On August 24, 2026, the Securities and Exchange Commission (“SEC”) published notice of the filing of a proposal by MEMX LLC to list and trade securities event contracts (File No. SR-MEMX-2026-25). The securities event contracts would be cash-settled, European-style binary “YES” or “NO” options based on the outcome of an event related to the financial performance of an issuer the stock of which trades on a national securities exchange. Prices would range from $0.01 to $0.99 and the contracts would trade on MEMX’s options platform with the benefit of central clearing, know-your-customer requirements, and MEMX’s existing regulatory and market-surveillance programs.
The MEMX proposal adds to the debate regarding how securities-based event contracts should be classified and, in turn, whether these are subject to the jurisdiction of the Commodity Futures Trading Commission (“CFTC”) or the SEC. Before prediction markets became a mainstream topic, the statutory framework was relatively clear. Under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFTC generally regulates “swaps,” while the SEC regulates security-based swaps, with both agencies having joint authority over a narrow set of instruments classified as mixed swaps. On June 18, 2026, the CFTC and SEC issued a joint request for public comment titled “Joint Request for Common Further Definition of ‘Swap’ and ‘Security-Based Swap’ and on Alternative Compliance” (File No. S7-2026-21) addressing these classification questions and potential ways to draw clearer regulatory lines for innovative products that may implicate both agencies. The joint request also asked whether alternative compliance approaches would allow one agency’s framework to satisfy substantially similar requirements of the other.
Last month, on July 10, 2026, the SEC published notice of a proposed rule change (File No. SR-CBOE-2026-061) by Cboe Exchange, Inc. (“Cboe”), an options exchange, to permit listing and trading of binary options linked to company-specific key performance indicators (“binary KPI options”). By framing the instruments as binary options rather than event contracts, while still providing investors with the same economic exposure as an event contract, Cboe took the SEC regulatory pathway. The deadline for SEC action on the proposed rule expired on August 24, 2026 without a public decision. Cboe’s filing describes a listed-options product rather than a generic event contract. A binary KPI option would be a European-style, cash-settled option with an all-or-nothing payout. It would pay a fixed exercise settlement amount if the applicable KPI satisfies the exercise condition at expiration and otherwise expire without a payout. Cboe’s central legal argument is that the contracts are securities because the KPIs are “based on the value of” the underlying security. In Cboe’s view, an issuer’s reported earnings, revenue, and other material operating results are not merely correlated with the stock price; they are components of the issuer’s financial results that investors use to assess the value of the stock.
Kalshi submitted a formal comment letter to the SEC on August 5, 2026 opposing immediate approval of Cboe’s proposal to list binary KPI options. The core argument is a jurisdictional one: there has been no definitive determination as to whether these instruments are swaps, security-based swaps, or securities options, and until regulators resolve that threshold question, greenlighting new products would be premature. The letter points to the CFTC-SEC joint request for comment as evidence that the classification framework remains unsettled. The objection is framed as pro-competition—with the letter arguing that establishing clear jurisdictional definitions before any exchange launches products in contested regulatory territory is necessary for a level playing field.
If event contracts are classified as securities options, as Cboe and MEMX argue, they would fall under the full scope of the federal securities laws, including antifraud and insider trading prohibitions of Exchange Act Section 10(b) and Rule 10b-5. Public companies will need to review their insider trading policies and preclearance procedures to ensure that they cover event contracts and KPI-based options to reduce the risk that insiders and employees may inadvertently violate the securities laws by trading instruments they do not recognize as securities. Companies will also need to consider employee communications and training so that products marketed as prediction or event contracts are not mistakenly treated as outside the company’s trading restrictions. Additional corporate governance and reporting consequences may follow if the contracts are treated as securities. Although the precise scope will depend on the final classification and the terms of the instruments, these issues belong on the checklist of items to be mindful of as the regulatory landscape develops.