SEC Seeks Comment on MEMX Proposal to List Binary Options on Issuer Financial Metrics
The SEC sought comment on a MEMX LLC proposal to list and trade cash-settled binary options based on whether an issuer's reported financial metrics meet specified thresholds.
These "securities event contracts" would be European-style binaries tied to whether a reported metric, such as earnings or revenue, meets or exceeds a set level. MEMX could initially select up to 25 issuers ranked in the top 25 of National Market System stocks by market cap, equities volume, or options volume, plus any issuer whose securities event contracts or similar options are already listed and traded on another exchange under SEC-approved rules. Those issuers would not count against the 25. Four contract types would be allowed: Earnings, Revenue, Sales, and Other Key Financial Metric Contracts, with the last limited to metrics reported in SEC filings.
The structure would be long-only: users buy a "yes" or "no" contract paired with a complementary bid so the two prices sum to $1, with individual bids capped between $0.01 and $0.99 to prevent execution at or above the maximum payout. MEMX said this differs from a competing Cboe Exchange proposal for "binary KPI options," which would allow both purchases and sales and permit executions above $1.
Contracts would expire on the date an issuer first discloses the relevant metric, with expirations allowed up to 12 months from listing. Settlement would rely on an exchange official applying pre-published terms to the specified disclosure source, with no revisions even if the metric is later restated.
Position limits would mirror those for the issuer's standard equity options, applied per expiration, with 100 securities event contracts equal to one standard option contract.
Exercise prices would be scaled to keep them readable. MEMX would divide the issuer's most recently reported value of the metric by one thousand, million, billion, or trillion, depending on size. Values below one thousand would not be scaled.
Comments are due 21 days after Federal Register publication.