I. Introduction

On April 2, 2026, Cboe Exchange, Inc. (“Exchange” or “Cboe”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) ^[1] of the Securities Exchange Act of 1934 (“Act”) ^[2] and Rule 19b-4 thereunder,^[3] a proposed rule change that would permit the Exchange to list binary options on any index upon which it may list traditional, non-binary options; permit A.M.- and P.M.-settlement for all binary index options traded on the Exchange; and amend the position limits applicable to binary index options traded on the Exchange such that, among other things, the limits would apply on a per-expiration basis. The proposed rule change was published for comment in the Federal Register on April 20, 2026.^[4] On June 2, 2026, pursuant to Section 19(b)(2)(A)(ii)(I) of the Act,^[5] the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.^[6] On July 13, 2026, the Exchange submitted Amendment No. 1 to the proposed rule change, which amended and superseded the proposed rule change in its entirety.^[7] The Commission received comment on the proposal.^[8] The Commission is publishing this Notice and Order to solicit comment on Amendment No. 1 in Sections II and III below, which sections are being published verbatim as filed by the Exchange, and to approve the proposed rule change, as modified and superseded by Amendment No. 1, on an accelerated basis.

II. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

Cboe Exchange, Inc. (the “Exchange” or “Cboe Options”) proposes to amend its Rules related to binary options. The Exchange initially submitted this rule filing SR-CBOE-2026-032 on April 2, 2026 (the “Initial Rule Filing”). This Amendment No. 1 supersedes the Initial Rule Filing and replaces it in its entirety. This Amendment No. 1 narrows the scope of the proposed rule change from permitting binary options to be listed on any non-broad-based index to the Cboe Magnificent 10 Index and to provide additional support for the proposal. The text of the proposed rule change is provided in Exhibit 5.

The text of the proposed rule change is also available on the Commission's website ( https://www.sec.gov/​rules/​sro.shtml), the Exchange's website ( https://www.cboe.com/​us/​options/​regulation/​rule_​filings/​cone/​), and at the principal office of the Exchange.

III. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. ( printed page 46206)

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

The Exchange proposes to amend its Rules related to binary options. Binary options are based on the same framework as traditional, standardized options traded on the Exchange, except the payout of a binary option is an amount contingent upon the occurrence of the option being in- or at-the-money rather than the degree to which the option is in-the-money. As a result, payout at expiration of a binary option is an all-or-nothing occurrence. Current Rule 4.16 permits the Exchange to list binary options on broad-based indexes.^[9] Current Rule 4.16(b) defines a binary option as a European-style option contract having an exercise settlement amount ^[10] that is established at the creation of the option. Under current Rules, binary options are paid out if the settlement value ^[11] of the underlying broad-based index equals, exceeds, or is less than the exercise price, depending on the type of option ( i.e., call or put). A call binary option is an option contract that returns an exercise settlement amount if the settlement value of the underlying broad-based index is at or above the exercise price ^[12] at expiration ( i.e., in- or at-the-money), while a put binary option is an option contract that returns an exercise settlement amount if the settlement value of the underlying broad-based index is below the exercise price at expiration ( i.e., in-the-money).^[13] The Exchange designates binary options as to expiration date, exercise price, exercise settlement amount, contract multiplier, and underlying broad-based index.^[14]

Currently, the Exchange may from time to time approve for listing and trading on the Exchange binary option contracts on a broad-based index that has been selected in accordance with Rule 4.10 and the Interpretations and Policies thereunder.^[15] The Exchange may add new series of options of the same class as provided for in Rule 4.13 and the Interpretations and Policies thereunder. Additional series of the same binary option class may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market or to meet customer demand (the opening of a new series of binary options on the Exchange will not affect any other series of options of the same class previously opened).^[16] After a particular binary option class has been approved for listing and trading on the Exchange, the Exchange from time to time may open for trading series of options on that class. In order to afford investors maximum flexibility, binary option series may expire from one day up to 36 months from the time they are listed.^[17] Binary options will be quoted based on the existing strike intervals utilized for traditional, non-binary index options ^[18] with minimum price variations, established by class, to be no less than $0.01.^[19]

The proposed rule change moves the Rule provisions regarding binary options from current Rule 4.16 to new Chapter 4, Section H, which section will relate specifically to binary index options. Specifically, the proposed rule change: ^[20]

• moves current Rule 4.16(a) to the introductory language for proposed Section H;
• moves the defined terms in current Rule 4.16(b) to proposed Rule 4.70;
• moves the provisions from current Rule 4.16(c)(1) and (d) regarding the listing and maintenance criteria for binary index options to Rule 4.71(a);
• moves the provision regarding binary index options being a separate class from the traditional options with the same underlying from current Rule 4.16(c)(1) to Rule 4.71(b);
• moves the provision regarding the designated terms of binary index options from current Rule 4.16(c)(2) to the introductory language of proposed Rule 4.72; ^[21]

• moves the provision regarding settlement of binary index options from current Rule 4.16(b) (the provision that binary index options have European-style settlement) and 4.16(c)(2) to proposed Rule 4.72(a);
• moves the provision regarding permissible expirations of binary index options from current Rule 4.16(c)(3) to proposed Rule 4.72(b);
• moves the provision regarding additional series of binary index options from current Rule 4.16(c)(4) to proposed Rule 4.72(c);
• moves the provision regarding the determination of the settlement value from current Rule 4.16(e) to proposed Rule 4.73;
• moves the provision regarding adjustment of binary index options from current Rule 4.16(f) to proposed Rule 4.74;
• moves the provision regarding the availability of Flexible Exchange (“FLEX”) options for binary index options from current Rule 4.16(g) to proposed Rule 4.21(c); and ( printed page 46207)
• moves the provision regarding position limits for binary index options to Rules 8.35(e) and 8.36.

While there is no current definition of the term “market capitalization ratio” in the Rules, that term is effectively defined in current Rule 8.36(b) as the ratio of the market capitalization of a broad-based index underlying a binary index option to the market capitalization of the S&P 500 Index. The proposed rule change creates a defined term of “market capitalization ratio” in proposed Rule 4.70, which means the ratio of the market capitalization of an index to the market capitalization of the S&P 500 Index. This is equivalent to the meaning of that term in the current Rules but expanded to apply to any index rather than just broad-based index, as the proposed Rules regarding all binary index options reference that term.

The proposed rule change also adds a definition of “binary option” to Rule 1.1. Specifically, the proposed rule change defines “binary option” as an option contract having an exercise settlement amount that is established at the creation of an option and only two possible payoff outcomes: either a fixed amount equal to the exercise payout amount or nothing at all. Unless the context otherwise requires, references in the Rules to binary options apply to binary index options. This is consistent with the current definition of binary option in current Rule 4.16(b) and provides additional detail regarding how binary options work. The proposed definition is also consistent with the definition of binary option in the Options Disclosure Document.^[22]

In addition to the relocation of and nonsubstantive changes to the provisions of current Rule 4.16 regarding binary index options as described above, the proposed rule change amends the current Rules regarding the availability of binary index options to (1) permit the listing of binary options on the Cboe Magnificent 10 Index; and (2) permit A.M.-settlement and P.M.-settlement for all binary index options.

First, the proposed rule change would make binary index options available on the Cboe Magnificent 10 Index (in addition to broad-based indexes). Currently, the Exchange may list binary index options only on broad-based index options. Proposed Rule 4.71(a) provides that the Exchange may from time to time approve for listing and trading on the Exchange binary option contracts on a broad-based index that satisfies the initial listing criteria in Rule 4.10 and the Interpretations and Policies thereunder and on the Cboe Magnificent 10 Index. The Exchange may currently list traditional ( i.e., non-binary) options on the Cboe Magnificent 10 Index (“MGTN options”) pursuant to Rule 4.10(b).^[23] The Exchange believes being able to list binary MGTN options will provide more investors with access to a securities exchange-listed product with the simplified, limited risk structure of binary index options.

Second, the Exchange proposes to amend the Rules regarding permissible settlements of binary index options. Pursuant to proposed Rule 4.72(a), the Exchange may designate binary index options as A.M.-settled or P.M.-settled. Current Rule 4.16(c)(2) provides that binary index options on broad-based index options for which traditional ( i.e., non-binary) options on the same broad-based index are A.M.-settled will be A.M.-settled, and binary index options on broad-based indexes for which traditional options on the same broad-based index are P.M.-settled will be P.M.-settled. Currently, nearly all of the traditional broad-based index options the Exchange lists for trading and MGTN options can be both A.M.-settled and P.M.-settled.^[24] Therefore, current Rule 4.16 would permit the Exchange to list A.M.-settled and P.M.-settled binary index options overlying most broad-based indexes on which the Exchange lists non-binary options. Permitting both A.M.- and P.M.-settlement for binary index options for all broad-based indexes and the Cboe Magnificent 10 Index will afford investors further flexibility (coupled with the flexibility of permissible expirations, as noted above) with respect to their investment strategies, regardless of the index option market in which investors participate. Additionally, the Exchange believes it is appropriate to be able to list A.M.- and P.M.-settled binary index options to provide investors with the same flexibility currently available for similar products currently available on other trading platforms (as further discussed below).

In connection with the proposed rule change described above to permit P.M.-settlement for all binary index options, the Exchange proposes to amend Rule 5.1(b)(2)(C) to provide that on their last trading day, Regular Trading Hours (“RTH”) for P.M.-settled binary index options may be effected on the Exchange between 9:30 a.m. and 4:00 p.m.^[25] (as opposed to the 9:30 a.m. to 4:15 p.m. RTH for non-expiring binary index options).^[26] The primary listing markets for the component securities comprising the indexes underlying options listed on the Exchange close trading in those securities at 4:00 p.m. The primary listing exchanges for the component securities disseminate closing prices for the component securities, which are used to calculate the exercise settlement value of these indexes. The Exchange believes that, under normal trading circumstances, the primary listing markets have sufficient bandwidth to prevent any data queuing that may cause any trades that are executed prior to the closing time from being reported after 4:00 p.m. If trading in expiring P.M.-settled binary index options continued an additional fifteen minutes until 4:15 p.m. on their last trading day, these expiring options would be trading after the exercise settlement value for those expiring options was calculated. Therefore, in order to mitigate potential investor confusion and the potential for increased costs to investors as a result of potential pricing divergence at the end of the trading day, the Exchange believes it is appropriate to cease ( printed page 46208) trading in the expiring P.M.-settled binary index options at 4:00 p.m., which is currently the case for P.M.-settled non-binary index options. The Exchange does not believe the proposed rule change will impact volatility on the underlying cash market comprising the indexes at the close on expiration days, as it already closes trading on the last trading day for expiring P.M.-settled non-binary index options overlying the same indexes at 4:00 p.m. The Exchange does not believe this has had an adverse impact on fair and orderly markets on expiration days for the underlying securities comprising the corresponding indexes.

The Exchange currently only lists P.M.-settled OEX options. As is the case for other index options (except VIX options), the settlement value for P.M.-settled OEX options is the closing value of the index value on the expiration date. The Exchange began listing OEX options for trading prior to the Exchange's adoption of listing rules for index options (as set forth in Rule 4.10), and when the Exchange began listing OEX options, the Exchange designated them as P.M.-settled, which was the standard settlement type of index options at the time. Like all other traditional P.M.-settled index options the Exchange lists for trading, the settlement value of OEX options is the closing value of the underlying index on the expiration date. The settlement value for binary OEX options (if the Exchange were to determine to list them) would be determined in the same manner as all other binary index options (both A.M.-settled and P.M.-settled) — specifically, the opening or closing value, respectively, of the index on the expiration date would be the settlement value. Permitting the Exchange to list both A.M.-settled and P.M.-settled binary OEX options would provide investors with the same flexibility for binary options on this index that would be available to all other binary broad-based index options on which the Exchange may currently list binary index options (other than VIX options).

As noted above, VIX options are currently A.M.-settled only. The settlement value for these options is calculated as a special opening quotation using a modified opening auction process on exercise settlement value determination days pursuant to Rules 4.13(a)(5)(B) and 5.31(j). This is different than other index options, for which the settlement value is the current index value at the expiration of the option (either the opening value (if A.M.-settled) or the closing value (if P.M.-settled) of the index on the expiration date). It is for this reason VIX options are currently only A.M.-settled. However, binary VIX options, as proposed, may be A.M.-settled or P.M.-settled because the settlement value for binary VIX options will be, like all other binary index options, the reported opening or closing level of the underlying index (and therefore not calculated pursuant to a special quotation). This is consistent with the current binary index option rules today that state the settlement value for all binary index options that are A.M.-settled will be the reported opening level of the underlying index, which applies to binary VIX options. Therefore, the Exchange believes it is appropriate to permit the listing of binary VIX options that are P.M.-settled.

The Exchange also proposes to amend the position limits for binary options in Rule 8.36. Current Rule 8.36 provides that the position limit for binary options on a broad-based index will be 15,000 contracts if the exercise settlement is $10,000 (or 15,000 times the ratio of 10,000 to the exercise settlement amount if the exercise settlement amount is not $10,000) if traditional ( i.e., non-binary) options on the same broad-based index have no position limit pursuant to Rule 8.31. For binary options on a broad-based index for which traditional options on the same broad-based index do have a position limit pursuant to Rule 8.31, the position limit for the binary index option (if the exercise settlement amount is $10,000) is:

• 10,000 contracts if the market capitalization ratio for the index is greater than or equal to 0.50;
• 5,000 contracts if the market capitalization ratio is less than 0.50 but greater than or equal to 0.25; or
• 2,500 contracts if the market capitalization ratio is less than 0.25 but greater than or equal to 0.10.^[27]

For binary options that have an exercise settlement amount that is not equal to $10,000, the position limit is the ratio of 10,000 to the exercise settlement amount multiplied by the applicable amount set forth above.

The proposed rule change expands the fixed and formulaic limits to all indexes that may underlie binary options as proposed ( i.e., all broad-based indexes (as currently permitted) and the Cboe Magnificent 10 Index) and applies the proposed position limits on an expiration basis.^[28] Specifically, the proposed rule change amends Rule 8.36(a) to provide that the position limit for binary options for which the traditional options on the same index have no position limit pursuant to Rules 8.30 through 8.32, as applicable,^[29] is the number of contracts equal to 15,000 times the ratio of 10,000 to the exercise settlement amount per expiration.^[30] The proposed rule change amends Rule 8.36(b) to provide that for binary options for which traditional options on the same index have a position limit pursuant to Rules 8.30 through 8.32, as applicable, the position limit is the number of contracts equal to the ratio of 10,000 to the exercise settlement amount multiplied by the number of contracts set forth in the table below (based on the market capitalization ratio of the underlying index) per expiration: ^[31]

For reference, the table below sets forth the approximate market capitalizations that would equate to the above ratios based on a market capitalization of the S&P 500 Index of $62.5 trillion as of February 20, 2026: ( printed page 46209)

Pursuant to current Rule 8.36(c), positions in binary options on the same broad-based index with different exercise settlement amounts will be aggregated with each other and, pursuant to current Rule 8.36(d), will not be aggregated with non-binary option contracts on the same broad-based index. The proposed rule change amends these provisions to apply to all binary index options. Therefore, pursuant to proposed Rule 8.36(d), binary index options, which include binary options on any broad-based index and the Cboe Magnificent 10 Index as proposed, will not be aggregated with non-binary options on the same index.^[32]

Current Rule 8.36(f) provides that binary options are not subject to the hedge exemption to the standard position limits in Rule 8.30 and instead exempts certain qualified hedge exemption strategies and positions from the position limits established in Rule 8.36(a) and (b). The proposed rule change amends Rule 8.36(f) to provide that notwithstanding Rules 8.36(a) and (b), position limits for the hedged positions and strategies defined below are equal to five times the position limit established under proposed Rule 8.36(a) and (b). In other words, the proposed rule change imposes a position limit on these hedged positions and strategies higher than the position limit for non-hedged positions and strategies but no longer fully exempts them from position limits, as is the case under current Rules. As proposed, this same higher position limit would apply to hedged strategies and positions in binary MGTN options as well. The following strategies and positions would qualify for these increased position limits (which are the strategies and positions exempt from position limits for binary options established in current Rule 8.36):

• a binary option position “hedged” or “covered” by an appropriate amount of cash to meet the settlement obligation (e.g., $1,000 for a binary option with an exercise settlement amount of $1,000);
• a binary option position “hedged” or “covered” by a sufficient amount of a related or similar security to meet the settlement obligation; and
• a binary option position “hedged” or “covered” by a traditional option covering the same underlying index (which includes, among other strategies, a vertical spread with strikes reasonably close ^[33] to the binary option strike) sufficient to meet the settlement obligation.

Pursuant to Rule 8.42(h), binary options are not subject to exercise limits. This is currently the case for binary index options on broad-based indexes and will be the case for binary index options on Cboe Magnificent 10 Index. Binary index options, as discussed above, are European-style and are automatically exercised at expiration if the settlement value of the underlying index is equal to or greater than the exercise price of a call binary option or less than the exercise price in the case of a put binary option.^[34] Exercise limits are intended to prevent a single investor from exercising a number of option contracts that could potentially manipulate the value of the underlying. Because investors have no discretion regarding whether to exercise their binary index options due to their automatic exercise at expiration, there is no need for exercise limits.

As set forth in Rule 8.35(d), positions in FLEX binary index options (including binary options on broad-based indexes, as are permitted today, and binary options on the Cboe Magnificent 10 Index, as proposed) will not be aggregated with positions in non-FLEX binary index options. While this is true today, the proposed rule change proposes to add this language to proposed Rule 8.35(e) for additional transparency. The proposed rule change also adds the following provisions to proposed Rule 8.35(e) to clarify how certain provisions regarding aggregation and nonaggregation of positions for purposes of calculating position limits will apply to FLEX binary index options:

• positions in FLEX binary index options on the same index that have different exercise settlement amounts are aggregated (this is consistent with current Rule 8.36(c) with respect to non-FLEX binary index options, and the proposed language merely adds clarification regarding how this will apply to FLEX binary index options; ^[35] and

• in determining compliance with the position limits set forth in Rule 8.36, FLEX binary options are not aggregated with non-binary index option contracts (FLEX or non-FLEX) on the same or similar underlying security or index. In addition, FLEX binary options on an index are not aggregated with non-binary option contracts (FLEX or non-FLEX) on an underlying stock or stocks included within such index, and FLEX binary options on one index are not aggregated with binary options (FLEX or non-FLEX) on any other index (this is consistent with current Rule 8.36(d) with respect to non-FLEX binary index options, and the proposed language merely adds clarification regarding how this will apply to FLEX binary index options).

With respect to reports related to position limits, proposed Rule 8.43(f) provides that in computing reportable binary options under Rule 8.43, as is the case today for binary index options on broad-based indexes and will be the case for binary index options on the Cboe Magnificent 10 Index as proposed:

(1) positions in binary index options on the same index that have different exercise settlement amounts are aggregated;

(2) positions in binary index options are not aggregated with non-binary option contracts on the same or similar underlying security or index; ( printed page 46210)

(3) positions in binary index options are not aggregated with non-binary option contracts on an underlying security or securities included within the underlying index; and

(4) positions in binary index options on one index are not aggregated with binary index options on any other index.

All binary index options as proposed will not be subject to Rule 8.46(b) and Interpretation and Policy .01 regarding certain restrictions on options transactions and exercises. Rule 8.46(b) applies only to American-style options (as noted above, binary options are European-style), and Rule 8.46, Interpretation and Policy .01 applies only to options that are settled by delivery of an underlying security (as noted above, binary options are settled by delivery of a settlement value in cash).

The margin requirements in Rule 10.3(m) (currently applicable to binary index options on broad-based indexes) will apply to all binary index options. Specifically, for a margin account, except as provided below, no binary option carried for a customer may be considered of any value for purposes of computing the margin required in the account of such customer. The initial and maintenance margin required on any binary option carried long in a customer's account is 100% of the purchase price of such binary option ( i.e., the premium). The Exchange notes margin required for binary index options is more robust than that required for traditional index options, the margin rules for which permit various offsets. The initial and maintenance margin required on any binary option carried short in a customer's account is the exercise settlement amount. With respect to spreads, no margin is required on a binary call option (put option) carried short in a customer's account that is offset by a long binary call option (put option) for the same underlying security or instrument that expires at the same time and has an exercise price that is less than (greater than) the exercise price of the short call (put). The long call (put) must be paid for in full. With respect to straddles and combinations, when a binary call option is carried short in a customer's account and there is also carried a short binary put option for the same underlying security or instrument that expires at the same time and has an exercise price that is less than or equal to the exercise price of the short call, the initial and maintenance margin required is the exercise settlement amount applicable to one contract. The Rules of OCC also subject binary index options to OCC's margin and risk management methodology.^[36]

For a cash account, a binary option carried short in a customer's account is deemed a covered position, and eligible for the cash account, provided any one of the following either is held in the account at the time the option is written or is received into the account promptly thereafter:

(1) cash or cash equivalents equal to 100% of the exercise settlement amount; or

(2) a long binary option of the same type (put or call) for the same underlying security or instrument that is paid for in full and expires at the same time, and has an exercise price that is less than the exercise price of the short in the case of a call or greater than the exercise price of the short in the case of a put; or

(3) an escrow agreement. The escrow agreement must certify that the bank holds for the account of the customer as security for the agreement (i) cash, (ii) cash equivalents, (iii) one or more qualified equity securities, or (iv) a combination thereof having an aggregate market value of not less than 100% of the exercise settlement amount and that the bank will promptly pay the TPH organization the exercise settlement amount in the event the account is assigned an exercise notice.

The Exchange believes these proposed levels are appropriate because risk exposure is limited with binary options and the proposed customer initial and maintenance margin is equal to the maximum risk exposure.^[37]

Except as otherwise described above, all binary index options will be listed and traded on the Exchange in a substantially similar manner as non-binary index options are permitted to be listed and traded under current Rules. The Rules that apply to the listing and trading of non-binary index options on the Exchange, including those related to priority and execution, Market-Makers (including Market-Maker obligations), obvious error,^[38] trading halt procedures, and clearing, will apply to the listing and trading of binary options. The Exchange has analyzed its capacity and represents that it believes the Exchange has the necessary systems capacity to handle any potential additional message traffic associated with the listing of binary options on indexes (including non-broad-based indexes). The Options Price Reporting Authority (“OPRA”) also informed the Exchange it believes it has the necessary systems capacity to handle the additional traffic associated with the listing of new options that would result from this proposed rule change. The Exchange does not believe Trading Permit Holders (“TPHs”) will experience any capacity issues as a result of this proposal and represents that it will monitor the trading volume associated with binary options and the effect (if any) of binary options on market fragmentation and the capacity of the Exchange's automated system.

Today, the Exchange has an adequate surveillance program in place for options. The Exchange intends to apply the same program procedures to binary options the Exchange applies to its other options products (which overly the same indexes on which the proposed rule change would permit the Exchange to list binary options). Additionally, the Exchange is a member of the Intermarket Surveillance Group (“ISG”) under the Intermarket Surveillance Group Agreement. ISG members work together to coordinate surveillance and investigative information sharing in the stock, options, and futures markets. In addition, the Exchange has a Regulatory Services Agreement with the Financial Industry Regulatory Authority (“FINRA”) for certain market surveillance, investigation and examinations functions. Pursuant to a multi-party 17d-2 joint plan, all options exchanges allocate amongst themselves and FINRA responsibilities to conduct certain options-related market surveillance that are common to rules of all options exchanges.^[39] The Exchange ( printed page 46211) believes its existing surveillance procedures are designed to deter and detect possible manipulative behavior which might potentially arise from listing and trading the proposed binary options. Further, the Exchange will implement any new surveillance procedures it deems necessary to effectively monitor the trading of binary MGTN options (as well as A.M.-settled binary OEX options and P.M.-settled binary VIX options, to the extent the Exchange lists those or any other binary index options for trading), including to address the potential increased susceptibility to manipulation of binary options, particularly when they are near-the-money and near expiration given the fixed payout structure of binary options.^[40] The Exchange notes, however, it believes the large market capitalization of the Cboe Magnificent 10 Index and each of its constituent stocks reduces any susceptibility to manipulation of binary options on that index, similar to the reduced risk associated with binary index options on broad-based indexes.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.^[41] Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) ^[42] requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) ^[43] requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

In particular, the Exchange believes the proposed rule change will facilitate transactions in securities, remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest, because it will provide investors with a securities exchange-listed investment choice for an additional class, and with additional settlements for two binary index options. The proposed binary index options are listed options with a simpler, all-or-none payout structure and limited risk profile compared to traditional listed options.^[44] Thus, the Exchange believes the proposed rule change will permit investors to manage their risk exposures and carry out their investment objectives on a securities exchange with more flexibility and broader applicability. The Exchange also believes the proposed rule change will promote competition, as it will meet demands of investors that currently may trade products structured in substantively the same manner as the proposed binary options in other markets (as further discussed below).

The Exchange believes expanding the universe of binary options to include binary MGTN options will benefit investors, particularly retail investors and other investors who prefer simplicity, as a complementary offering to current exchange-traded options. Buyers and sellers of traditional, non-binary options listed on the Exchange do not know the return on those options at the time of the transaction, as the return cannot be determined until near the option's expiration given movements in the underlying. For example, suppose an investor buys a traditional index call option with an exercise price of 100. If the index value at expiration is 105, the investor gets a payout of $5 (times the multiplier for that option). If the index value at expiration is 110, the investor gets a payout of $10 (times the multiplier for that option). Therefore, the payout of a traditional index option is dependent on how in-the-money the option is at expiration, which is unknown until the time of expiration.

On the contrary, binary options offer a set payout if the underlying closes at, below, or above the exercise price (depending on the type of binary option). Buyers and sellers of binary options know the expected return at the time of purchase if the underlying performs as expected, as the return is a fixed, “all-or-none” amount. Using the example above, suppose an investor buys a binary index call option with an exercise price of 100 and an exercise settlement value of $10. If the index value at expiration is 105, the investor receives a payout of $10 (times the multiplier for that option). In fact, if the index value at expiration is any value of 100 or greater, the investor receives that same payout. In addition, because the return on the binary option is a set amount, a buyer of a binary option need not determine the absolute magnitude of the underlying's value movement relative to the exercise price, as is the case with traditional, non-binary options. Instead, the buyer of a binary option needs only to determine whether the underlying value is expected to be above, at, or below the exercise price (as applicable).

The Exchange believes expanding the availability of binary options will further protect investors because of the reduced risk of the seller compared to the seller of a traditional option. While sellers of traditional options have unlimited risk (as the payout amount increases the further in-the-money the option is at expiration), the maximum obligation for the seller of a binary option is known when the contract is written, which is the fixed payout amount. The structure of binary options offers investors pre- and post-trade transparency with respect to the risk associated with their binary options trades. Binary options on non-broad-based indexes will ultimately provide the same benefits to investors as binary options on broad-based indexes.

The Exchange also believes the proposed rule change to expand available underlying indexes for binary options and permit listing of both A.M.- and P.M.-settled binary index options will facilitate transactions in securities, remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public ( printed page 46212) interest.^[45] Current rules regarding binary index would permit A.M.-settlement and P.M.-settlement for binary index options on all broad-based indexes on which the Exchange lists traditional options except OEX (which are only P.M.-settled) and VIX options (which are only A.M.-settled). Therefore, the proposed rule change would permit the Exchange to list A.M.-settled and P.M.-settled binary MGTN options, as well as A.M.-settled binary OEX options and P.M.-settled binary VIX options.

With respect to OEX, the Exchange believes allowing A.M.-settled in addition to currently permissible P.M.-settled binary OEX options will remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest. This additional settlement would allow investors to further tailor their investment strategies for OEX and related options (for example, the underlying index of OEX options is the S&P 100 Index, the constituents of which are all constituents of the S&P 500 Index), as the different timing of settlements would allow market participants to trade binary OEX options (if the Exchange chose to list these options) in a manner more aligned with specific timing needs and more effectively tailor their investment and hedging strategies, including to incorporate daily changes in the market, which may reduce the premium cost of buying binary OEX options. This precision is particularly beneficial for binary index options, which provide investors with the ability to take discrete and precise positions on the value of the underlying index.

Similar reasoning applies to binary VIX options. As described above, traditional VIX options are currently A.M.-settled only (and thus current binary index rules permit A.M.-settlement only). The settlement value for these options is calculated as a special opening quotation using a modified opening auction process on exercise settlement value determination days pursuant to Rules 4.13(a)(5)(B) and 5.31(j). This is different than other index options, for which the settlement value is the current index value at the expiration of the option (either the opening value or the closing value of the index on the expiration date). It is for this reason VIX options are currently only A.M.-settled. However, binary VIX options, as proposed, may be A.M.-settled or P.M.-settled because the settlement value for binary VIX options will be, like all other binary index options, the reported opening or closing level of the underlying index (and therefore not calculated pursuant to a special quotation). This is consistent with the current binary index option rules today that state the settlement value for all binary index options that are A.M.-settled will be the reported opening level of the underlying index, which applies to binary VIX options. Therefore, the Exchange believes it would benefit investors to be authorized to list binary VIX options that are P.M.-settled, as it would allow investors to further tailor their investment strategies for VIX and related options (including, for example, options related to the S&P 500 Index), as the different timing of settlements would allow market participants to trade binary VIX options (if the Exchange chose to list these options) in a manner more aligned with specific timing needs and more effectively tailor their investment and hedging strategies, including to incorporate daily changes in the market, which may reduce the premium cost of buying binary VIX options. This precision is particularly beneficial for binary index options, which provide investors with the ability to take discrete and precise positions on the value of the underlying index.

This same reasoning also applies to the proposed rule change to permit both A.M.-settled and P.M.-settled binary MGTN options. The Exchange is currently authorized to list both A.M.-settled and P.M.-settled traditional MGTN options.^[46] The Exchange believes permitting these same settlements for binary MGTN options would remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest, because it would provide investors with additional investment options they can use to tailor their investment strategies with more precision with respect to specific timing needs and strategies related to traditional MGTN options and related options. This precision is particularly beneficial for binary index options, which provide investors with the ability to take discrete and precise positions on the value of the underlying index.

Further, the proposed rule change will permit the Exchange to list binary options overlying securities indexes with similar terms (such as A.M.- and P.M.-settlement) on a national securities exchange as alternatives to products that are structured in substantially the same manner as binary options currently available in the OTC market and on other platforms. The Exchange understands investors have traded binary options similar to the proposed binary index options in OTC markets for many years but may prefer to trade such options in a listed environment to receive the benefits of trading listing options. These benefits include: (1) enhanced efficiency in initiating and closing out positions; (2) increased market transparency; and (3) heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of all listed options. The Exchange believes the proposed rule change may encourage liquidity to shift from the OTC market onto the Exchange, which the Exchange believes would increase market transparency as well as enhance the process of price discovery conducted on the Exchange through increased order flow. The proposed rule change is intended to provide a market for binary options as a standardized product without the credit risk of an individual issuer. By providing a listed and standardized market for more classes of binary options, the Exchange seeks to attract investors who desire the simplicity of a binary option with the certainty and safeguards of a regulated and standardized marketplace. Additionally, unlike an OTC binary option, counter-party credit risk for Exchange-listed binary options is significantly reduced through the issuance and guarantee of the contracts by OCC. Further, as an exchange-traded option, binary options will have the advantage of liquidity provided by Market-Makers, which the Exchange believes may lead to tighter spreads than those in the OTC market. The Exchange also believes that standardization will enable more interested parties to become market participants.

In addition to the OTC market, various market platforms that are not registered as national securities exchanges currently offer products structured in substantively the same manner as binary options the Exchange may list pursuant to current Rules and as proposed. These platforms offer binary option products overlying securities indexes, which may be settled at varying points of the day (not just at ( printed page 46213) the open and close of the trading day). However, as these venues are not national securities exchanges, they do not offer investors the benefits of centralized liquidity, market transparency, or securities regulations intended to protect investors. The Exchange believes listing competitive products on a securities exchange may create a centralized and standardized marketplace for these products, which promotes price discovery and transparency, within a regulatory framework designed to protect investors in securities. In other words, the Exchange believes its proposal offers a more transparent platform than the OTC market and other market platforms offer and would contribute to leveling the playing field with these alternative markets.

Additionally, the proposed rule change is consistent with the requirements of the Act because binary options on securities indexes are securities under the Act. The Act defines “security” as, among other things, a “put, call, straddle, option, or privilege on any security . . . or group or index of securities (including any interest therein or based on the value thereof).” ^[47] Binary options on securities indexes, like non-binary options on securities indexes, are puts and calls. The value of a binary option is based on the value of the underlying index. As securities, pursuant to Section 9(b)(1) of the Act, a person may effect any transaction in connection with a binary option only in accordance with Commission rules and regulations.^[48] Therefore, the Exchange believes transactions in binary options on and securities indexes must occur on a national securities exchange, subject to Commission jurisdiction and oversight.

As discussed above, the Exchange has current Rules that permit the listing of binary options on broad-based index options, which Rules were approved previously by the Commission as being consistent with the Act. This further indicates that binary options are securities under the Act, subject to Commission jurisdiction and oversight.^[49] When approving the Exchange's prior proposed rule change regarding the listing and trading of binary options on broad-based security indexes, the Commission described the terms of these options, including listings standards, position limits, and margin, and found them to be consistent with the Act.^[50] In connection with the Commission's approval of trading binary options on the Exchange, OCC adopted rules pursuant to which it could clear binary options.^[51] When approving OCC's proposed rule change related to the clearing of binary options, the Commission noted it met the requirements of Section 17A(b)(3)(F) of the Act ^[52] because it would permit OCC to clear and settle binary options that had been approved to be listed and traded on Cboe, which would promote the “prompt and accurate clearance and settlement of such securities transactions.”  ^[53] The Commission also approved updates to the Options Disclosure Document (“ODD”) in advance of the listing of binary options on Cboe, as required by the Act.^[54] Rule 9b-1 under the Act requires a broker-dealer to furnish a customer a copy of the ODD prior to accepting an order from that customer for an option that is subject to the ODD.^[55] Rule 9b-1 defines standardized options as options contracts traded on national securities exchanges that relate to options classes the terms of which are limited to specific expiration dates and exercise prices, as well as other securities as the Commission may, by order designate.^[56] The Commission's order approving the ability of the Exchange to list binary options overlying certain securities signified that binary options are standardized options under the Act.^[57] As binary index options, as currently available and as proposed, are standardized options to be traded on a national securities exchange, the Exchange believes the proposed rule change will benefit investors, as broker-dealers must provide the ODD to customers, which describes the characteristics and risks associated with trading binary options.

The Exchange believes the proposed position limits for binary MGTN options are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and thus to protect investors.^[58] The proposed position limits for binary MGTN options are the same as those for binary options on broad-based indexes under current Rules (subject to the per expiration change further discussed below). As these position limits are already in the Rules (and thus previously approved by the Commission) and applicable to binary index options, the Exchange believes the proposed rule change reasonably balances the promotion of a free and open market for these securities with minimization of incentives for market manipulation.

The susceptibility of an index to manipulation or undue price influence is directly related to the depth and liquidity of the markets for the component securities that comprise it, regardless of the number of component securities.^[59] An index representing a ( printed page 46214) larger aggregate market capitalization reflects a deep, liquid pool of underlying securities, the collective pricing of which is substantially more difficult to influence through trading in the options market. By scaling position limits to market capitalization (which directly measures the economic depth of an index), with lower position limits applicable to binary index options for which the market capitalization ratio is smaller, the Exchange believes the current position limits for binary broad-based index options are, and the proposed position limits for binary MGTN options would be, appropriately sized to the actual manipulation risk presented by the specific index and may spread exposure across more participants, which makes manipulation by a single investor more difficult to achieve. Further, current position limits rules for binary broad-based index options are, and proposed position limits for binary MGTN options would be, scaled inversely to the exercise settlement value (which directly measures the maximum intrinsic value of a binary index option), which further reduces the susceptibility of binary index options to manipulation. If a binary index option has a larger exercise settlement value (and thus payout if the exercise criteria is met), there may be more incentive for an investor to attempt to manipulate the value of the underlying index so the investor can receive the larger payout. Therefore, a lower position limit for these binary index options with a larger exercise settlement amount reduces the possibility for this to occur. Additionally, the Exchange believes lower position limits for binary index options with larger exercise settlement amounts help prevent manipulation of the underlying index value because it keeps the cost of manipulating the underlying index relatively high compared to the potential payout.

While in general a non-broad-based index may have a lower market capitalization (and thus should have a lower position limit for options on that index) because it has fewer components, it is certainly possible for such an index to have a similar market capitalization to that of a broad-based index and thus have reduced susceptibility to manipulation in the same manner as a broad-based index with similar market capitalization. That is the case with respect to the Cboe Magnificent 10 Index. As a result, the Exchange believes it is appropriate to apply the same position limits currently applicable to binary options on broad-based indexes to binary MGTN options on all indexes because the position limits are tied to the market capitalization of the underlying index, which is significant for the Cboe Magnificent 10 Index. Traditional MGTN options are subject to a 24,000-contract position limit pursuant to Rule 8.32.^[60] Therefore, as proposed, the position limits for binary MGTN options would be based on its Market Capitalization Ratio pursuant to Rule 8.36(b). The Market Capitalization Ratio of the Cboe Magnificent 10 Index to the S&P 500 Index is approximately 34.9%.^[61] As a result, the position limit for binary MGTN options would be the ratio of 10,000 to the exercise settlement amount times 5,000. If the Exchange applied a 100 multiplier and an exercise settlement value of $1 for binary MGTN options (and thus an exercise settlement amount of $100), the position limit would be 10,000/100 × 5,000, or 500,000 (per expiration).^[62]

While this position limit would be higher than the position limit currently applicable to traditional MGTN options, the Exchange believes it is appropriate given the significant market capitalization of the underlying index (which is larger than several broad-based indexes on which the Exchange is currently permitted to list binary index options). If a single investor had the maximum number of positions in binary MGTN options, the notional value of these positions would be 500,000 × 100 × 489.12, or $24,456,000,000, which would represent approximately 0.099% of the market capitalization of the index. If that same investor has the maximum number of positions in binary MGTN options and the maximum number of positions in traditional MGTN options, the combined notional value of all of those positions would still represent only approximately 0.1% of the market capitalization of the index. For purposes of comparison, if the Exchange were to list binary index options on the Russell 2000 Index (which current Rules would permit), the position limit for these binary RUT options pursuant to Rule 8.36(a) (traditional RUT options have no position limit as set forth in Rule 8.31), if such binary RUT options had an exercise settlement amount of $100, would be 15,000 × 10,000/100, or 1,500,000 contracts. As of July 7, 2026, the market capitalization of the Russell 2000 Index was approximately $3.77 trillion, and the value of the index was 2,982.49. The contract multiplier for RUT options is 100. The maximum number of positions in binary RUT options would have a notional value of 1,500,000 × 100 × 2,982.49, or $447,373,500,000, which would represent approximately 11.87% of the market capitalization of the index. Therefore, the Exchange believes the proposal to apply to binary MGTN options the position limits currently applicable to binary index options on broad-based indexes would still result in a very conservative position limit for binary MGTN options given the market capitalization of the Cboe Magnificent 10 Index.

The number of constituent securities of the Cboe Magnificent 10 Index is smaller compared to broad-based indexes; however, the ten constituent securities are among the largest capitalized and most actively traded stocks and must have a market capitalization of at least $500 million, a free float of at least 25%, a minimum of 1,000,000 shares trading volume in the preceding six months, and one of the 100 largest market capitalizations per the index's methodology.^[63] This is in addition to the initial and maintenance listing criteria set forth in Rule 4.13(b) the index must satisfy for the Exchange to be able to list options on the index. ^[64] ( printed page 46215) The market capitalizations of the ten constituents of the Cboe Magnificent 10 Index as of July 7, 2026 range from approximately $322 billion to $4.7 trillion, and the six-month trading volume ranges from 2,073,574,362 shares to 20,936,495,633 shares. The Exchange believes all of these factors significantly reduce the risk of manipulation of the index given the proposed position limits for binary MGTN options, as well as reduce the risk that the markets for the components would be impacted by additional derivatives.^[65]

The Exchange further notes the proposed position limit for binary MGTN options is conservative when compared to the position limit for traditional options on the component stocks of the Cboe Magnificent 10 Index. All ten of the component stocks are subject to a position limit of 250,000 (or 25,000,000 when factoring in the multiplier of 100) pursuant to Rule 8.30, Interpretation and Policy .02. Palantir (PLTR) has the smallest market capitalization of the ten constituent stocks (approximately $322 billion) as of July 7, 2026, with a stock price of $134.37. If a single customer held the maximum number of positions permitted under the proposed rule change, the notional value of those positions would be $3,359,250,000, which would represent 1.04% of the stock's market capitalization, which is very conservative and still more than 10 times higher than the percentage of the notional value of the maximum positions of binary MGTN options of the index's market capitalization.^[66]

The Exchange also believes the proposed rule change to apply position limits to binary options on a per expiration basis will prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, and thus protect investors due to the unique risk profile of binary options that distinguish them from traditional ( i.e., non-binary). Unlike traditional index options, for which associated risk is distributed across a range of strikes and expirations because investors may offset or hedge positions across expirations, binary options are fixed-payout, all-or-nothing contracts whose value is entirely dependent on the value of the underlying index at a single point in time. Therefore, risk concentrates at the expiration date itself since each expiration series represents an independent and self-contained risk event. This makes the expiration date the most economically meaningful unit for measuring and constraining accumulated exposure of binary options. Limiting positions in binary options across expirations (as is done for traditional options) would not address the actual risk associated with the settlement event specific to a binary option. As a result, the Exchange believes an individual expiration is the most economically meaningful time to limit positions in binary options, as obtaining positions in binary options for one expiration generally have no impact on the value of binary options for another expiration.^[67] As discussed above, binary index options are subject to no exercise limits. Exercise limits are intended to prevent a single investor from exercising a number of option contracts that could potentially manipulate the value of the underlying. Because investors have no discretion regarding whether to exercise their binary index options due to their automatic exercise at expiration, there is no need for exercise limits.

For all the reasons discussed above, the Exchange believes the proposed position limit for binary MGTN options is designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest. The Exchange understands that unlike traditional index options, binary index options possess a fixed, all-or-nothing payout structure that may create further incentive to influence the value of the underlying index, which incentive may be heightened for near-the-money positions approaching expiration when a marginal move in the value of the underlying index can determine whether a position will receive the payout amount (or not). The proposed rule change establishes a position limit for binary MGTN options that is calibrated such that the notional value of the maximum number of permitted positions represents less than 1% of the aggregate market capitalization of the Cboe Magnificent 10 Index (assuming an exercise settlement amount of $100).^[68] The Exchange believes this will reduce the ability for a single market participant from accumulating sufficient positions of binary MGTN options whose potential payout would justify the cost of attempting to move the underlying index components, thereby maintaining an economically unfavorable cost-benefit ratio for any such manipulative activity. The Exchange believes this calibration directly addresses the heightened manipulation risk inherent to binary options given their fixed payout structure by limiting the maximum aggregate financial incentive available to any single customer or group of customers, while still permitting sufficient position sizes to support a liquid and efficient market for legitimate hedging and trading purposes. The Exchange, therefore, believes the proposed limit is effectively designed to prevent an individual customer or entity from establishing options positions that could be used to manipulate the market of the underlying index and its constituents.^[69]

Further, the Exchange believes subjecting hedged binary option positions and strategies to higher position limits is consistent with the Act because such positions and strategies create offsetting exposure. As a result, a customer no longer has a directional interest in the underlying, reducing the manipulation risk associated with those positions that position limits are designed to address. Given the investor benefits gained from hedged positions, the Exchange believes applying higher position limits to these positions sufficiently protects against the reduced potential for manipulation while not artificially restricting bona fide activity intended to manage risk exposure.

Position limits are designed to limit the number of options contracts overlying a security or index traded on the exchange that an investor, acting alone or in concert with others directly or indirectly, may control. These limits are intended to address potential manipulative schemes and adverse ( printed page 46216) market impacts surrounding the use of options, such as disrupting the market in the security or index underlying the options. Position limits must balance concerns regarding mitigating potential manipulation and the cost of inhibiting potential hedging activity that could be used for legitimate economic purposes. Position limits do not limit the total number of options that may be held by all customers across the entire industry, but rather they limit the number of unhedged positions on the same side of the market a single customer may hold or exercise at one time. “Since the inception of standardized options trading, the options exchanges have had rules imposing limits on the aggregate number of options contracts that a member or customer could hold or exercise.” ^[70] Position limit rules are intended “to prevent the establishment of options positions that can be used or might create incentives to manipulate or disrupt the underlying market so as to benefit the options position.” ^[71] The Exchange believes the proposed position limits applied on a per expiration basis reasonably and appropriately balance the liquidity provisioning in the market against the prevention of manipulation without unnecessarily constraining investment activity.^[72]

The Exchange also believes the proposed margin requirements for binary index options (which are the current margin requirements for binary options on broad-based indexes) are reasonable and will protect investors, because they limit investors' risk exposure given that the initial and maintenance margin requirements are equal to the maximum risk exposure.^[73] As noted above, the Exchange may determine to impose higher margin requirements than those proposed in respect of any binary option position when it deems such higher margin requirements are appropriate.^[74] Further, the Rules of OCC also subject binary index options to OCC's margin and risk management methodology.^[75]

Ultimately, the Exchange believes the proposed rule change will provide investors with greater trading tools and opportunities and flexibility, resulting in investors having additional means to carry out their investment objectives and manage their risk exposures with the benefits of being listed and traded on a national securities exchange. The Exchange believes the proposed rule change will offer market participants a simplified, transparent, and limited risk investment choice overlying securities indexes, which may be more aligned with their specific timing needs and investment and hedging strategies and risk tolerances. The Exchange believes it benefits the investing public to continue to enhance its listed product offerings to respond to continuously changing needs of investors and to a continuously changing competitive environment.

A robust and competitive market requires exchanges to respond to investors' evolving needs by regularly improving their offerings. When Congress charged the Commission with supervising the development of a “national market system” for securities, Congress stated its intent that the “national market system evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed.” ^[76] Consistent with this purpose, Congress and the Commission have repeatedly stated their preference for competition, rather than regulatory intervention to determine products and services in the securities markets.^[77] This consistent and considered judgment of Congress and the Commission is correct, particularly in light of evidence of robust competition in the options trading industry. The fact that an exchange proposed something new is a reason to be receptive, not skeptical—innovation is the life-blood of a vibrant competitive market—and that is particularly so given the continued internalization of the securities markets, as exchanges continue to implement new products and services to compete not only in the United States but throughout the world. Options exchanges continuously adopt new and different products and trading services in response to industry demands in order to attract order flow and to increase their trading volume. This competition has led to a growth in investment choices, which ultimately benefits the marketplace and the public. The Exchange believes the proposed rule change will help further competition by providing market participants with yet another investment option for options listed on a national securities exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act, because binary options will be available to all market participants who wish to trade such options on the same terms and in the same manner (including with respect to the payout terms and amount). All market participants will be subject to the same margin and position limits, as well as other rules applicable to binary options, as described in this proposed rule change. To qualify for listing as a binary option, an underlying index must meet the same initial and maintenance listing criteria it must meet to underlie a traditional, non-binary option. Except as set forth in the proposed rule change, binary options will trade in the same manner as other options on the Exchange.

The Exchange does not believe the proposed rule change will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act, because the Rules of at least one other options exchange permit the listing of similar products.^[78] Additionally, as noted above, substantively similar products to binary index options, as currently available under the Rules and ( printed page 46217) as proposed, are available in the OTC market and various other markets. Such products are based on the values of securities indexes (as the proposed binary options are), including at the opening and closing of trading ( i.e., A.M.- and P.M.-settled) and other times throughout the day. The proposed rule change will permit the Exchange to list binary options on the same underlying indexes as these markets, and do so with certain similar terms (two permissible settlements) as the binary options listed on those markets. Ultimately, the proposal is designed to increase competition for order flow in binary options.

The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues who offer similar products. The Exchange believes the proposed rule change will provide investors with a comparable alternative to the OTC market and other venues. The Exchange believes it may be a more attractive alternative to the OTC market and these other venues, as market participants will benefit from being able to trade these options in an exchange environment, which provides, among other things: (1) enhanced efficiency in initiating and closing out positions; (2) increased market transparency; and (3) heightened contra-party creditworthiness due to the role of OCC as issuer and guarantor of all listed options. As a result, the Exchange believes that the proposed rule change may relieve any burden on, or otherwise promote, competition, as it will allow the Exchange to offer a securities exchange-listed alternative to the products currently available in these other markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

The Exchange neither solicited nor received written comments on the proposed rule change.

IV. Discussion and Commission Findings

After careful review, the Commission finds that the proposed rule change, as modified and superseded by Amendment No. 1 (“Amended Proposal”), is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.^[79] In particular, the Commission finds that the Amended Proposal is consistent with Section 6(b)(1) of the Act,^[80] which requires, among other things, that the Exchange be so organized and have the capacity to be able to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act, Commission rules and regulations thereunder, and its own rules; and Section 6(b)(5) of the Act,^[81] which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest.

As discussed above, the Exchange proposes to adopt rules to govern the listing and trading of binary MGTN options, which would be cash-settled, European-style exercised options on the MGTN index.^[82] Traditional, non-binary MGTN options already are Exchange-listed, and like those options, the proposed binary MGTN options would be standardized, narrow-based security index options that are cleared by the OCC.^[83] A distinguishing feature of the proposed binary MGTN options is a fixed, all-or-nothing exercise settlement amount that the option holder is entitled to receive and the option writer is obligated to pay if the option expires at- or in-the-money in the case of a call option or in-the-money in the case of a put option.^[84] This is in contrast to the payout structure for traditional, non-binary MGTN options, where the exercise settlement amount varies relative to the degree to which the option expires in-the-money, i.e., relative to the magnitude of the difference between the underlying index's settlement value and the option's exercise price.^[85]

The proposed binary MGTN options do not raise novel regulatory concerns. They would be subject to the existing rules of the Exchange that govern options trading generally and the listing of non-binary narrow-based index options, and traditional MGTN options specifically, including initial and continued listing criteria.^[86] Insofar as the primary feature distinguishing binary MGTN options from non-binary MGTN options is concerned—specifically, the fixed, all-or-nothing payout structure attendant to binary MGTN options—the Exchange already permits the listing and trading of binary options on broad-based security indexes with a fixed, all-or-nothing payout structure.^[87] While the MGTN index is a narrow-based index under the Exchange's rules with less component securities than a broad-based index, the MGTN index resembles a broad-based index in its market capitalization.^[88] Indeed, the MGTN index's ten component securities are among the largest capitalized and most actively traded and deeply liquid stocks,^[89] and in turn, the MGTN index's market capitalization rivals the market capitalizations of broad-based indexes on which the Exchange already is permitted to list binary options.^[90] For ( printed page 46218) example, as of July 7, 2026, the MGTN index's market capitalization exceeds the market capitalization of the Russell 2000 index and is approximately 34.9% of the market capitalization of the S&P 500 index.^[91]

As with broad-based indexes with significant market capitalizations, the significant market capitalization of the MGTN index (coupled with appropriate position limits, as discussed below) helps mitigate the potential for manipulation of the index settlement value to the benefit of any overlying option position, as well as the risk that the markets for the MGTN index component securities would be impacted by additional derivatives.^[92] Accordingly, the listing of binary MGTN options does not present novel regulatory concerns in light of the MGTN's significant market capitalization and the fact that the Exchange already permits (and other exchanges also permit) the listing and trading of binary broad-based index options. At the same time, consistent with previous Commission views with respect to binary broad-based index options,^[93] binary MGTN options would provide investors with a potentially useful investment choice and would extend to such options the benefits of a listed exchange market, such as a centralized forum for price discovery, pre- and post-trade transparency, standardized contract specifications, and the guarantee of the OCC.

The Amended Proposal also would expand to binary MGTN options the formulaic position limits currently applicable to binary options on broad-based indexes for which traditional options on the same index have a position limit.^[94] Position limits serve as a regulatory tool designed to deter manipulative schemes and adverse market impact surrounding the use of options by preventing the establishment of options positions that can be used to, or might create incentives to, manipulate the underlying market so as to benefit the options positions, or that might contribute to disruptions in the underlying market.^[95] Compared to a traditional, non-binary option, the incentive to manipulate the underlying market so as to benefit a binary option position may be stronger in light of its fixed, all-or-nothing payout structure. This is because a small movement in the underlying settlement value for a near-the-money binary option could translate into more significant profit or loss avoidance than would be realized in a similar scenario for a traditional, non-binary option.

Pursuant to proposed Rule 8.36(b), the position limit for binary MGTN options would be scaled proportional to the MGTN index's market capitalization and inversely to the exercise settlement amount for binary MGTN options, consistent with the Exchange's current approach to formulaic position limits for binary broad-based index options.^[96] Under this scaling approach, as of July 7, 2026, binary MGTN options would have a position limit of 500,000 contracts.^[97] Based on near-current MGTN index figures, a binary MGTN option position at that limit would correspond to notional exposure of approximately $24,456,000,000 and represent approximately 0.099% of the market capitalization of the index.^[98] Comparatively, the Exchange's pre-existing rules for binary broad-based index options would permit a position limit of 1,500,000 contracts for binary Russell 2000 index (“RUT”) options (were the Exchange to list such options (it does not currently)), and a binary RUT option position at that limit would correspond to notional exposure of $447,373,500,00 and represent approximately 11.87% of the market capitalization of the RUT index.^[99] Moreover, in light of the 24,000-contract position limit applicable to traditional MGTN options, and the fact that an at-the-limit position in such options would represent 0.0048% of the MGTN index's market capitalization, the maximum allowable positions in both binary and traditional MGTN index options, if combined, would still represent only approximately 0.1% of the MGTN index's market capitalization.^[100] Accordingly, the Amended Proposal's scaling approach sets forth a position limit for binary MGTN options that is reasonably designed to minimize the incentive to attempt to manipulate the MGTN index settlement value to benefit an overlying binary option position. Likewise, the significant depth, liquidity and market capitalization of the MGTN index components further serve to minimize the potential for any such manipulation.

Under the Amended Proposal, the position limits applicable to binary broad-based index options and binary MGTN options would apply on a per-expiration basis,^[101] which would be a departure from the application of traditional index option position limits across expirations.^[102] The risk profile of a traditional option differs, however, from the risk profile of a binary index option due to their differing payout structures. As the Exchange states, unlike traditional options, for which associated risk is distributed across a range of strikes and expirations because investors may offset or hedge positions across expirations, a binary index option's fixed payout structure causes ( printed page 46219) risk to concentrate at the expiration date because the option value is entirely dependent on the value of the underlying index at a single point in time.^[103] The proposed rule change to apply position limits to these options on a per-expiration basis is reasonably designed to address the expiration-specific risk profile of binary index options and to balance the minimization of incentives for market manipulation with the promotion of a free and open market for binary broad-based index options and binary MGTN options.^[104] The Commission expects that the Exchange will monitor trading in binary broad-based index options and binary MGTN options for the purpose of discovering and sanctioning manipulative acts and practices and protecting investors, and will reassess whether the proposed position limits, including their per-expiration application, remain appropriate in light of its findings.

The Amended Proposal also would permit both A.M.- and P.M.-settlement for binary broad-based index options and binary MGTN index options.^[105] This does not raise novel regulatory concerns.^[106] The Amended Proposal's allowance of A.M- or P.M.-settlement for binary MGTN options would be consistent with the availability of both A.M- and P.M.-settlement for traditional MGTN options.^[107] The Amended Proposal's allowance of A.M.- or P.M.-settlement for binary broad-based index options would permit the Exchange to list P.M.-settled binary VIX options and A.M.-settled binary OEX options (although it does not list binary VIX and OEX options currently), notwithstanding that traditional VIX options are only A.M.-settled and traditional OEX options are only P.M.-settled.^[108] Traditional VIX options are only A.M.-settled due to the calculation of their settlement value as a special opening quotation pursuant to a modified opening auction process on exercise settlement value determination days, but the settlement value for binary VIX options (if listed by the Exchange) would not be calculated based on a special opening quotation.^[109] Traditional OEX options are P.M.-settled largely because their listing on the Exchange predates the Exchange's adoption of listing rules for traditional index options.^[110] The settlement values for binary options on these broad-based indexes, if listed by the Exchange, would be calculated consistent with the current rules for all other binary index options, i.e., based on the reported opening or closing level of the underlying index.^[111] Moreover, permitting A.M.- or P.M.-settlement for binary broad-based index options and binary MGTN options would allow investors to trade binary index options in a manner more aligned with specific timing needs and more effectively tailor their investment and hedging strategies, including incorporating daily changes in the market, which may reduce the premium cost of buying binary index options.^[112]

Importantly, the potential risks that would be posed by Exchange trading of binary MGTN options, as well as the potential risks posed by the other aspects of the Amended Proposal relating to position limits and settlement, are mitigated by the Exchange's surveillance mechanisms, consistent with Sections 6(b)(1) and 6(b)(5) of the Act.^[113] The Exchange represents that its existing surveillance program for options is adequate and that it would apply the same program procedures to binary options (which include binary broad-based index options and binary MGTN options) that the Exchange applies to its other option products.^[114] Additionally, the Exchange is a member of ISG, whose members work together to coordinate surveillance and investigative information sharing in the stock, options, and futures markets.^[115] The Exchange also has a Regulatory Services Agreement with FINRA for certain market surveillance, investigation, and examinations functions.^[116] Further, pursuant to a multi-party Rule 17d-2 joint plan, all options exchanges allocate amongst themselves and FINRA responsibilities to conduct certain options-related market surveillance that are common to rules of all options exchanges.^[117] The ( printed page 46220) Exchange further represents that it will implement any new surveillance procedures it deems necessary to effectively monitor the trading of MGTN options as well as A.M.-settled binary OEX options and P.M.-settled binary VIX options, to the extent the Exchange lists those or any other binary index options for trading, including to address the potential increased susceptibility of binary options to manipulation, particularly when they are near-the-money and near expiration given the fixed payout structure of binary options.^[118]

For the foregoing reasons, the Commission finds that the Amended Proposal is consistent with Sections 6(b)(1) and 6(b)(5) of the Act ^[119] and the rules and regulations thereunder applicable to a national securities exchange.

V. Solicitation of Comments on Amendment No. 1 to the Proposed Rule Change

Interested persons are invited to submit written data, views, and arguments concerning whether Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form (https://www.sec.gov/​rules/​sro.shtml); or
• Send an email torule-comments@sec.gov. Please include file number SR-CBOE-2026-032 on the subject line.

Paper Comments

• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CBOE-2026-032. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( https://www.sec.gov/​rules/​sro.shtml). Copies of the filing will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-CBOE-2026-032 and should be submitted on or before August 12, 2026.

VI. Accelerated Approval of the Proposed Rule Change, as Modified and Superseded by Amendment No. 1

The Commission finds good cause to approve the Amended Proposal prior to the thirtieth day after the date of publication of notice of the filing of Amendment No. 1 in the Federal Register . The Initial Rule Filing proposed to permit the Exchange to list binary options on all indexes that are otherwise eligible for traditional, non-binary option trading on the Exchange, but Amendment No. 1 narrows its scope such that the Amended Proposal would permit the Exchange to list binary options only on the MGTN index. The Amended Proposal also provides additional support for the proposed position limits that would apply to binary MGTN options as well as the Exchange's other proposed changes, including the Exchange's proposed application of position limits to binary broad-based index options and binary MGTN options on a per-expiration basis and the Exchange's proposal to allow both A.M.- and P.M.-settlement for such options. Amendment No. 1, without altering the purpose of the Initial Rule Filing, strengthens the Initial Rule Filing by providing additional clarity, support, and data, as explained above and set forth fully in Sections II and III above.

Amendment No. 1 raises no novel regulatory issues that have not previously been subject to comment, and the Commission finds that Amendment No. 1 is reasonably designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest; as well as enable the Exchange to carry out the purposes of the Act and enforce compliance by its members and their associated persons with the Act, Commission rules, and Exchange rules. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,^[120] to approve the Amended Proposal on an accelerated basis prior to the 30th day after publication of notice of the filing of Amendment No. 1 in the Federal Register .

VII. Conclusion

It is therefore ordered , pursuant to Section 19(b)(2) of the Act,^[121] that the proposed rule change (SR-CBOE-2026-032), as modified and superseded by Amendment No. 1, be, and hereby is, approved on an accelerated basis.