The U.S. Securities and Exchange Commission approves Nasdaq's proposal for prediction market options linked to benchmark indices

Source: Global Market Broadcast

According to a regulatory order, the U.S. Securities and Exchange Commission (SEC) on Thursday approved a proposal from the Nasdaq options trading platform to allow it to list and trade a new category of stock market prediction instruments linked to major indices.

As prediction markets gain increasing recognition and open up new sources of revenue and market insights, multiple companies are actively seeking to enter this space, which allows users to bet on the outcomes of real-world events.

The product launched by the New York-based exchange operator is a cash-settled contract that pays out a fixed amount depending on whether the index’s closing price is higher or lower than a set level at expiration.

The SEC stated that binary options—a contract that provides a payout based on a “yes” or “no” bet—will pay a “fixed, all-or-nothing exercise settlement amount” of $100 if it is in the money at expiration.

The U.S. electronic options exchange Nasdaq MRX, operated by Nasdaq, will initially introduce options products linked to the Nasdaq-100 Index and the Nasdaq-100 Micro Index.

The Nasdaq-100 Index tracks the 100 largest non-financial companies listed on the Nasdaq exchange, including Apple, Nvidia, and Intel. The Micro Index’s benchmark value is equivalent to 1/100th of the total market capitalization of the Nasdaq-100 Index.

The commission approved Nasdaq’s accelerated review application submitted in March, stating that the proposal “meets the requirements of the Act” and does not raise new regulatory concerns.

“We welcome the SEC’s approval of Nasdaq MRX’s proposal to list and trade Outcome-Related Options (OROs) linked to the Nasdaq-100 Index,” a Nasdaq spokesperson said.

Its peer and options giant Cboe Global Markets also plans to launch “all-or-nothing” contracts focused on financial and economic events in the second quarter, subject to regulatory approval.