SEC Approves Cboe's Binary KPI Options: What the Approval Leaves Open for CFTC Event Contracts
By R Tamara de Silva | De Silva Law Offices, LLC | October 16, 2026
Prediction markets let people trade yes-or-no contracts on future events. In the United States, most of these contracts trade on exchanges regulated by the CFTC. Some turn on a public company's reported results, such as whether its quarterly revenue will beat a set number. That raises a question the law has not clearly answered: is a contract like that a swap regulated by the CFTC, or a security regulated by the SEC? The answer decides which agency oversees the contract, where it can trade and which insider trading rules apply. On October 13, the SEC gave its answer for one version of that contract.
It approved a Cboe Exchange rule allowing binary options on more than 100 figures that 23 companies report with their earnings. They range from Apple's iPhone sales to Tesla's Model 3 and Model Y production. Each contract is designed to pay $1 or nothing, depending on whether the reported figure lands above or below a set level. The SEC treats them as standardized securities options, not swaps. The approval came four days after the CFTC proposed a rule that would define event contracts as swaps within its own jurisdiction. The order itself recognizes that products on the same figures may be structured differently and fall under the CFTC instead.
The two actions suggest the agencies are working out where the line between them falls. Neither has said which contracts on a company's results belong on the CFTC's side of that line.
What the SEC Approved: How Cboe's Binary KPI Options Work
Cboe calls the product binary KPI options. KPI stands for key performance indicator. Cboe's rule defines it as a key financial or operating metric that a company discloses in an earnings-related SEC filing, such as a Form 8-K, 10-Q or 10-K. The rule names 23 companies and the specific figures Cboe may list for each. They include Apple, Alphabet, Amazon, Microsoft, Nvidia, Meta, Tesla, JPMorgan Chase, Netflix, Disney, Coinbase, Robinhood and SpaceX. The list is written into Cboe's rules, so adding a company or a figure would take another rule filing. Nothing in the rule requires the companies' consent.
Many of the figures are headline results: diluted earnings per share, revenue and net income. Others are segment results, such as Amazon Web Services sales or Nvidia's data center revenue. Some are operating figures rather than accounting results: Meta's daily active people, Robinhood's funded customers, Coinbase's trading volume and the bitcoin production of MARA Holdings (formerly Marathon Digital).
The contracts are built on the same framework as the binary options on stock indexes that Cboe's rules already allow. A call pays $1 if the reported figure equals or exceeds the strike, and a put pays $1 if the figure comes in below it. Otherwise the contract expires worthless. Cboe sets strikes around the most recently reported figure, the company's own guidance or the analysts' consensus. Each series expires on the day the company releases its results. It settles to the figure in the earnings filing the company submits to the SEC, usually a Form 8-K with the earnings release attached. A later restatement does not change the payout.
A few other features matter to anyone who trades them. The contracts must be paid for in full; they cannot be bought on margin. Positions are capped at the equivalent of 25,000 standard option contracts for each KPI and expiration. Because 100 KPI contracts count as one, that works out to 2.5 million contracts. If a figure is never reported, the clearinghouse's fallback rules may settle the contract at its last closing price. In Cboe's example, a holder would receive 76 cents instead of $1 or nothing. Cboe may also halt trading if a figure leaks before the company releases it.
At launch, the contracts would clear through Cboe Clear U.S., a Cboe affiliate, rather than the Options Clearing Corporation, which clears U.S. listed options today. Cboe Clear U.S.'s application to register as a clearing agency is still pending at the SEC. Cboe has told the SEC it will not list the contracts until the clearing approvals are in place. Robinhood will be the first retail broker to offer them, and both firms have said they will waive their fees through the end of 2026. Cboe had targeted an October launch but has not announced a date.
Are Binary KPI Options Securities or Swaps?
Which agency regulates these contracts depends on what they are, and two statutes compete for them. The Commodity Exchange Act (CEA) gives the CFTC exclusive jurisdiction over swaps traded on the exchanges it regulates (7 U.S.C. § 2(a)(1)(A)). Its definition of swap includes a contract whose payment depends on whether "an event or contingency associated with a potential financial, economic, or commercial consequence" occurs (7 U.S.C. § 1a(47)(A)(ii)). The Securities Exchange Act of 1934 defines a security to include "any put, call, straddle, option, or privilege on any security." The definition reaches an option on "any interest therein" and one "based on the value thereof" (15 U.S.C. § 78c(a)(10)).
The CEA resolves part of the overlap itself. It excludes from the swap definition any option on a security that is subject to the securities laws (7 U.S.C. § 1a(47)(B)(iii)). So if a binary KPI option is an option based on the value of a security, it is not a swap at all.
The SEC found that Cboe's contracts meet that definition (Exchange Act Release No. 34-106659, 91 Fed. Reg. 65854 (Oct. 16, 2026)). It relied first on the phrase "based on the value" of a security. The SEC reads that phrase to include "any option whose pricing in the secondary market moves in relation to the value of the underlying security or securities." Citing accounting research going back to 1968, the SEC reasoned that stock prices move with the results companies report. Each of Cboe's contracts, it concluded, "is correlated with the value of the issuer's stock."
The SEC also found that the contracts are options on an "interest in" a security. A shareholder holds a pro rata claim on the company's net assets, and the value of that claim is tied to measures such as earnings per share. Both lines of reasoning draw on the SEC's 2007 approval of Cboe's credit default options, which paid out if a company suffered a defined credit event.
Cboe's filing, which the order reproduces, offered a fallback argument. It said that if binary KPI options were not excluded from the swap definition as securities options, they "would likely meet the definition of 'security-based swap.'" That definition reaches a swap based on an event relating to a single issuer, where the event "directly affects the financial statements, financial condition, or financial obligations of the issuer" (15 U.S.C. § 78c(a)(68)(A)(ii)(III)). Security-based swaps fall under the SEC, not the CFTC. On Cboe's view, these contracts end up under the securities laws either way.
Kalshi, which operates a CFTC-designated exchange, filed a comment letter on August 5. It said it "welcomes any competition" from the new contracts, but asked the SEC to institute proceedings and defer final action. Kalshi wanted the SEC to consider comments on the agencies' joint request about the swap definitions first, and to wait for action on Cboe's clearinghouse application and the related rule and plan changes. It also argued that the 2007 precedent is a poor fit, because it came before Dodd-Frank placed single-name credit instruments in the security-based swap category.
Rothera Exchange and Clearing, a CFTC-registered exchange and clearinghouse formed as a joint venture between Robinhood and Susquehanna, made similar requests. Rothera said it "takes no position" on whether the contracts should ultimately trade. But it argued that they "do not settle on the price or value of a security" and instead settle on operating metrics. The investment firm Paradigm also asked the SEC to wait. Robinhood's brokerage subsidiaries, by contrast, supported the proposal and agreed that the contracts are securities options.
The SEC did not institute proceedings. On October 13, the deadline it had set for itself, it approved the rule as modified by Cboe's Amendment No. 1, on an accelerated basis. In the order, the SEC responded to the objections. Whether a product is a security under the Exchange Act "is within the [SEC's] statutory authority," the order says, and once the SEC found the rule consistent with the statute, it "must approve" it. The 2007 precedent, the SEC added, is "instructive, but not dispositive." It also noted that the comment period on the joint request had closed. As for clearing, putting a rule into effect is "a separate matter from" approving it, so the pending clearing approvals did not require the SEC to wait.
In our view, the SEC's reasoning is most straightforward for earnings per share, revenue and net income, the figures investors plug into valuation models. The fit is less obvious for some operating figures, such as Tesla's count of Supercharger connectors or Palantir's count of closed deals worth at least $1 million. The SEC nonetheless found that every contract on Cboe's list meets its test. Whether that distinction matters on the CFTC side is a separate question. There, the test is the security-based swap definition, not the definition of a securities option.
How the SEC's Approval Fits With the CFTC's Event Contract Proposal
The order and Chairman Atkins's statement both stress the order's limits. The SEC's finding "speaks solely" to these contracts on a securities exchange. The order recognizes that similar products on the same figures "may be structured in different ways and be subject to CFTC jurisdiction." Its findings are "non-exclusive," and it "does not foreclose other markets from structuring derivative instruments overlying KPIs as other products." Atkins presented the order as reflecting "a new spirit of harmonization."
On October 9, the CFTC issued a proposed rule that would add to its definition of swap "[e]vent contracts, including those based on sports-, politics-, cultural, and weather-related events" (proposed 17 C.F.R. § 1.3). The proposal calls that list non-exhaustive. Chairman Michael Selig said the products "are commodity derivatives squarely within the CFTC's regulatory remit." The same day, the CFTC issued an interim final rule, effective on publication in the Federal Register, codifying its view that casino-style gambling products, including sportsbook wagers and casino games, are not swaps. Together, the two releases address a question the CFTC left open in a Ninth Circuit amicus brief earlier this year: where swaps end and wagers begin. We examined that gap in March.
Two details in the proposal bear on the Cboe order. In a footnote, the proposal states that "[t]he SEC joins in proposing this rule," as Dodd-Frank requires when the agencies further define the term swap (15 U.S.C. § 8302(d)(1)). The proposal also says it does not further define "security-based swap" and "does not address or otherwise relate to matters within the jurisdiction of the SEC."
Read side by side, the two releases suggest a division of labor. The SEC joined a proposal that would treat event contracts on sports, politics, culture and weather as swaps under the CFTC. The CFTC's proposal leaves security-based swaps and other SEC matters alone. And the SEC's order on KPI options is limited, by its own terms, to listed options on a securities exchange.
Kalshi, Rothera and Paradigm each argued that approving Cboe's product first would get ahead of questions the agencies had already raised. Those questions appear in their June 18 joint request for comment on the swap and security-based swap definitions. When that request issued, Atkins called clarification of those definitions "long overdue," including for "event-based products." The order addresses that concern by confining its findings to Cboe's contracts as structured. It does not decide what a contract on the same figure is when it trades on a CFTC-regulated exchange.
Where Do KPI Contracts on CFTC-Regulated Exchanges Fit?
Kalshi already lists "KPI markets" on the figures that make up a company's quarter and "mention markets" on what is said during earnings calls. In August it gathered them in a Public Companies Hub. Neither agency has said where contracts like these fall, and the statute does not draw the line cleanly.
The starting point is the security-based swap definition, which has two relevant clauses. One covers a swap on an event relating to a single issuer, if the event directly affects the issuer's financial statements, financial condition or financial obligations. The other covers a swap based on "a single security," including "any interest therein or on the value thereof" (15 U.S.C. § 78c(a)(68)(A)(ii)(II)). Security-based swaps, other than mixed swaps, are carved out of the CEA's swap definition (7 U.S.C. § 1a(47)(B)(x)) and regulated by the SEC.
The classification matters for retail access. Most retail traders are not "eligible contract participants." Under the CEA, they may trade swaps only on a CFTC-designated exchange (7 U.S.C. § 2(e)). Under the Exchange Act, they may trade security-based swaps only on a registered national securities exchange (15 U.S.C. § 78f(l)).
The CFTC's own proposal acknowledges the issue but does not resolve it. A footnote observes that event contracts "might be structured as other instruments such as futures contracts." It adds that "[c]ertain event contracts may be security-based swaps or other instruments subject to the SEC's jurisdiction." It does not say which ones.
Cboe's fallback argument was about its own contracts. Whether the same reasoning reaches a contract on the same figure listed on a CFTC-regulated exchange is the open question. Contracts on company results fall roughly into three groups.
The first is a contract on a headline financial result, such as quarterly revenue or earnings per share. This is the closest case for security-based swap treatment, but the text points both ways. The event clause asks whether an event "directly affects" the financial statements. Rothera's letter argued that metrics like these "report the issuer's financial condition after the fact; they do not themselves affect the financial statements." The SEC's "based on the value" reasoning could also be applied to the single-security clause. But Congress wrote a specific clause, with its own limit, for events relating to a single issuer, and the SEC's order recognizes that products on the same figures may fall under the CFTC.
The second is a contract on an operating figure, such as daily active users or vehicle production. The SEC found that stock prices move with figures like these, which is how options on them qualified as securities. But a change in user counts or production is not itself an entry in the financial statements. That makes it less clear that it "directly" affects them. Figures like these are where the same number could plausibly support both a securities option on Cboe and a swap on a CFTC-regulated exchange.
The third is a contract on something a company says or does that is not a reported figure at all. One example is whether an executive uses a particular phrase on an earnings call. Another is whether a product launches by a set date. These events relate to a single issuer, but in many cases it is hard to see how they directly affect its financial statements. Contracts like these probably have the strongest claim to being swaps under the CFTC.
Neither the order nor Atkins's statement is limited to any one of these categories. Both leave room for CFTC jurisdiction over contracts on the same KPIs as Cboe's, which include earnings per share and revenue. Atkins's statement refers to contracts "structured to fall under the CFTC's jurisdiction." Neither document says what that structure would be. The answer is most likely to come from the joint work on the swap definitions, which both agencies have to approve. Until then, it will remain unclear which side of the SEC–CFTC line some of these contracts fall on.
Insider Trading in Binary KPI Options and Event Contracts
Classification also decides which insider trading regime applies, and here the Cboe contracts are on familiar ground. Because they are securities, trading them on material nonpublic information can violate Section 10(b) of the Exchange Act and Rule 10b-5. That includes the misappropriation theory the Supreme Court approved in United States v. O'Hagan, 521 U.S. 642 (1997), a case about a lawyer who bought call options. FINRA already conducts insider trading surveillance for the U.S. options markets, and Cboe has said it will work with FINRA to adapt that surveillance to KPI options. Trades will also be reported to the Consolidated Audit Trail, as other options trades are. The SEC found that this framework will "help to deter insider trading." Surveillance on prediction markets faces its own limits, which we discussed in April.
The CFTC has its own tools for trading on confidential information. It has used its anti-fraud authority, Section 6(c)(1) of the CEA and CFTC Rule 180.1, against trading on misappropriated information. In May, it sued a Google software engineer who allegedly traded Polymarket contracts on Google's Year in Search rankings using confidential company data (CFTC v. Spagnuolo, No. 1:26-cv-04419 (S.D.N.Y.)). Federal prosecutors filed a parallel criminal complaint. These are allegations, not findings. We discussed that case in May. That article also covered the criminal case against an Army master sergeant accused of trading Polymarket contracts on classified information, which we returned to in August.
For employees of the 23 companies, the legal risk is similar under either regime. Trading on the company's confidential results can lead to liability. The difference is that KPI options will look routine. They will be bought through a regular brokerage account and will settle on the company's own SEC filing. Many corporate insider trading policies already cover options on company stock. They may not mention options on company metrics, and some say nothing about event contracts at all.
Operating figures raise a further issue. Earnings per share is usually known to a small group before release. Daily active users, production counts and customer totals may be visible on internal dashboards to engineers, product managers and plant staff. The Spagnuolo complaint alleges the same kind of internal access. Blackout periods that cover only designated insiders may not reach the people who see these numbers first. Our May article, When Everyone Is an Insider, looked at how prediction markets have strained insider trading law.
Robinhood is both one of the 23 issuers and the first retail broker to offer the contracts, and its own funded-customer and Gold-subscriber counts are on the list. The companies on Cboe's list, Robinhood included, would do well to review their insider trading policies, preclearance procedures and training now, before the first series lists.
What to Watch After the SEC's KPI Options Approval
The next step is Cboe's clearinghouse. Cboe Clear U.S. amended its application on October 1, and the SEC has not yet acted on it. Cboe has also committed to propose changes to two industry plans, the OPRA plan for options price reporting and the plan that governs listing new options series. Certain provisions of both plans refer only to the Options Clearing Corporation.
Similar products are already in the queue. NYSE Arca and NYSE American have each filed a proposal to list binary KPI options. MEMX has a pending proposal to list what it calls "securities event contracts," binary yes-or-no options on questions about a listed company's financial performance, and the SEC has until November 25 to act on it. The SEC's order says Cboe's terms are "designed to help facilitate multi-listing."
On the CFTC side, comments on the event contract proposal and the interim final rule are due 30 days after each is published in the Federal Register. Although the proposal does not reach security-based swaps, its comment period is one place to ask the agencies to address contracts on company results. Whether event contracts are swaps is also a central question in the sports event contract litigation, including the Illinois case we discussed earlier this month. Petitions asking the Supreme Court to hear those cases are pending, and our state-by-state map tracks them.
The last thing to watch is demand. Cboe has listed binary products before. Its filing notes that its earlier binary options on the S&P 500 and the VIX, and its credit default options, all stopped trading years ago. How much retail interest these contracts draw, and how much liquidity market makers provide around earnings releases, will show whether exchange-listed options can compete with prediction markets for this kind of trading.
Near the end of his statement, Chairman Atkins wrote that decades of SEC–CFTC "turf wars" had "left a void of unrealized financial products in their wake." Cboe's KPI options are meant to fill part of that void on the securities side, and they may not be the last. The SEC's test, whether a contract's price moves with the issuer's stock, could reach many more companies and figures than the 23 on Cboe's list. The order also designates the contracts as standardized options, which brokers can offer through the same accounts and disclosures they use for other listed options.
In our view, though, this looks more like a template for contracts tied to public companies than a move of event contracts to the SEC. Contracts on interest rates, inflation, elections, weather and sports have no security behind them, so they are likely to stay with the CFTC. The probable result is two parallel markets, overlapping where CFTC-regulated exchanges already list KPI contracts. Where the line between them falls will depend on what the two agencies do next with the swap definitions. Lines the agencies draw without new legislation can also be redrawn, a risk we discussed after the Clarity Act failed in the Senate in September.
De Silva Law Offices, LLC advises clients on both sides of the SEC–CFTC line, in derivatives, securities and prediction markets. The firm represents exchanges, intermediaries, market participants and new entrants in the prediction market and event contract space, on matters including CFTC and NFA registration, compliance and enforcement defense. Our prediction markets and event contracts practice advises exchanges, intermediaries, and market participants on CFTC registration, compliance, enforcement defense, and the intersection of federal derivatives regulation and state gaming laws. Questions about this article may be directed to info@desilvalawoffices.com or 312-500-8424.
NB: This article is commentary on a matter of public record and is not legal advice. Reading it does not create an attorney-client relationship. R Tamara de Silva is the Managing Partner of De Silva Law Offices, LLC, Chicago, and writes on financial regulation, derivatives and prediction markets.