[Federal Register Volume 91, Number 75 (Monday, April 20, 2026)]
[Notices]
[Pages 21063-21066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-07588]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105239; File No. SR-CBOE-2026-034]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
the Definition of ``Exercise Settlement Amount'' Applicable to Binary
Options
April 15, 2026
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 9, 2026, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have
[[Page 21064]]
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 the definition of ``exercise settlement amount'' applicable 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 (https://www.sec.gov/rules/sro.shtml), the
Exchange's website (https://www.cboe.com/us/options/regulation/rule_filings/bzx/), 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.\3\ 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.\4\
Rule 4.16(b) defines a binary option as a European-style option
contract having an exercise settlement amount that is established at
the creation of the option. 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.\5\ 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.\6\ Binary options are paid out if the settlement value
\7\ 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 \8\ 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).\9\ The Exchange designates binary
options as to expiration date, exercise price, exercise settlement
amount, contract multiplier, and underlying broad-based index.\10\
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\3\ The Exchange does not currently list binary options but
intends to begin listing binary options in upcoming months.
\4\ Pursuant to 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.
\5\ Pursuant to 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'').
\6\ See Rule 4.16(b) (definition of ``contract multiplier'').
\7\ 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).
\8\ 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 Rule 4.16(b)
(definition of ``exercise price'').
\9\ See Rule 4.16(b) (definitions of ``call binary option'' and
``put binary option'').
\10\ See Rule 4.16(c)(2).
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As noted above, current Rule 4.16(b) permits the exercise
settlement value for a binary option to be an amount determined by the
Exchange on a class-by-class basis equal to between $10 and $1,000.
Given the exercise settlement amount for a binary option equals the
exercise settlement value multiplied by the contract multiplier (which
must be at least 1), the current minimum permissible exercise
settlement amount for a binary option is therefore $10 (if the
multiplier for a binary option was 1 and the Exchange determined the
exercise settlement value to be $10). The Exchange proposes to reduce
the minimum exercise settlement value for a binary option to be $1,
making the minimum permissible exercise settlement amount for a binary
option to be $1 (if the multiplier for a binary option was 1 and the
Exchange determined the exercise settlement value to be $1). As the
standard multiplier for traditional options is 100, the proposed rule
change would permit the Exchange to list a binary option with the
typical multiplier of 100 to have an exercise settlement amount of $100
(i.e., 100 multiplier and exercise settlement value of $1).
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\11\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \12\ 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) \13\ requirement that the rules of an exchange not be
designed
[[Page 21065]]
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ Id.
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In particular, the Exchange believes the proposed rule change will
promote just and equitable principles of trade, 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 expands the range of permissible payout amounts for
binary options, notably for binary options with the standard multiplier
for traditional options is 100. Currently, if the Exchange listed a
binary option with a 100 multiplier, the lowest permissible exercise
settlement amount would be $1,000 (i.e., 100 multiplier times $10
exercise settlement value). The proposed rule change would permit the
Exchange to apply a standard 100 multiplier to a binary option so the
exercise settlement amount could be as low as $100. The Exchange
believes it would benefit investors to slightly increase the range of
permissible exercise settlement values (and thus exercise settlement
amounts) for binary options with a 100 multiplier given investors'
familiarity with that multiplier.\14\ The proposed rule change would
merely reduce the permissible lowest possible exercise settlement
amount for a binary option from $10 to $1, which is a minor change in a
range that currently has no maximum, as the Rules apply no maximum
multiplier. Additionally, as the purpose of the proposed rule change is
to permit a $100 exercise settlement amount for binary options with the
standard 100 multiplier, the Exchange notes current Rules of the
Exchange already permit an exercise settlement amount of $100 (e.g., a
binary option could have a multiplier of 1 and an exercise settlement
value of $100, or a multiplier of 10 and an exercise settlement value
of $10,). The proposed rule change merely permits the Exchange to
determine such an exercise settlement amount using a more common
multiplier with which investors are generally more familiar. As is the
case for any binary option, the exercise settlement amount will be
known to investors in advance, and they can determine whether to trade
a binary option with that exercise settlement amount.
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\14\ Investors are familiar with options with a multiplier of
100 because that is the multiplier for all equity and index options
listed on the Exchange (except for nanos). See Product
Specifications, available at https://www.cboe.com/tradable-products/product-list.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that 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 that 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 any exercise settlement
value amount determined by the Exchange for a binary option will apply
to all Trading Permit Holders in the same manner (as the exercise
settlement amount based on that exercise settlement value paid to any
holder of that binary option upon exercise of the contract will be the
same amount). The Exchange does not believe that the proposed rule
change will impose any burden on intermarket competition because the
rules of other exchanges currently permit an exercise settlement amount
of $100 for binary options with multipliers of 100,\15\ and the
proposed rule change will permit the Exchange to list binary options
with the same multiplier and exercise settlement amount. Further, other
exchanges that permit the listing of binary options on indexes may
amend their rules to permit the same exercise settlement value if they
choose.\16\
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\15\ See NYSE American, LLC (``NYSE American'') Section 17, Rule
900 (definitions of ``Finish High'' and ``Finish Low'', which
provide that an options contract returns $100 if it is in-the-
money). While this rule applies to binary options on equities and
the Exchange's Rules apply to binary options on indexes, binary
equity options function in substantially the same manner as binary
index options and result in a payout of a settlement amount if the
option is in-the-money, and the Exchange believes it is appropriate
to permit the Exchange to designate similar payout amounts for
binary options with the same common multiplier of 100 despite the
difference in the underlying.
\16\ The Exchange notes this payout amount is the same as the
payout amount for products structured in substantively the same
manner as binary options that are listed on other market platforms
not registered as national securities exchanges.
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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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) \18\ thereunder.
Because the foregoing proposed rule change does not: (i) significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; and (iii) become operative for
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, it has become effective pursuant to
Section 19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) \20\
thereunder.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6).
\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CBOE-2026-034 on the subject line.
Paper Comments
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-2026-034. 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 (https://www.sec.gov/rules/sro.shtml). Copies of the filing will be available for inspection and
copying
[[Page 21066]]
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 publication submitted material that is
obscene or subject to copyright protection. All submissions should
refer to file number SR-CBOE-2026-034 and should be submitted on or
before May 11, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-07588 Filed 4-17-26; 8:45 am]
BILLING CODE 8011-01-P