Same Exposure, Different Rules: FINRA Extends Options Framework to Binary Metric Options as KPI Event Contracts Trade Under CFTC Swap Regulations

Financial markets continue to evolve, and new product offerings increasingly focus on providing investors with direct exposure to specific and unique outcomes. Recently, securities exchanges have pushed to list binary metric options that pay out based on whether an issuer’s reported metric, such as quarterly revenue or earnings per share (EPS), meets a threshold at expiration. These binary metric options can function in an economically similar manner to event contract swaps referencing a company's key performance indicators (KPIs) that trade in parallel on venues regulated by the Commodity Futures Trading Commission (CFTC). The result is two economically comparable products that are overseen by different regulators with different regulatory frameworks, goals, and obligations, which the Financial Industry Regulatory Authority (FINRA) recently highlighted when it announced that it would apply its existing options regulatory framework to binary metric options, a framework which governs how member firms’ open accounts, supervise and communicate about customer options activity. 

In doing so, FINRA has confirmed that binary metric options will trade under a familiar securities options rulebook, even as economically similar KPI event contracts continue to trade under the CFTC’s swaps framework. For market participants, this means that two products with similar economic functions will be overseen by two different regulators with distinct approaches to market oversight. In this article, we examine FINRA’s amendments, compare the two regulatory paths side by side and offer key takeaways for broker-dealers, futures commission merchants (FCMs), designated contract markets (DCMs) and wealth managers navigating both.

The first path: Binary metric options under FINRA’s options framework

Beginning in mid-2026, multiple national securities exchanges filed proposed rule changes with the Securities and Exchange Commission (SEC) to list cash-settled, European-style binary metric options whose payout depends solely on whether an issuer’s reported financial or operating metric, such as quarterly revenue, EPS or another metric, meets or exceeds a defined threshold at expiration. Most recently, the SEC approved, on an accelerated basis, Cboe’s proposal to list binary metric options on specified KPIs reported by a defined list of issuers, which Cboe intends to clear through Cboe Clear US, LLC rather than OCC. 

In the midst of these filings, FINRA, recognizing that some of its existing rules did not “clearly contemplate” binary metric option structures, published Regulatory Notice 26-21 (Regulatory Notice), which announced that FINRA’s options framework applies not only to traditional listed options that settle based on the price of an individual security or index and clear through The Options Clearing Corporation (OCC), but also to binary metric options, including options on metrics and options cleared by other registered clearing agencies. The Regulatory Notice outlined accompanying amendments to FINRA Rules 2220, 2360 and 4210, as well as updates to its Rule 4210 interpretations. These amendments, announced in the Regulatory Notice, ensure that FINRA’s existing investor protection framework would apply to binary metric options “in a manner substantially comparable to other listed options.” These new changes include: 

• New definitions in Rule 2360(a). FINRA added definitions of “binary metric option,” “underlying metric” (any financial or operating metric or condition on which an option’s payout is based), and “Registered Clearing Agency,” which replaces OCC-specific references. (Under the prior rule, FINRA Rule 2360 only applied to listed options cleared at OCC.)  FINRA also consolidated the standardized equity and index options definitions into a single “standardized option” definition that includes standardized metric options, and updated “exercise price” to cover cash-settled and binary structures.
• Position limits and reporting. New Rule 2360(b)(3)(D) prohibits opening transactions in binary metric options that would exceed the position limits set by the exchange on which the option trades. The Large Options Positions Report (LOPR) requirements now expressly reference options on metrics, and members must determine aggregate positions using the listing exchange’s contract-equivalency conventions. Under Cboe’s convention, for example, 100 binary KPI option contracts equal one standard option contract.
• Disclosure and confirmations. Firms must deliver the disclosure document of the registered clearing agency that issues the option, rather than only OCC’s Options Disclosure Document, and confirmations must identify the underlying metric.
• Issuer transactions. The prohibition on writing calls for an issuer’s own account also covers a corporation that is the subject of the underlying metric.
• Communications and margin. The amendments confirm that Rule 2220’s options communications requirements expressly cover options on metrics and options cleared by a registered clearing agency other than OCC, and FINRA updated four Rule 4210 margin interpretations addressing binary metric option requirements, spreads and straddles.

The second path: Event contracts under CFTC’s swaps framework 

These changes unfold alongside similar developments of event contracts subject to the CFTC’s swap regulations. In January 2024, a CFTC-regulated DCM self-certified KPI-linked event contracts, including contracts on Tesla deliveries and Netflix subscriber counts. Just last month, on October 27, 2026, the CFTC approved a submission by another DCM to list as a swap, an event contract covering whether Tesla, Inc. will report fourth-quarter 2026 adjusted EPS greater than $0.65.

These parallel developments in the options and event contract spaces result in two instruments, binary metric options and KPI-linked event contracts, that economically function in a similar way. Both instruments reference the same type of underlier (a financial or operating metric reported by the issuer in its earnings release or SEC filings), both settle in cash if that metric meets a specified threshold for a given reporting period, and both offer a fixed, all-or-nothing payout at expiration. Binary metric options generally pay $1 or $0, while the event contract trades at prices between $0.01 and $0.99 before settlement.

Importantly, however, the two products are classified differently for regulatory oversight purposes. Binary metric options are treated as securities options subject to SEC (and FINRA) jurisdiction. In contrast, event contracts are treated as swaps subject to CFTC (and NFA) jurisdiction, and the requirements that apply to each follow that classification. Key regulatory differences include:

• Account opening and customer protection. Under FINRA’s options framework, a broker-dealer offering a binary metric option must approve the customer’s account for options trading, deliver the disclosure document of the registered clearing agency that issues the option and obtain the customer’s acknowledgment, and apply FINRA’s options suitability, supervision and confirmation requirements. A customer trading a KPI event contract on a DCM does so under the Commodity Exchange Act (CEA), the CFTC’s regulations, the DCM Core Principles and the exchange’s own rules; FINRA’s options rules do not, by their terms, apply.
• Product approval. Binary metric options reach the market through an exchange rule filing that the SEC approves under Section 19(b) of the Securities Exchange Act of 1934, as with Cboe’s filing. A DCM may list a KPI event contract by self-certifying it under CFTC Regulation 40.2 or by requesting CFTC approval under Regulation 40.3, in which case the CFTC must approve the contract unless it finds that the contract violates the CEA or the CFTC’s regulations. Speed is the difference. An exchange rule filing is generally published for public comment and cannot take effect until the SEC signs off, a process that, for binary metric options, has played out over months. A DCM relying on self-certification, by contrast, may generally list a new contract after certifying to the CFTC that it complies with the CEA, without waiting for the agency’s approval.
• Position limits and reporting. FINRA members may not effect opening transactions in binary metric options that would exceed the listing exchange’s position limits, and LOPR applies using the exchange’s contract-equivalency conventions. DCMs, in turn, must adopt position limitations or position accountability under DCM Core Principle 5.
• Issuer-related trading. FINRA’s prohibition on writing calls for the account of an issuer now also reaches a corporation that is the subject of the underlying metric. The terms of the KPI event contract, for their part, prohibit trading by the issuer’s directors and officers, by persons involved in preparing, reviewing, approving or releasing the issuer’s financial results, and by their household and immediate family members. 

Both agencies have acknowledged that similar KPI products may be structured “in different ways” and accordingly be subject to the other agency’s jurisdiction. A joint SEC/CFTC request for comment on the definitional lines between swaps and security-based swaps remains pending.

Key Takeaways

With two regulatory paths now available for earnings-linked exposure, broker-dealers, FCMs, DCMs and advisers should keep the following in mind:

• Update Compliance Materials and Trainings. FINRA member firms, particularly those participating in these products, may need to update their systems, supervisory procedures, training materials, account-opening processes, disclosure and reporting processes and other operational controls to accommodate binary metric options, consistent with each firm’s business model, existing options infrastructure and expected level of participation. Firms should also consider training relevant personnel on the amendments so they stay current with a fast-moving regulatory landscape.
• Clearly Delineate KPI-Linked Products. Because the applicable regulator and rulebook follow from each product’s classification as a securities option or a swap, firms offering, or contemplating offering, both KPI-linked event contracts and binary metric options should clearly delineate between them. Firms offering both products may also wish to evaluate whether separate platforms or entities would better facilitate compliance with each regulator’s rules.
• Product Selection & Recommendations. For firms with both a broker-dealer and an affiliated FCM or introducing broker, the availability of a binary metric option and a comparable KPI event contract may raise questions about how products are selected for or recommended to clients. Where Regulation Best Interest applies to recommendations to retail customers, or where fiduciary standards otherwise apply, firms should ensure that recommendations reflect each client’s best interest, needs and objectives.
• Revisit Restricted Lists, Personal Trading Policies and Information Barriers. Because the underlying metrics of both instruments come from issuer earnings releases and SEC filings, firms with investment banking, research or corporate access relationships should assess existing restricted lists, personal trading policies and information barriers and make sure they apply, where relevant, to both products. 

Katten’s Financial Markets Litigation and Enforcement team is available to help firms evaluate these developments, determine which regulatory path applies to their products and maintain compliance with fast-changing regulatory requirements. See Katten’s other writing on prediction markets.