The SEC Cleared Cboe’s $1 KPI Options and Left the Door Open for the CFTC

The Securities and Exchange Commission on Oct. 13 approved a Cboe rule change that lets the exchange list binary options on key performance indicators reported by 23 companies, according to SEC Release No. 34-106659. A binary option here is a contract that pays a fixed $1 or nothing, depending on whether a company’s published number clears a strike. The KPIs come from the issuer’s earnings-related filings, not from the stock price.

Bloomberg Law called Cboe the first securities exchange to list options tied to performance metrics for publicly traded companies. Cboe filed the proposal on June 30, and the Commission gave it accelerated approval of the amended filing.

What settles to $1

The contracts are European-style and cash-settled, meaning they can be exercised only at expiration and pay cash rather than delivering shares. Sample KPIs named in the order include Apple’s iPhone net sales and Services revenue, Amazon’s AWS net sales, Tesla’s Model 3 and Model Y production counts, Nvidia’s Data Center revenue, Palantir’s count of closed deals of at least $1 million, and Robinhood’s funded customers, ARPU and Gold subscriber count.

Position limits are set at 25,000 standard option contracts per expiration, with 100 binary KPI contracts counting as one standard contract. That caps the theoretical payout on one side of a single expiration at about $2.5 million. Ordinary listed equity options settle against stock prices. These settle against a line in a filing.

Cboe can halt trading if it sees an “unofficial disclosure” of the KPI before the official filing.

Who commented

Kalshi’s chief compliance officer, Sudhir Jain, wrote the Commission on Aug. 5 arguing that Cboe’s legal basis “relies principally” on a credit-default-options order from before the Dodd-Frank Act, the order summarizes. Robinhood’s president, Matt Billings, wrote the same day that the product fills “a genuine gap” and would let investors “hedge idiosyncratic risk embedded in discrete KPIs.”

Robinhood is also one of the 23 issuers whose reported numbers can become contracts. The same firm that argued for the product sits on the list next to Apple, Amazon, Tesla, SpaceX and Disney.

Two agencies, one number

SEC Chair Paul Atkins wrote that the approval “does not address, and does not foreclose, CFTC jurisdiction over KPI contracts based on the same underlying KPIs” when those contracts are structured to fall under the Commodity Futures Trading Commission. The CFTC is the futures and swaps regulator. Atkins said decades of jurisdictional “turf wars” between the two agencies had “frustrated innovation,” and he framed the order as reflecting “a new spirit of harmonization.”

The order itself calls its findings “non-exclusive” and notes that similar products with the same underlying KPIs may be structured differently and sit under the CFTC. The same iPhone-sales number can therefore live on a securities exchange and, separately, on a CFTC venue.

The missing piece

Nothing lists yet. Cboe told the Commission it will clear the contracts through Cboe Clear US, and that it will not list binary KPI options until that clearinghouse’s temporary clearing-agency registration and related filings are approved. Clearing is the step that guarantees each $1 settlement gets paid.

Coverage has treated the approval as the product arriving, but the order says listing waits on Cboe Clear US. What the Commission cleared is a securities-exchange version of a number that can still show up under a different rulebook, and the $1 payout waits on the clearinghouse that has to fund it.