Nasdaq follows Cboe joining world of 'binary bets' as prediction market craze hits Wall Street

The Nasdaq stock exchange has submitted a proposal to the U.S. Securities and Exchange Commission (SEC) to list binary options contracts tied to its flagship stock indexes, including the Nasdaq-100. This move would enable traders to place yes-or-no bets on the direction of major equity benchmarks.

The proposed contracts would also be available on the Nasdaq-100 Micro Index. These binary options are characterized by having only two possible outcomes: either the specified condition is met, resulting in a profit for the bettor, or the option expires worthless. The pricing of these contracts would range from $0.01 to $1, reflecting the market's perceived probability of a particular outcome occurring.

If approved, these products would operate similarly to contracts offered on prediction market platforms such as Polymarket and Kalshi. This would provide traders with a novel avenue to express short-term market views on the performance of one of the most closely watched stock indexes. The filing signifies Nasdaq's entry into the rapidly expanding derivatives market, which merges traditional finance with the mechanics of prediction platforms.

Nasdaq's initiative follows a similar move by rival exchange Cboe, which also announced plans to enter the prediction markets space amid a surge in interest for event-based trading. This trend is fueled by the significant growth of platforms like Polymarket and Kalshi, which allow users to trade on the outcomes of various events, including elections and economic data releases. While these platforms are regulated by the Commodity Futures Trading Commission (CFTC) due to their focus on real-world outcomes, binary options fall under the SEC's regulatory purview.

Nasdaq's proposal highlights the efforts of established exchanges to adapt the prediction-style format to regulated securities markets. The article also notes the swift expansion of crypto exchanges into this domain. Coinbase has recently launched prediction markets on its platform, offering digital asset traders contracts linked to political, economic, and cultural events. Gemini secured CFTC approval in December to operate as a Designated Contract Market (DCM), enabling it to offer regulated prediction markets to U.S. customers.