01 applies only to
options that are settled by delivery of an underlying security (as
noted above, binary options are settled by delivery of a settlement
value in cash).
The margin requirements in Rule 10.3(m) (currently applicable to
binary index options on broad-based indexes) will apply to all binary
options. Specifically, for a margin account, except as provided below,
no binary option carried for a customer may be considered of any value
for purposes of computing the margin required in the account of such
customer. The initial and maintenance margin required on any binary
option carried long in a customer's account is 100% of the purchase
price of such binary option (i.e., the premium). The initial and
maintenance margin required on any binary option carried short in a
customer's account is the exercise settlement amount. With respect to
spreads, no margin is required on a binary call option (put option)
carried short in a customer's account that is offset by a long binary
call option (put option) for the same underlying security or instrument
that expires at the same time and has an exercise price that is less
than (greater than) the exercise price of the short call (put). The
long call (put) must be paid for in full. With respect to straddles and
combinations, when a binary call option is carried short in a
customer's account and there is also carried a short binary put option
for the same underlying security or instrument that expires at the same
time and has an exercise price that is less than or equal to the
exercise price of the short call, the initial and maintenance margin
required is the exercise settlement amount applicable to one contract.
For a cash account, a binary option carried short in a customer's
account is deemed a covered position, and eligible for the cash
account, provided any one of the following either is held in the
account at the time the option is written or is received into the
account promptly thereafter:
(1) cash or cash equivalents equal to 100% of the exercise
settlement amount; or
[[Page 21049]]
(2) a long binary option of the same type (put or call) for the
same underlying security or instrument that is paid for in full and
expires at the same time, and has an exercise price that is less than
the exercise price of the short in the case of a call or greater than
the exercise price of the short in the case of a put; or
(3) an escrow agreement. The escrow agreement must certify that the
bank holds for the account of the customer as security for the
agreement (i) cash, (ii) cash equivalents, (iii) one or more qualified
equity securities, or (iv) a combination thereof having an aggregate
market value of not less than 100% of the exercise settlement amount
and that the bank will promptly pay the TPH organization the exercise
settlement amount in the event the account is assigned an exercise
notice.
The Exchange believes these proposed levels are appropriate because
risk exposure is limited with binary options and the proposed customer
initial and maintenance margin is equal to the maximum risk
exposure.\27\
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\27\ Pursuant to Rule 10.9, the Exchange has the ability to
impose higher margin requirements than those described above in
respect to any binary option position when it deems such higher
margin requirements to be advisable. Because binary options must be
fully funded pursuant to Rule 10.3(m), Rule 6.22 regarding delivery
and payment does not apply to binary options.
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Except as otherwise described above, all binary options will be
listed and traded on the Exchange in a substantially similar manner as
binary 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 priority and
execution, Market-Makers (including Market-Maker obligations), obvious
error,\28\ trading halt procedures, and clearing, will apply to the
listing and trading of binary 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 options on indexes (including
non-broad-based indexes). The Options Price Reporting Authority
(``OPRA'') also informed the Exchange it believes it has the necessary
systems capacity to handle the additional traffic associated with the
listing of new options that would result from this proposed rule
change. The Exchange does not believe Trading Permit Holders (``TPHs'')
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.
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\28\ The Exchange notes Rule 6.5, Interpretation and Policy .04
states that for purposes of the obvious error provisions in Rule
6.5(c), the adjusted price (including any applicable adjustment
under subparagraph (c)(4)(A) for non-customer transactions) may not
exceed the applicable exercise settlement amount for the binary
option. The proposed rule change amends the term ``exercise
settlement amount'' to ``exercise settlement value,'' as that is the
appropriate price comparison for the transaction price (which is
generally considered prior to application of the contract
multiplier). The exercise settlement value is similar the value of
settlement prior to application of the contract multiplier. This is
a technical change to reflect the intended purpose of this
provision.
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Today, the Exchange has an adequate surveillance program in place
for options. The Exchange intends to apply the same program procedures
to binary options the Exchange applies to its other options products
(which overly the same indexes on which the proposed rule change would
permit the Exchange to list binary options). Additionally, the Exchange
is a member of the Intermarket Surveillance Group (``ISG'') under the
Intermarket Surveillance Group Agreement. ISG members work together to
coordinate surveillance and investigative information sharing in the
stock, options, and futures markets. In addition, the Exchange has a
Regulatory Services Agreement with the Financial Industry Regulatory
Authority (``FINRA'') for certain market surveillance, investigation
and examinations functions. Pursuant to a multi-party 17d-2 joint plan,
all options exchanges allocate amongst themselves and FINRA
responsibilities to conduct certain options-related market surveillance
that are common to rules of all options exchanges.\29\ The Exchange
believes its existing surveillance procedures are designed to deter and
detect possible manipulative behavior which might potentially arise
from listing and trading the proposed binary options. Further, the
Exchange will implement any new surveillance procedures it deems
necessary to effectively monitor the trading of binary options.
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\29\ Section 19(g)(1) of the Securities Exchange Act of 1934
(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
(``common members''). 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.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\30\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \31\ requirements that the rules
of an exchange be 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 regulating,
clearing, settling, processing information with respect to, and
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.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \32\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
\32\ Id.
---------------------------------------------------------------------------
In particular, 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 additional classes, and with additional
settlements (A.M.- and P.M.-settlement for all binary index options).
The proposed binary options are listed options with a simpler, all-or-
none payout structure and limited risk profile compared to traditional
listed options.\33\ Thus, the Exchange believes the proposed rule
change will permit investors to manage
[[Page 21050]]
their risk exposures and carry 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 options in other markets (as further discussed below).
---------------------------------------------------------------------------
\33\ The Commission has previously recognized the benefits of
listing and trading binary options on a securities exchange. See
Securities Exchange Act Release No. 57850 (May 22, 2008), 73 FR
31169, 31172 (May 30, 2008) (SR-CBOE-2006-105) (``Binary BBI Option
Approval'') (``The Commission believes that binary options on broad-
based indexes will provide investors with a potentially useful
investment choice. The proposal will extend to these options the
benefits of a listed exchange market, which include a centralized
forum for price discovery, pre- and post-trade transparency,
standardized contract specifications, and the guarantee of the
OCC.'').
---------------------------------------------------------------------------
The Exchange believes expanding the universe of binary options to
non-broad-based indexes will benefit investors, particularly retail
investors and other investors who prefer simplicity, as a complementary
offering to current exchange-traded options. Buyers and sellers of
traditional, non-binary options listed on the Exchange do not know the
return on those options at the time of the transaction, as the return
cannot be determined until near the option's expiration given movements
in the underlying. For example, suppose an investor buys a traditional
index call option with an exercise price of 100. If the index value at
expiration is 105, the investor gets a payout of $5 (times the
multiplier for that option). If the index value at expiration is 110,
the investor gets a payout of $10 (times the multiplier for that
option). Therefore, the payout of a traditional index option is
dependent on how in-the-money the option is at expiration, which is
unknown until the time of expiration.
On the contrary, binary options offer a set payout if the
underlying closes at, below, or above the exercise price (depending on
the type of binary option). Buyers and sellers of binary options know
the expected return at the time of purchase if the underlying performs
as expected, as the return is a fixed, ``all-or-none'' amount. Using
the example above, suppose an investor buys a binary index call option
with an exercise price of 100 and an exercise settlement value) of $10.
If the index value at expiration is 105, the investor receives a payout
of $10 (times the multiplier for that option). In fact, if the index
value at expiration is any value of 100 or greater, the investor
receives that same payout. In addition, because the return on the
binary option is a set amount, a buyer of a binary option need not
determine the absolute magnitude of the underlying's value movement
relative to the exercise price, as is the case with traditional, non-
binary options. Instead, the buyer of a binary option needs only to
determine whether the underlying value is expected to be above, at, or
below the exercise price (as applicable).
The Exchange believes expanding the availability of binary options
will further protect investors because of the reduced risk of the
seller compared to the seller of a traditional option. While sellers of
traditional options have unlimited risk (as the payout amount increases
the further in-the-money the option is at expiration), the maximum
obligation for the seller of a binary option is known when the contract
is written, which is the fixed payout amount. The structure of binary
options offers investors pre- and post-trade transparency with respect
to the risk associated with their binary options trades. Binary options
on non-broad-based indexes will ultimately provide the same benefits to
investors as binary options on broad-based indexes.
The Exchange also believes the proposed rule change to expand
available underlying indexes for binary options and permit listing of
both A.M.- and P.M.-settled binary options 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.\34\ The proposed rule change
will permit the Exchange to list binary options overlying securities
indexes with similar terms 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 due to the role of OCC as issuer and
guarantor of all listed options. 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 options as a
standardized product without the credit 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
options is significantly reduced through the issuance and guarantee of
the contracts by OCC. 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.
---------------------------------------------------------------------------
\34\ Index options listed pursuant to generic listing criteria
in Rule 4.10 are eligible for A.M.-settlement, and thus pursuant to
the current Rule, all binary options overlying indexes that satisfy
that criteria would be eligible for A.M.-settlement. As noted above,
nearly all index options are currently eligible for P.M.-settlement,
so the proposed rule change provides for P.M.-settled binary options
for only two additional index options that the Exchange currently
lists for trading.
---------------------------------------------------------------------------
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
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 securities exchange may create a
centralized and standardized marketplace for these products, which
promotes price discovery and transparency, within a regulatory
framework designed to protect investors in securities. In other words,
the Exchange believes its proposal offers a more transparent platform
than the OTC market and other market platforms offer and would
contribute to leveling the playing field with these alternative
markets.
Additionally, the proposed rule change is consistent with the
requirements of the Act because binary options on securities indexes
are securities under the Act. The Act defines ``security'' as, among
other things, a ``put, call, straddle, option, or privilege on any
security . . . or group or index of securities (including any interest
therein or based on the value
[[Page 21051]]
thereof).'' \35\ Binary options on securities indexes, like non-binary
options on securities indexes, are puts and calls. The value of a
binary option is based on the value of the underlying index. As
securities, pursuant to Section 9(b)(1) of the Act, a person may effect
any transaction in connection with a binary option only in accordance
with Commission rules and regulations.\36\ Therefore, the Exchange
believes transactions in binary options on and securities indexes must
occur on a national securities exchange, subject to Commission
jurisdiction and oversight.
---------------------------------------------------------------------------
\35\ See 15 U.S.C. 78c(a)(10). The Exchange notes options on
securities indexes (and thus binary options on securities indexes)
are not swaps. See Statement on Tokenized Securities, Commission
Divisions of Corporation Finance, Investment Management, and Trading
and Markets (January 28, 2026), available at <a href="https://www.sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826?utm_medium=email&utm_source=govdelivery">https://www.sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826?utm_medium=email&utm_source=govdelivery</a> (``. . .
any put, call, straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities, including
any interest therein or based on the value thereof, that is subject
to the Securities Act [of 1933] and the Exchange Act, is excluded
from the definition of swap. When assessing whether a financial
instrument formatted as a crypto asset satisfies one of these
exclusions, the economic reality of the instrument rather than the
name given to the instrument determines whether it is excluded.'')
(cites excluded).
\36\ See 15 U.S.C.78i(b).
---------------------------------------------------------------------------
As discussed above, the Exchange has current Rules that permit the
listing of binary options on broad-based index options, which Rules
were approved previously by the Commission as being consistent with the
Act. This further indicates that binary options are securities under
the Act, subject to Commission jurisdiction and oversight.\37\ When
approving the Exchange's prior proposed rule change regarding the
listing and trading of binary options on broad-based security indexes,
the Commission described the terms of these options, including listings
standards, position limits, and margin, and found them to be consistent
with the Act.\38\ In connection with the Commission's approval of
trading binary options on the Exchange, OCC adopted rules pursuant to
which it could clear binary options.\39\ When approving OCC's proposed
rule change related to the clearing of binary options, the Commission
noted it met the requirements of Section 17A(b)(3)(F) of the Act \40\
because it would permit OCC to clear and settle binary options that had
been approved to be listed and traded on Cboe, which would promote the
``prompt and accurate clearance and settlement of such securities
transactions.'' \41\ The Commission also approved updates to the
Options Disclosure Document (``ODD'') in advance of the listing of
binary options on Cboe, as required by the Act.\42\ Rule 9b-1 under the
Act requires a broker-dealer to furnish a customer a copy of the ODD
prior to accepting an order from that customer for an option that is
subject to the ODD.\43\ Rule 9b-1 defines standardized options as
options contracts traded on national securities exchanges that relate
to options classes the terms of which are limited to specific
expiration dates and exercise prices, as well as other securities as
the Commission may, by order designate.\44\ The Commission's order
approving the ability of the Exchange to list binary options overlying
certain securities signified that binary options are standardized
options under the Act.\45\ As binary index options, as currently
available and as proposed, are standardized options to be traded on a
national securities exchange, the Exchange believes the proposed rule
change will benefit investors, as broker-dealers must provide the ODD
to customers, which describes the characteristics and risks associated
with trading binary options.
---------------------------------------------------------------------------
\37\ See Binary BBI Option Approval.
\38\ See id. at 31171-31172.
\39\ See Securities Exchange Act Release No. 56875 (November 30,
2007), 72 FR 69274 (December 7, 2007) (SR-OCC-2007-08) (which OCC
rules explicitly related to clearing binary options within the
definition of a ``security'' as determined by the Commission).
\40\ 15 U.S.C. 78q-1(b)(3)(F).
\41\ Id. at 69276 (emphasis added).
\42\ See Securities Exchange Act Release No. 58043 (June 26,
2008), 73 FR 38260 (July 3, 2008) (SR-ODD-2008-02).
\43\ See 17 CFR 240.9b-1(b).
\44\ See 17 CFR 240.9b-1(a)(4).
\45\ When describing the benefits of binary options, the
Commission described them as having ``standardized contract
specifications.'' See Binary BBI Option Approval at 31171.
---------------------------------------------------------------------------
Additionally, the Exchange believes the proposed position limits
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, and thus to protect
investors. The proposed position limits for binary options on non-
broad-based indexes are the same as those for binary options on broad-
based indexes under current Rules (subject to the per expiration change
described below) for all indexes. As these position limits are already
in the Rules (and thus previously approved by the Commission) and
applicable to binary index options, the Exchange believes the proposed
rule change reasonably balances the promotion of a free and open market
for these securities with minimization of incentives for market
manipulation. The Exchange believes it is appropriate to apply the same
position limits currently applicable to binary options on broad-based
indexes to binary options on all indexes because the position limits
are tied to the market capitalization of the underlying index.
Specifically, applying the same position limit to all binary index
options for which traditional options on the same index have no
position limit is appropriate because, for options on such indexes, the
Commission has found that concerns regarding market manipulation or
disruption in the underlying market are significantly reduced due to
the capitalization and thus liquidity of the markets of the
constituents of those indexes.\46\ With respect to binary index options
for which traditional options do have position limits, applying the
same position limit to all binary index options (including non-broad-
based index options) is appropriate because the proposed rule applies a
position limit based on the market capitalization of the underlying
index, with lower position limits corresponding to lower market
capitalizations. The susceptibility of an index to manipulation or
undue price influence is directly related to the depth and liquidity of
the markets for the component securities that comprise it, regardless
of the number of component securities.\47\ An index representing a
larger aggregate market capitalization reflects a deep, liquid pool of
underlying securities, the collective
[[Page 21052]]
pricing of which is substantially more difficult to influence through
trading in the options market. By scaling position limits to market
capitalization (which directly measures the economic depth of an
index), the proposed rule change applies position limits appropriately
sized to the actual manipulation risk presented by the specific index.
While in general a non-broad-based index may have a lower market
capitalization (and thus should have a lower position limit for options
on that index) because it has fewer components, it is certainly
possible for such an index to have a similar market capitalization to
that of a broad-based index and thus have reduced susceptibility to
manipulation in the same manner as a broad-based index with similar
market capitalization. The proposed rule change would, in such a
situation, would apply a position limit to the overlying options
appropriate for such an index rather than an unnecessarily lower
position limit to the options solely because of the classification of
the index.
---------------------------------------------------------------------------
\46\ See, e.g., See Securities Exchange Act Release No. 40969
(January 22, 1999), 64 FR 4911, 4913 (February 1, 1999) (SR-CBOE-98-
23) (order approving elimination of position limits for SPX
options). At present, no traditional option on a non-broad-based
index option has no position limits, so the proposed rule change has
no practical effect.
\47\ Index listing criteria impose various requirements on the
component securities related to market capitalization and liquidity,
which further reduces the risk that the markets for these index
options or the components of the underlying indexes would be
impacted by additional derivatives. For example, with respect to
narrow-based indexes, pursuant to Rule 4.10(b): (1) the market
capitalization for the lowest-weighted component securities in the
index that in the aggregate account for no more than 10% of the
weight of the index must be at least $50 million, and the market
capitalization of all other components must be at least $75 million;
(2) the trading volume in each component must be at least 1,000,000
shares for each of the last six months (from October 2024 through
March 2025, the lowest monthly trading volume for a component was
over 1.5 million shares), except that for each of the lowest-
weighted component securities in the index that in the aggregate
account for no more than 10% of the weight the index, the trading
volume must be at least 500,000 shares for each of the last six
months); and (3) no single component security may represent more
than 25% of the weight of the index, and the five highest-weighted
component securities in the index may not in the aggregate account
for more than 50% (60% for an index consisting of fewer than 25
component securities) of the weight of the index.
---------------------------------------------------------------------------
The Exchange also believes the proposed rule change to apply
position limits to binary options on a per expiration basis will
prevent fraudulent and manipulative acts and practices, promote just
and equitable principles of trade, and thus protect investors due to
the unique risk profile of binary options that distinguish them from
traditional (i.e., non-binary). Unlike traditional index options, for
which associated risk is distributed across a range of strikes and
expirations because investors may offset or hedge positions across
expirations, binary options are fixed-payout, all-or-nothing contracts
whose value is entirely dependent on the value of the underlying index
at a single point in time. Therefore, risk concentrates at the
expiration date itself since each expiration series represents an
independent and self-contained risk event. This makes the expiration
date the most economically meaningful unit for measuring and
constraining accumulated exposure of binary options. Limiting positions
in binary options across expirations (as is done for traditional
options) would not address the actual risk associated with the
settlement event specific to a binary option. As a result, the Exchange
believes an individual expiration is the most economically meaningful
time to limit positions in binary options, as obtaining positions in
binary options for one expiration generally have no impact on the value
of binary options for another expiration.\48\
---------------------------------------------------------------------------
\48\ This is consistent with the lack of exercise limits for
binary options.
---------------------------------------------------------------------------
Further, the Exchange believes subjecting hedged binary option
positions and strategies to higher position limits is consistent with
the Act because such positions and strategies create offsetting
exposure. As a result, a customer no longer has a directional interest
in the underlying, reducing the manipulation risk associated with those
positions that position limits are designed to address. Given the
investor benefits gained from hedged positions, the Exchange believes
applying higher position limits to these positions sufficiently
protects against the reduced potential for manipulation while not
artificially restricting bona fide activity intended to manage risk
exposure.
Position limits are designed to limit the number of options
contracts overlying a security or index traded on the exchange that an
investor, acting alone or in concert with others directly or
indirectly, may control. These limits are intended to address potential
manipulative schemes and adverse market impacts surrounding the use of
options, such as disrupting the market in the security or index
underlying the options. Position limits must balance concerns regarding
mitigating potential manipulation and the cost of inhibiting potential
hedging activity that could be used for legitimate economic purposes.
Position limits do not limit the total number of options that may be
held, but rather they limit the number of positions a single customer
may hold or exercise at one time. ``Since the inception of standardized
options trading, the options exchanges have had rules imposing limits
on the aggregate number of options contracts that a member or customer
could hold or exercise.'' \49\ Position limit rules are intended ``to
prevent the establishment of options positions that can be used or
might create incentives to manipulate or disrupt the underlying market
so as to benefit the options position.'' \50\ The Exchange believes the
proposed position limits applied on a per expiration basis reasonably
and appropriately balance the liquidity provisioning in the market
against the prevention of manipulation without unnecessarily
constraining investment activity.\51\ The Exchange believes these
proposed limits are effectively designed to prevent an individual
customer or entity from establishing options positions that could be
used to manipulate the market of the underlying.\52\
---------------------------------------------------------------------------
\49\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
\50\ See id.
\51\ The proposed application of higher position limits to
hedged positions and strategies contributes to this balanced design
\52\ See Securities Exchange Act Release No. 39489 (December 24,
1997), 63 FR 276 (January 5, 1998) (SR-CBOE-1997-11).
---------------------------------------------------------------------------
The Exchange also believes the proposed margin requirements for
binary index options (which are the current margin requirements for
binary options on broad-based indexes) are reasonable and will protect
investors, because they limit investors' risk exposure given that the
initial and maintenance margin requirements are equal to the maximum
risk exposure.\53\ As noted above, the Exchange may determine to impose
higher margin requirements than those proposed in respect of any binary
option position when it deems such higher margin requirements are
appropriate.\54\
---------------------------------------------------------------------------
\53\ See Rule 10.3(m).
\54\ See Rule 10.9.
---------------------------------------------------------------------------
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 with
the benefits of being 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 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.
A robust and competitive market requires exchanges to respond to
investors' evolving needs by regularly improving their offerings. When
Congress charged the Commission with supervising the development of a
``national market system'' for securities, Congress stated its intent
that the ``national market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed.'' \55\ Consistent with this purpose, Congress and the
Commission have repeatedly stated their preference
[[Page 21053]]
for competition, rather than regulatory intervention to determine
products and services in the securities markets.\56\ This consistent
and considered judgment of Congress and the Commission is correct,
particularly in light of evidence of robust competition in the options
trading industry. The fact that an exchange proposed something new is a
reason to be receptive, not skeptical--innovation is the life-blood of
a vibrant competitive market--and that is particularly so given the
continued internalization of the securities markets, as exchanges
continue to implement new products and services to compete not only in
the United States but throughout the world. Options exchanges
continuously adopt new and different products and trading services in
response to industry demands in order to attract order flow and to
increase their trading volume. This competition has led to a growth in
investment choices, which ultimately benefits the marketplace and the
public. The Exchange believes the proposed rule change will help
further competition by providing market participants with yet another
investment option for options listed on a national securities exchange.
---------------------------------------------------------------------------
\55\ See H.R. Rep. No. 94-229, at 92 (1975) (Conf. Rep.).
\56\ See S. Rep. No. 94-75, 94th Cong., 1st Sess. 8 (1975)
(``The objective [in enacting the 1975 amendments to the Exchange
Act] would be to enhance competition and to allow economic forces,
interacting within a fair regulatory field, to arrive at appropriate
variations in practices and services.''); Order Approving Proposed
Rule Change Relating to NYSE Arca Data, Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008)
(``The Exchange Act and its legislative history strongly support the
Commission's reliance on competition, whenever possible, in meeting
its regulatory responsibilities for overseeing the [self-regulatory
organizations] and the national market system. Indeed, competition
among multiple markets and market participants trading the same
products is the hallmark of the national market system.''); and
Regulation NMS, 70 FR at 37499 (observing that NMS regulation ``has
been remarkably successful in promoting market competition in [the]
forms that are most important to investors and listed companies'').
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe 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
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 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 margin and
position limits, as well as other rules applicable to binary options,
as described in this proposed rule change. To qualify for listing as a
binary option, an underlying index must meet the same initial and
maintenance listing criteria it must meet to underlie a traditional,
non-binary option. Except as set forth in the proposed rule change,
binary options will trade in the same manner as other options on the
Exchange.
The Exchange does not believe the proposed rule change will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act, because the
Rules of at least one other options exchange permit the listing of
similar products.\57\ Additionally, as noted above, substantively
similar products to binary index options, as currently available under
the Rules and as proposed, are available in the OTC market and various
other markets. Such products are based on the values of securities
indexes (as the proposed binary options are), including at the opening
and closing of trading (i.e., A.M.- and P.M.-settled) and other times
throughout the day. The proposed rule change will permit the Exchange
to list binary options on the same underlying indexes as these markets,
and do so with certain similar terms (two permissible settlements) as
the binary options listed on those markets. Ultimately, the proposal is
designed to increase competition for order flow in binary options.
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\57\ See NYSE American Options Rules, Section 17.
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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 due to the role of OCC as issuer and guarantor of all
listed options. 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
The Exchange neither solicited nor received written comments on 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
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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5c2e293039713f3331313932282f1c2f393f723b332a"><span class="__cf_email__" data-cfemail="3745425b521a54585a5a525943447744525419505841">[email protected]</span></a>. Please include
file number SR-CBOE-2026-032 on the subject line.
Paper Comments
<bullet> 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-CBOE-2026-032. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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
[[Page 21054]]
publication submitted material that is obscene or subject to copyright
protection. All submissions should refer to file number SR-CBOE-2026-
032 and should be submitted on or before May 11, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-07596 Filed 4-17-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on April 20, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.