A new regulatory filing could broaden the scope of binary-style derivatives available on U.S. options markets. Nasdaq MRX LLC filed a proposed rule change with the U.S. Securities and Exchange Commission (SEC) on March 2 to introduce Outcome-Related Options tied to major Nasdaq indexes.
Nasdaq MRX is a U.S. options exchange operated by Nasdaq that lists and trades standardized equity and index options. In its submission under Section 19(b)(1) of the Securities Exchange Act of 1934, the exchange outlined the creation of a new section of its rulebook titled “Options 3B – Outcome-Related Options.” The filing states:
“The exchange’s proposal adopts rules at new Options 3B to govern the listing and trading of cash-settled, European-style binary options referred to as Outcome-Related Options or ‘OROs.’”
“The exchange proposes to list and trade OROs on the Nasdaq-100 Index (NDX) as ‘Nasdaq-100® OROs.’ The Exchange also proposes to list and trade OROs on the Nasdaq100 Micro Index (XND) as ‘XND OROs,’” the filing further details.
The contracts would provide a fixed payout at expiration depending on whether the settlement value of the underlying index is at, above, or below a specified exercise price, distinguishing them from traditional index options whose returns vary with the magnitude of price movement.
The proposal clarifies that the products would fall under SEC oversight rather than the Commodity Futures Trading Commission (CFTC). The document also characterizes binary options as securities under 15 U.S.C. § 78c(a)(10), reinforcing that the regulatory framework is within the SEC’s jurisdiction. There is no discussion of CFTC supervision in the filing.
Under the proposed structure, each ORO contract would have a $100 contract multiplier and a fixed exercise settlement amount of $100, with premiums ranging from $0.01 to $1.00 and minimum trading increments of $0.01. The products would be P.M.-settled, with settlement values derived from the Nasdaq Closing Cross pursuant to Nasdaq Equity 4, Rule 4757. MRX also proposes a position limit of 25,000 contracts on the same side of the market, separate from other broad-based index options, and indicates that OROs would not qualify for standard position limit exemptions. The exchange states that its existing surveillance programs, participation in the Intermarket Surveillance Group, and regulatory services agreement with FINRA would extend to ORO trading, and represents that both it and the Options Price Reporting Authority have adequate systems capacity to support the additional series.
- What is Nasdaq proposing with its new binary options?
Nasdaq plans to launch SEC-regulated yes-or-no contracts tied to the Nasdaq 100 and Nasdaq 100 Micro Index. - How do Outcome Related Options signal market expectations?
Prices between $0.01 and $1.00 reflect the implied probability of a specific index event occurring. - Why is the prediction market sector attracting major exchanges?
Some industry estimates suggest prediction market annual volume could approach $325 billion. - What does this mean for traditional derivatives markets?
It reflects potential overlap between regulated exchanges and event-driven derivatives trading.
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