I. Introduction

On April 8, 2026, the Options Clearing Corporation (“OCC”), filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change to amend OCC's System for Theoretical Analysis and Numerical Simulation (“STANS”) Methodology Description to enable OCC to accept binary options for clearing and appropriately manage the risk created by binary options (hereinafter “Proposed Rule Change”). The Proposed Rule Change was published for comment in the Federal Register on April 15, 2026.^[3] For the reasons discussed below, the Commission is approving the Proposed Rule Change.

II. Background

OCC is a central counterparty (“CCP”), which means that, as part of its function as a clearing agency, it interposes itself as the buyer to every seller and seller to every buyer for certain financial transactions. As the CCP for the listed options markets in the United States,^[4] as well as for certain futures and stock loans, OCC is exposed to various risks arising from providing clearance and settlement services to its Clearing Members.^[5] Because OCC is obligated to perform on the contracts it clears, one such risk that OCC is exposed to is credit risk, including the risk that OCC would not maintain sufficient financial resources to cover exposures if one of its Clearing Members defaults. OCC manages such credit risk, in part, through financial safeguards, including the collection of margin collateral.

OCC previously cleared binary options and maintains rules addressing such products.^[6] however, OCC's margin methodology does not currently include a mechanism for calculating margin requirements for binary options. OCC ( printed page 31514) states that its Participant Exchanges have expressed interest in listing binary options for trading and OCC is proposing to accept binary options for clearing.^[7] OCC is now proposing changes to its margin methodology to support the clearing of European-style binary options.

To calculate margin requirements, OCC uses its STANS methodology.^[8] The STANS Methodology Description does not currently include a mechanism to price binary options or to generate the inputs necessary for margin calculations for such products because no Participant Exchanges listed binary products at the time OCC filed a proposed rule change to establish the STANS Methodology Description.^[9] As a result, OCC is proposing to update its STANS Methodology Description to enable the pricing of binary options and the calculation of corresponding margin requirements. Specifically, OCC is proposing to price binary options under a Black Scholes framework.^[10] The proposed approach utilizes the forward price of the underlying asset and the implied volatility of a corresponding vanilla option. OCC proposes to apply an adjustment term to align the theoretical price with observed market prices. The adjustment term could be used to account for price behavior resulting from illiquidity, such as for a given set of binary options at launch.

For margin calculations during the launch stage, implied volatility scenarios derived from corresponding vanilla options would be used as a proxy.^[11] As trading volume increases and market data becomes more available, OCC will consider transitioning to using bid and ask prices to derive the implied volatility of binary options. OCC would also apply its smoothing algorithm to construct an implied volatility surface for use in margin calculations that conforms to constraints related to bid and ask ranges,^[12] monotonicity,^[13] and put-call parity.^[14] Additionally, OCC is proposing to treat far out-of-the-money binary options such that the smoothed prices decay toward zero, reflecting the low probability of payoff.

To effectuate the model changes, OCC proposes to amend the STANS Methodology Description to incorporate binary options and to support the clearing and risk management of such products. Specifically, OCC is proposing to include binary options in the list of FLEX and exotic options set forth in section 1.2.3 of the STANS Methodology Description. OCC is also proposing to define binary options as European-style option contracts that pay a fixed amount at expiration if the settlement value of the underlying is equal to or exceeds the exercise price in the case of a call option or is less than the exercise price in the case of a put option. The underliers for binary options may include indexes, futures, equities, and similar instruments. Further, OCC proposes to include binary options among the products supported by its implied volatility smoothing algorithm. Finally, OCC is proposing to add a new section 2.3.5, titled “Binary Options,” which describes the pricing process for binary options as described above.

III. Discussion and Commission Findings

Section 19(b)(2)(C) of the Exchange Act requires the Commission to approve a proposed rule change of a self-regulatory organization if it finds that the proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to the organization.^[15] Under the Commission's Rules of Practice, the “burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization [`SRO'] that proposed the rule change.” ^[16]

After carefully considering the Proposed Rule Change, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to OCC. More specifically, the Commission finds that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Exchange Act,^[17] and Rule 17ad-22(e)(6)(i) thereunder, as described in detail below.^[18]

A. Consistency With Section 17A(b)(3)(F) of the Exchange Act

Section 17A(b)(3)(F) of the Exchange Act^[19] requires, among other things, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. Based on the Commission's review of the record, and for the reasons described below, the Proposed Rule Change is consistent with assuring the safeguarding of securities and funds which are in OCC's custody or control or for which it is responsible.

As described above, the STANS methodology, as modified by the proposed changes to the STANS Methodology Description, would provide for the calculation of margin requirements for binary options contracts, including in scenarios involving a Clearing Member default. In particular, the proposed changes would incorporate characteristics of binary options into the model and produce theoretical values used for margin calculations. Absent the proposed changes, OCC's margin methodology may not fully reflect the particular risk characteristics associated with binary options contracts. As a result, OCC may not collect sufficient margin collateral to address the risks posed by such positions in the event of a Clearing Member default.

By incorporating characteristics of binary options into OCC's margin ( printed page 31515) methodology, the proposed changes would support the calculation of margin requirements that more accurately reflect the risks associated with binary options products. More accurate margin calculations would improve OCC's ability to assess and manage its credit exposures associated with binary options positions, which increases the likelihood that OCC would collect sufficient margin collateral. Increasing the likelihood that OCC collects sufficient margin collateral to address risks associated with binary options positions would, in turn, help reduce the likelihood that OCC would need to utilize Clearing Fund contributions of non-defaulting Clearing Members to cover losses associated with such a default.

Accordingly, the proposed changes would help assure the safeguarding of securities and funds which are in OCC's custody or control or for which it is responsible. Therefore, the Commission finds that the Proposed Rule Change is consistent with the requirements of Section 17A(b)(3)(F) of the Exchange Act.^[20]

B. Consistency With Rule 17ad-22(e)(6)(i) Under the Exchange Act

Rule 17ad-22(e)(6)(i) under the Exchange Act requires that a covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to cover, if the covered clearing agency provides central counterparty services, its credit exposures to participants by establishing a risk-based margin system that, at a minimum considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market.^[21]

As described above, OCC proposes to update its STANS Methodology Description to support the clearing of European-style binary options, which OCC does not currently address in its margin methodology. OCC's initial adoption of the STANS Methodology Description was consistent with Rule 17ad-22(e)(6)(i) under the Exchange Act, in part, because it covered various components of STANS designed to address the particular attributes of the products that OCC clears, including European-style options, and described OCC's process for addressing the entrance of new products, such as identifying and separately processing risk factors with incomplete data sets that lack sufficient data.^[22]

The additions to the STANS Methodology Description are clearly designed to consider the risks and attributes of binary options products as well as the market for such products. With regard to the product itself, OCC's proposal to operate within a Black-Scholes options pricing framework initially using the forward price of the underlying asset and the implied volatility of the corresponding vanilla option to price a binary option is consistent with the consideration of the particular attributes of the binary options products.^[23] With regard to potential market issues such as illiquidity at the launch of a given binary option, the proposed methodology includes an adjustment term that is designed to capture differences between market prices and theoretical prices and ensure that the price of the binary option aligns with market price. Further, OCC will apply its smoothing algorithm, using market quotes, to ensure that prices conform to specific constraints related to bid-ask spreads, monotonicity, and put-call parity.

Accordingly, the Commission finds that the Proposed Rule Change is consistent with the requirements of Rule 17ad-22(e)(6)(i).^[24]

IV. Conclusion

On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, with the requirements of Section 17A(b)(3)(F) of the Exchange Act,^[25] and Rule 17ad-22(e)(6)(i) thereunder.^[26]

It is therefore ordered pursuant to Section 19(b)(2) of the Exchange Act ^[27] that the proposed rule change (SR-OCC-2026-003) be, and hereby is, approved.^[28]