Binary KPI options get FINRA broker rules as SEC order sets terms for Cboe Clear U.S.

Two regulatory steps, both dated 22 October, set out how binary options that pay out on a company’s reported figures will reach US brokerage customers. These options pay $1 or nothing depending on whether a figure such as quarterly revenue meets a threshold. They now fall within FINRA’s options, communications and margin rules. The SEC has also published the terms on which Cboe Clear U.S. (CCUS), not The Options Clearing Corporation (OCC), will clear them.

FINRA: Rules 2220, 2360 and 4210 now cover binary options

FINRA published Regulatory Notice 26-21 on 26 October. It says FINRA has amended Rule 2220 (Options Communications), Rule 2360 (Options) and Rule 4210 (Margin Requirements), and updated its margin interpretations, to address binary options. These include “options whose payout is based on the value of an issuer’s reported financial or operating metrics and options cleared by a registered clearing agency other than The Options Clearing Corporation (OCC)”. Conforming and clarifying updates were also made to Rules 2351 and 2357, which cover index warrants, currency index warrants and currency warrants.

The changes were made in SR-FINRA-2026-022, filed with the SEC on 22 October. The SEC’s notice of filing and immediate effectiveness (Release No. 34-106731) is dated 26 October. FINRA designated the filing non-controversial, which made it effective on filing. FINRA asked the SEC to waive the 30-day operative delay. The SEC agreed and designated the change “to be operative upon filing”. The amendments therefore took effect on 22 October 2026, as Notice 26-21 also states.

Amended Rule 2360 adds two defined terms (Notice 26-21, endnote 3):

• “Binary option” (Rule 2360(a)(2)): a cash-settled option whose exercise settlement amount is set when the option is created. The holder receives that amount only if, at expiration, the settlement value of the underlying security, index or metric equals or exceeds the exercise price (for a call), or is below it (for a put).
• “Underlying metric” (Rule 2360(a)(38)): “a metric underlying an option, including any financial or operating metric or condition on which an option’s payout is based.”

The SEC notice sets out the other changes for members:

• Clearing agency references. References to OCC in Rule 2360 are replaced with references to a “Registered Clearing Agency”. In Rule 4210, OCC references in definitions such as “exercise settlement amount” and “expiration date” now refer to “the Registered Clearing Agency that guarantees the option contract”.
• Disclosure documents. Members must deliver the options disclosure document of the clearing agency that issues the option, not only OCC’s.
• Position reporting. Positions are aggregated for reporting using the contract-equivalency conventions of the listing exchange. FINRA gives Cboe’s convention as an example: binary KPI options have a multiplier of one and standard equity options a multiplier of 100, so 100 binary KPI contracts equal one standard contract.

FINRA has also added four interpretations of Rule 4210: 4210(f)(2)(H)(i)/01 Binary Option Requirements, /02 Binary Option Spreads, /03 Binary Option Straddles or Similar Combinations, and 4210(f)(2)(N)(ii)/01 Binary Options. Neither the Notice nor the SEC release states the margin amounts in these interpretations. We have not reported any.

FINRA says several exchanges have filed to list these products, which it calls “binary metric options”, and that the SEC has approved at least one such proposal. Footnote 4 of the SEC notice cites the SEC’s 13 October order approving Cboe Exchange’s binary KPI options (Release No. 34-106659, 91 FR 65854). It also cites filings by MEMX, NYSE Arca, NYSE American and Nasdaq MRX. The Cboe order granted accelerated approval to the proposal as modified by Amendment No. 1. In Cboe’s rule text, which the order publishes, the contract multiplier is fixed at one. Cboe’s filing says that “pursuant to current margin rules, binary KPI options will be fully funded”, and that on launch the contracts will clear through CCUS, subject to CCUS’s approvals. We covered the approval on 13 October.

SEC: the terms of Cboe Clear U.S.’s temporary registration

On 22 October the SEC granted CCUS temporary registration as a clearing agency under Section 17A of the Exchange Act. We reported Cboe’s announcement on 26 October, before the order’s terms were available. The order (Release No. 34-106723; File No. 600-47) was published in the Federal Register on 27 October at 91 FR 67624. The registration runs for 18 months from the date of the order.

It comes with exemptions from parts of Sections 17A(b)(3)(B) and (F). These are needed because CCUS’s rules do not yet cover every category of participant the statute lists: registered clearing agencies, registered investment companies, banks and insurance companies. CCUS has said it is prepared to consider those categories during the temporary registration period.

Key terms, all taken from the order:

• Product. CCUS will provide central counterparty services for “cash settled, binary security options, including among others, security options overlying key performance indicators (‘KPIs’) reported by certain issuers of stock”. These Binary KPI Options will trade on Cboe Exchange, Inc.
• Fully margined, bounded payout. The contracts “will be fully margined”, and the payout is bounded at “$0.00 or a maximum payout of $1.00”. CCUS does not require margin to be prefunded, which leaves an “intraday settlement timing gap”. CCUS manages that gap with intraday margin calls based on near real-time monitoring of members’ exposure, and with its default waterfall.
• Who can clear. Clearing members for securities contracts must be registered broker-dealers (BD Clearing Members). The rules also allow Direct Clearing Members, which clear only for their own account and may not carry customer accounts. CCUS will offer customer, firm and market-maker accounts. Funds held for BD Clearing Members’ customers must be kept in a Securities Customer Account to satisfy Rule 15c3-3. Settlement obligations on Customer and PAB Accounts are not offset against a member’s own or market-maker accounts.
• Fee. CCUS’s fee schedule sets a clearing fee of $0.0002 per contract, which the order describes as “2 basis points”. The order says the fees became effective on 31 August 2026.
• Guaranty fund. Each clearing member must meet a Minimum Guaranty Fund Requirement of $100,000. An Exposure-Based Guaranty Fund Requirement also applies if CCUS’s Default Financial Resources Requirement exceeds its Corporate Contribution plus all members’ minimum deposits. The Default Financial Resources Requirement is the amount needed to withstand the default of the two clearing members, including affiliates, that generate the largest exposures in extreme but plausible market conditions.
• Assessments. If a single clearing member defaults, CCUS may assess non-defaulting members up to 300% of their required Guaranty Fund Deposit. For multiple defaults the limit is 600%. Assessments come only after the defaulter’s margin and deposits, CCUS’s contributed capital and the mutualised guaranty fund have been used.
• Corporate structure. CCUS is an indirect, wholly owned subsidiary of Cboe Global Markets. It is registered with the CFTC as a derivatives clearing organisation and clears cash-settled index futures on digital asset indices. Its board has seven directors: a chair, four independent directors and two market-participant directors.

The one comment letter

The SEC received one comment letter, from PTG, dated 8 September, and a response from CCUS dated 25 September. According to the order, PTG supported temporary registration as a “stopgap” and a “time-limited bridge” for bringing the products to market. It was “fully opposed” to CCUS becoming a “permanent fixture” of the listed options market as a second fully registered clearing agency alongside OCC.

PTG also opposed adding a “vertically integrated clearing structure” of the kind seen in the US futures market, where, in its description, each major exchange group operates its own clearing house. It argued that a more fragmented structure could raise costs: higher clearing fees, capital inefficiency where positions could not be offset across clearing agencies, and the loss of portfolio margining benefits. The order also records PTG’s statement that its members are “frustrated with OCC’s pace of innovation” and that OCC cannot currently clear Binary KPI Options.

The SEC said PTG’s points relate to permanent registration and “are more appropriately addressed in any future Commission order related to permanent registration”. It added that the risks and costs of changes to the structure of the listed options market “will be evaluated during the period of CCUS’s temporary registration by the Commission and market participants alike”. The order says the SEC has “long viewed cross-margining arrangements between separately registered clearing agencies as a well-established mechanism for achieving margin efficiencies”.

A note on the CFTC’s event-contract rulemaking

The products above are SEC-regulated securities options. Separately, on 19 October the CFTC published a proposed rule (91 FR 66022) that would further define “swap” to include event contracts, “including those based on sports-, politics-, cultural-, and weather-related events”. Comments are due by 18 November 2026. The proposal notes that certain event contracts “may be security-based swaps or other instruments subject to the SEC’s jurisdiction”.

The same day, the CFTC published an interim final rule (91 FR 65969), effective 19 October, that excludes casino-style gambling products from the swap definition. We covered the interim final rule when the CFTC released it on 9 October, ahead of its Federal Register publication. We also covered the event-contracts proposal on 23 October.

Why it matters

• Broker readiness. FINRA’s changes are already in effect. Firms offering binary KPI options must apply FINRA’s options account, communications and disclosure rules to a product whose disclosure document comes from CCUS, not OCC. Options-approval workflows and disclosure-document delivery processes that assume OCC is the only issuer will need review.
• Position reporting. Under the 100-to-1 contract-equivalency convention, systems that count raw contracts would overstate binary KPI positions relative to standard options. Product-level multipliers will be needed for position reporting.
• A separate clearing relationship. Clearing these contracts directly means membership of CCUS, with a $100,000 minimum guaranty fund deposit, assessments of up to 300% or 600% of the required deposit, and intraday margin calls. The order notes CCUS’s stated intention to pursue cross-margining arrangements. None is described as in place.
• Market structure question left open. The SEC has deferred PTG’s objections to any permanent registration decision. It has said the market-structure risks and costs will be evaluated during the 18-month temporary period.

What we are watching

• Which clearing agencies the MEMX, NYSE Arca, NYSE American and Nasdaq MRX products would use, if approved.
• Any cross-margining arrangement between CCUS and OCC.
• CCUS’s progress on the participant categories not yet covered by its rules, and any application for permanent registration.