Cboe Corporate Performance Bets Heading to Robinhood

The Securities and Exchange Commission (SEC) gave the green light to Cboe Global Markets’ (BATS: CBOE) proposed event contracts linked to select public companies’ key performance indicators (KPIs).

The derivatives, pitched by the exchange operator in July, will debut on the Robinhood Markets (NASDAQ: HOOD) trading platform. California-based Robinhood said late last month it expected to offer the Cboe contracts during third-quarter earnings season, which kicked off in earnest this week.

When Cboe originally filed for the unique event contracts, it noted there could be 100 derivatives based on the KPIs of 23 publicly traded companies. That group includes Apple, Google parent Alphabet, Amazon, Coinbase Global, Ford, Intel, Microsoft, Nvidia, Palantir, Robinhood, SpaceX and Tesla, among others.

The Cboe contracts launching on Robinhood are subject to the same securities laws “governing customer accounts; margin requirements; trading halt procedures; auction mechanisms; market-maker appointments and quoting obligations; order types,” according to the SEC.

SEC Approval Doesn’t Encroach on Prediction Markets

Prediction markets already offer an array of event contracts pertaining to public companies and even some privately held corporations, but the SEC makes clear that its approval pertains only to the Cboe derivatives, not contracts currently available.

Atkins also said approval of the Cboe KPI event contracts is an example of the SEC and the Commodity Futures Trading Commission (CFTC), which regulates prediction markets, working together rather than at odds with each other.

“For decades, jurisdictional ‘turf wars’ between the SEC and the CFTC have frustrated innovation and left a void of unrealized financial products in their wake,” adds the SEC leader. “Today’s approval order, however, reflects a new spirit of harmonization, innovation, and investor choice, removing unnecessary obstacles to the lawful introduction of novel financial instruments within our markets.”

Cboe KPI Contracts Could Have Broad Appeal

Sports derivatives remain the most popular offerings on yes/no exchanges, but the Cboe KPI contracts could catch on, particularly among traders looking to “bet” on something new.

Although Robinhood’s core customers are retail traders, many of the firm’s clients actively trade equities and options and have gravitated to the company’s prediction market offering. That combination may be a sign that the Cboe KPIs will be another growth driver for Robinhood.

The contracts are undoubtedly unique. For example, Robinhood traders will have an opportunity to “wager” on Nvidia’s edge computing revenue in a given quarter, Coinbase transaction revenue and production of specific Tesla models, among much more.