Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified and Superseded by Amendment No. 1, To Amend Its Rules Related to Binary Options

SECURITIES AND EXCHANGE COMMISSION [Release No. 34-105936; File No. SR-CBOE-2026-032] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified and Superseded by Amendment No. 1, To Amend Its Rules Related to Binary Options July 17, 2026. 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rule change. 6 On July 13, 2026, the Exchange submitted Amendment No. 1 to the proposed rule change, which amended and superseded the proposed rule change in its entirety. 7 The Commission received comment on the proposal. 8 The Commission is publishing this Notice and Order to solicit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are being published verbatim as filed by the Exchange, and to approve the proposed rule change, as modified and superseded by Amendment No. 1, on an accelerated basis. 1  15 U.S.C. 78s(b)(1). 2  15 U.S.C. 78a. 3  17 CFR 240.19b-4. 4   See Securities Exchange Act Release No. 105247 (Apr. 15, 2026), 91 FR 21045 (“Notice”). 5   See 15 U.S.C. 78s(b)(2)(A)(ii)(I). 6   See Securities Exchange Act Release No. 105599, 91 FR 34260 (June 5, 2026). The Commission designated July 19, 2026, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. 7  Amendment No. 1 to the proposed rule change is available at: https://www.sec.gov/comments/SR-CBOE-2026-032/srcboe2026032-958479-2960146.pdf. 8  Comment on the proposal is available at: https://www.sec.gov/comments/SR-CBOE-2026-032/srcboe2026032-957159-2956266.pdf. 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. 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 9  Pursuant to current Rule 4.16(a), Rule 4.16 applies to binary options only, and all Rules apply to the trading of binary options, except as otherwise provided or the context otherwise requires. 10  The exercise settlement amount for a binary option is the amount of cash that a holder will receive upon exercise of the contract. The exercise settlement amount is a set amount equal to the exercise settlement value multiplied by the contract multiplier. The exercise settlement value will be an amount determined by the Exchange on a class-by-class basis and shall be equal to $1 or $1,000 or a value between those values, unless otherwise adjusted per Rule 4.6. See current Rule 4.16(b) (definition of “exercise settlement amount”). Pursuant to current Rule 4.16(f), binary option contracts are subject to adjustment only in accordance with and to the extent specified in the By-Laws and Rules of The Options Clearing Corporation (“OCC”). The contract multiplier is the multiple applied to the exercise settlement value to arrive at the total exercise settlement amount per contract, which is established on a class-by-class basis and shall be at least one. See current Rule 4.16(b) (definition of “contract multiplier”). 11  The settlement value for a binary option is the value of the underlying broad-based index that is used to determine whether a binary option is in, at, or out of the money. For binary options on a broad-based index on which traditional options on the same broad-based index are A.M.-settled, the “settlement value” is the reported opening level of such index as derived from the prices of the underlying securities on such day and as reported by the Reporting Authority for the index. For binary options on a broad-based index on which traditional options on the same broad-based index are P.M.-settled, the “settlement value” is the reported closing level of such index as derived from the prices of the underlying securities on such day and as reported by the Reporting Authority for the index. See current Rule 4.16(b) (definition of “settlement value”). Binary options that are “at-the-money,” “in-the-money,” or “out-of-the-money” are a function of the settlement value of the underlying broad-based index in relation to the type of binary option ( i.e., put or call) and the exercise price. See current Rule 4.16(e). 12  With respect to a binary option, the exercise price is the value to which the settlement value of the underlying broad-based index is compared to determine whether the holder of a binary option is entitled to have the option be paid out. See current Rule 4.16(b) (definition of “exercise price”). 13   See current Rule 4.16(b) (definitions of “call binary option” and “put binary option”). 14   See Rule 4.16(c)(2). 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 15   See current Rule 4.16(c)(1). Binary options are a separate class from other options overlying the same broad-based index. The maintenance listing standards with respect to options on broad-based indexes set forth in Rule 4.10 and the Interpretations and Policies thereunder apply to binary options on broad-based indexes as well. See Rule 4.16(d). 16   See current Rule 4.16(c)(4). 17   See current Rule 4.16(c)(3). 18   See Rule 4.13, including Interpretation and Policy .01. 19   See Rule 5.4(c)(1). 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 20  In addition to substantive changes to current Rule 4.16 described below, the proposed rule change made nonsubstantive changes to simplify the current provisions (including eliminate redundancies) and make the provisions more plain English, as well as to clarify that these provisions apply to binary index options. The proposed rule change also adds an example of how the exercise settlement amount is calculated. • 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 21  The Exchange deleted from current Rule 4.16(c)(2) the provision stating only binary option contracts approved by the Exchange and currently open for trading on the Exchange may be purchased or sold on the Exchange, as that is a general, true of all options approved for listing on the Exchange. • 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 • 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 22   See Options Disclosure Document at 8, available at https://www.theocc.com/getcontentasset/a151a9ae-d784-4a15-bdeb-23a029f50b70/dfc3d011-8f63-43f6-9ed8-4b444333a1d0/riskstoc.pdf. 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. 23  Pursuant to proposed Rule 4.21(c) (as is the case today for binary index options on broad-based indexes pursuant to current Rule 4.16(g)), binary options on indexes that are eligible for trading on the Exchange will be eligible for trading as FLEX options (as provided for in Chapter 4, Section C), even if the Exchange does not list and trade non-FLEX binary options or non-FLEX traditional options on such index. For purposes of Rule 4.21, the applicable exercise settlement value is designed by the parties to the contract, the parties may not designate an exercise style other than European-style, and the term “index multiplier” refers to the contract multiplier. 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). 24   See Rule 4.13(a)(4), (e), and Interpretation and Policy .13. Currently, the Exchange lists the following index options: S&P 500 Index options (“SPX options”), Mini-S&P 500 Index options (“XSP options”), S&P 500 Scored and Screened Index (“SPESG options”), Mini-S&P 500 Equal Weight Index Options (“SPEQX options”), Cboe Volatility Index Options (“VIX options”), Dow Jones Industrial Average options (“DJX options”), S&P 100 Index options (“OEX options”), Russell 2000 Index options (“RUT options”), Mini-Russell 2000 Index options (“MRUT options”), Cboe Bitcoin U.S. ETF Index options (“CBTX options”), Cboe Mini Bitcoin U.S. ETF Index options (“MBTX options”), and the Cboe Magnificent 10 Index options (“MGTN options”). All of these index options may have A.M.-settled series and P.M.-settled series except OEX options (P.M.-settled only) and VIX options (A.M.-settled only). 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 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. 25  All times set forth in this rule filing are Eastern Time. 26  The Exchange notes that pursuant to Rule 5.1(b)(2)(G), RTH for binary index options are the same as the RTH for options with the same underlying index. Additionally, pursuant to Rule 5.1(c) and (d), if the Exchange designates a class of index options as eligible for trading during Global Trading Hours and Curb Trading Hours, respectively, binary index options with the same underlying index are also deemed eligible for trading during Global Trading Hours and Curb Trading Hours. 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 27  The rule provides that the Exchange would need to seek approval from the Securities and Exchange Commission (the “Commission”) prior to establishing position limits for binary options on broad-based indexes that have a market capitalization ratio that is less than 0.10. 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 28  The proposed rule change also makes nonsubstantive changes to simplify the rule language. 29  Rules 8.31 and 8.32 provide position limits for broad-based and narrow-based index options, respectively, the Exchange may list for trading. 30  For example, if the binary option exercise settlement amount is $10,000, then the position limit is 15,000 contracts per expiration; if the binary option exercise settlement amount is $1,000, then the position limit is 150,000 contracts per expiration; and if the binary option exercise settlement amount is $12,000, then the position limit is 12,500 contracts per expiration. 31  Pursuant to current and proposed Rule 8.36(b), to the Exchange will seek Commission approval prior to establishing position limits for binary options on broad-based indexes that have a Market Capitalization Ratio less than 0.10,.   Market capitalization ratio of underlying Number of contracts Greater than or equal to 0.50 10,000 Less than 0.50 but greater than or equal to 0.25 5,000 Less than 0.25 but greater than or equal to 0.10 2,500 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:   Market capitalization ratio of underlying Range of underlying market capitalizations Number of contracts Greater than or equal to 0.50 Greater than or equal to $31.3 trillion 10,000 Less than 0.50 but greater than or equal to 0.25 Less than $31.3 trillion but greater than or equal to $15.6 trillion 5,000 Less than 0.25 but greater than or equal to 0.10 Less than $15.6 trillion but greater than or equal to $6.3 trillion 2,500 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 32  Additionally, pursuant to current Rule 8.36(d), binary options on broad-based indexes will not be aggregated with non-binary option contracts on an underlying stock or stocks (the Exchanges makes a nonsubstantive change to make this security or securities to be consistent with the first sentence of the subparagraph) included within such broad-based index, and binary options on one broad-based index will not be aggregated with binary index options on any other broad-based index. The proposed rule change amends these provisions in Rule 8.36(d) to apply to binary MGTN options. See proposed Rule 8.36(d). 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. 33  The Exchange will determine strikes that are “reasonably close” in the same manner it currently does pursuant to Rule 4.13. 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. 34   See Rule 6.20(g). The proposed rule change amends Rule 6.20(g) to (a) delete “broad-based” so that the provision will apply to all binary index options (including binary MGTN options as proposed) and (2) to clarify the provision applies to binary index options. Because binary options are automatically exercised, Rule 6.21 regarding exercise notices does not apply to binary options. 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 35  As set forth in current proposed Rule 8.35(e)(1), FLEX binary index options will not be aggregated with positions in non-FLEX binary index options on the same index, regardless of the exercise settlement amount. • 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; (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 36   See Securities Exchange Act Release No. 105537 (May 21, 2026), 91 FR 31513 (May 27, 2026) (SR-OCC-2026-003) (which amended OCC's STANS methodology description to enable OCC to accept binary options for clearing and appropriately manage the risk created by binary options). 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 37  Pursuant to Rule 10.9, the Exchange has the ability to impose higher margin requirements than those described above in respect to any binary option position when it deems such higher margin requirements to be advisable. Because binary options must be fully funded pursuant to Rule 10.3(m), Rule 6.22 regarding delivery and payment does not apply to binary options. 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. 38  The Exchange notes Rule 6.5, Interpretation and Policy .04 states that for purposes of the obvious error provisions in Rule 6.5(c), the adjusted price (including any applicable adjustment under subparagraph (c)(4)(A) for non-customer transactions) may not exceed the applicable exercise settlement amount for the binary option. The proposed rule change amends the term “exercise settlement amount” to “exercise settlement value,” as that is the appropriate price comparison for the transaction price (which is generally considered prior to application of the contract multiplier). The exercise settlement value is similar the value of settlement prior to application of the contract multiplier. This is a technical change to reflect the intended purpose of this provision. 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 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. 39  Section 19(g)(1) of the Securities Exchange Act of 1934 (the “Act”), among other things, requires every self-regulatory organization (“SRO”) registered as a national securities exchange or national securities association to comply with the Act, the rules and regulations thereunder, and the SRO's own rules, and, absent reasonable justification or excuse, enforce compliance by its members and persons associated with its members. See 15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the Act allows the Commission to relieve an SRO of certain responsibilities with respect to members of the SRO who are also members of another SRO (“common members”). Specifically, Section 17(d)(1) allows the Commission to relieve an SRO of its responsibilities to: (i) receive regulatory reports from such members; (ii) examine such members for compliance with the Act and the rules and regulations thereunder, and the rules of the SRO; or (iii) carry out other specified regulatory responsibilities with respect to such members. 40  The Exchange notes it currently lists binary XSP options for trading, and its surveillances have been updated to monitor those options. 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. 41  15 U.S.C. 78f(b). 42  15 U.S.C. 78f(b)(5). 43   Id. 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). 44  The Commission has previously recognized the benefits of listing and trading binary options on a securities exchange. See Securities Exchange Act Release No. 57850 (May 22, 2008), 73 FR 31169, 31172 (May 30, 2008) (SR-CBOE-2006-105) (“Binary BBI Option Approval”) (“The Commission believes that binary options on broad-based indexes will provide investors with a potentially useful investment choice. The proposal will extend to these options the benefits of a listed exchange market, which include a centralized forum for price discovery, pre- and post-trade transparency, standardized contract specifications, and the guarantee of the OCC.”). 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