The Securities and Exchange Commission (SEC) has approved Cboe's proposal to list binary options tied to corporate performance, paving the way for event-based trading on a major securities exchange. Robinhood is expected to be the first retail broker to offer these new contracts, which allow investors to take positions on specific company results. Meanwhile, legal challenges for prediction market operators Kalshi and Polymarket continue in Kentucky, as a federal magistrate judge has recommended that enforcement lawsuits against them be returned to state court.
SEC Approval Expands Event-Based Trading
The SEC's decision allows Cboe to list options contracts based on corporate key performance indicators, such as product sales or advertising revenue. Unlike traditional stock options, these products focus on specific business outcomes rather than share prices. Both Cboe and Robinhood plan to waive trading fees for these contracts through the end of 2026, aiming to attract retail participation. The move brings event-based trading further into mainstream financial markets, under the regulatory framework of the SEC rather than the Commodity Futures Trading Commission (CFTC).
Jurisdictional Questions Remain
While the SEC's approval marks progress for event-based contracts, it does not resolve broader questions about regulatory oversight. SEC Chairman Paul Atkins emphasized that the order does not address or preclude CFTC jurisdiction over similar products. The longstanding debate between the SEC and CFTC over which agency should regulate event-based trading continues, though the approval signals increased cooperation between the two regulators.
Legal Pressure on Prediction Market Operators
In Kentucky, a federal magistrate judge has recommended that lawsuits against Kalshi and Polymarket be remanded to state court. If this recommendation is adopted, the operators could face state-level injunctions and geofencing requirements, similar to those imposed in other states. The cases center on whether federal law preempts state gambling regulations for event contracts. Meanwhile, Underdog has filed a federal lawsuit against Tennessee following a cease-and-desist order related to its event-contract activities, citing recent CFTC rulemaking in its defense.
Why This Matters for the Industry
The SEC's approval of Cboe's corporate options introduces a new regulatory route for event-based trading, potentially providing more clarity and legitimacy for operators and affiliates. However, ongoing legal battles and regulatory uncertainty—especially at the state level—mean that the landscape for prediction markets remains complex. Operators, suppliers, and affiliates must closely monitor evolving federal and state actions to ensure compliance and adapt their strategies accordingly.
Key takeaways
- The SEC has approved Cboe's binary options based on corporate performance, with Robinhood set to launch them to retail investors.
- Jurisdiction over event-based trading remains contested between the SEC and CFTC.
- Legal actions against Kalshi and Polymarket in Kentucky may proceed in state court, raising compliance risks.
- Operators face a shifting regulatory environment and must stay alert to both federal and state developments.