The U.S. Securities and Exchange Commission approved a proposed rule change from an exchange to list binary options linked to certain key performance indicators, or KPIs, reported by some stock issuers, according to a statement released Oct. 13 by SEC Chair Paul S. Atkins. The order allows those products to trade on a securities exchange as cash-settled, European-style, standardized options and treats them as National Market System, or NMS, securities protected under federal securities laws.
The statement said the listing and trading framework will generally mirror that used for existing standardized non-binary options. The contracts will be subject to exchange rules covering customer accounts, margin, trading halts, auction mechanisms, market maker appointments and quoting duties, order types, time-in-force, and order instructions.
The approval is narrowly defined. It applies only to the specified binary option contracts when traded on securities exchanges that comply with securities laws and list standardized securities options. It does not extend to similar products based on the same KPIs if those products use a different structure. The SEC also said the order neither addresses nor rules out the jurisdiction of the U.S. Commodity Futures Trading Commission over contracts tied to the same KPIs if they are structured to fall within the CFTC’s authority.
The U.S. Securities and Exchange Commission voted on Oct. 13 to approve a proposed rule change from an exchange, allowing the listing of binary options tied to certain key performance indicators, or KPIs, reported by some stock issuers, SEC Chair Paul S. Atkins said in a statement.
How the approved products will trade
Under the approval order, the binary KPI options will be listed and traded on a securities exchange as cash-settled, European-style, standardized options. They will also be treated as National Market System, or NMS, securities and protected under securities laws.
The statement said their listing and trading framework will be broadly similar to that of existing standardized non-binary options. The contracts will be subject to exchange rules covering customer accounts, margin, trading halts, auction mechanisms, the designation of market makers and their quoting obligations, order types, time-in-force, and order instructions.
Scope of the approval
The order applies only to the specific binary option contracts described in the approval and only when they are traded on securities exchanges that comply with securities laws and list and trade standardized securities options.
It does not cover similar products tied to the same KPIs if those products are structured differently.
CFTC jurisdiction not addressed
The statement also said the approval order does not address, and does not preclude, the jurisdiction of the U.S. Commodity Futures Trading Commission, or CFTC, over contracts based on the same KPIs if those contracts are structured to fall within the CFTC’s jurisdiction.
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