Today, the Commission voted to approve a security exchange’s proposed rule change to allow the listing of binary options overlying specified key performance indicators (“KPIs”) reported by certain issuers of stock. I appreciate the Staff’s hard work in developing the approval order.
As described in the approval order, the binary KPI options would be listed and traded on a securities exchange as cash-settled, European-style, standardized options that are NMS securities subject to the protections afforded by the securities laws. These options would be subject to the rules of a securities exchange and would be listed and traded in a substantially similar manner as existing, standardized, non-binary options that already trade on securities exchanges. These binary KPI options would be subject to securities exchange rules governing customer accounts; margin requirements; trading halt procedures; auction mechanisms; market-maker appointments and quoting obligations; order types; times-in-force; and order instructions. As the approval order states, this context helps to provide core investor protections under the securities laws.
As the order emphasizes, the order speaks solely to the trading of these specific binary options contracts on a securities exchange that lists and trades standardized options on securities in compliance with the securities laws. The order does not address what may be similar products with the same underlying KPIs as the binary options described in the order structured in different ways. The SEC’s approval order today does not address—and does not foreclose—CFTC jurisdiction over KPI contracts based on the same underlying KPIs as those contemplated in the approval order structured to fall under the CFTC’s jurisdiction.
For decades, jurisdictional “turf wars” between the SEC and the CFTC have frustrated innovation and left a void of unrealized financial products in their wake. Today’s approval order, however, reflects a new spirit of harmonization, innovation, and investor choice, removing unnecessary obstacles to the lawful introduction of novel financial instruments within our markets.