FINRA has amended its broker-dealer rules to explicitly cover binary options based on company performance metrics, preparing for products including Cboe’s forthcoming KPI contracts.
The amendments clarify how brokers should apply the existing listed-options framework to these contracts, from approving customers to supervising trades and setting margin.
They took effect on 22 October, four days before FINRA published Regulatory Notice 26-21.
FINRA said several national securities exchanges had filed proposals for binary options tied to figures reported by public companies. It did not identify the exchanges or say the amendments were adopted exclusively for Cboe or Robinhood.
Existing Broker Rules Now Cover Company Metrics
A binary metric option pays a fixed amount if the reported figure meets a specified condition at expiration. Otherwise, it expires without a payout.
FINRA has added formal definitions for “binary option” and “underlying metric” to Rule 2360. The latter can include a company’s reported financial or operating performance, allowing the existing options rulebook to apply beyond securities prices and market indices.
For brokers, that means options related communications and account-approval standards also apply when the contract is based on a company metric.
Firms must meet the corresponding supervision and position-reporting requirements. FINRA also clarified how its margin rules apply to binary options, including spreads and straddles.
Cboe is preparing one such product. Its planned options would cover more than 100 corporate metrics across 23 companies, including Nvidia’s data-centre revenue and Tesla’s vehicle production. Robinhood is expected to become the first retail broker to offer them.
Non-OCC Clearing Rules Prepare the Ground
A separate change addresses who clears the contracts. FINRA’s rules previously contained references centred on The Options Clearing Corporation, the conventional clearing house for US listed options.
They now also cover options cleared by another registered clearing agency. Cboe plans to clear its KPI options through Cboe Clear U.S. The SEC has approved the exchange’s listing proposal and granted the clearing house temporary registration on 22 October.
Cboe confirmed the approval the following day. Those approvals and FINRA’s amendments bring the product closer to launch, but trading has not started. Cboe is targeting the fourth quarter of 2026 and has not announced a date.
This article was written by Tanya Chepkova at www.financemagnates.com.
