From a quiet exit to a relaunch: Traditional options exchange Cboe battles prediction markets for market entry.

Author: Zen, PANews

As prediction markets continue to divert retail investors' attention, traditional financial institutions and exchanges are clearly unwilling to stand idly by.

Cboe Global Markets is actively exploring the relaunch of all-or-nothing binary options contracts to attract retail investors. These contracts have a simple structure that pays a fixed return (such as $100) if predetermined conditions are met at expiration, or goes to zero.

According to the WSJ, the new product will undergo rigorous legal and compliance reviews before its official launch. Regulatory oversight may fall under the U.S. Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), with clearing support provided by the Options Clearing Corporation (OCC).

Cboe previously launched binary options linked to the S&P 500 (SPX) and the volatility index (VIX) in 2008, but ultimately withdrew due to insufficient liquidity. Its return now is attracting considerable attention.

The first attempt and the disappointing exit 18 years ago

"All or nothing" option contracts are not a new concept or product; Cboe itself launched them more than a decade ago. But in the end, they got off to an early start but finished late.

In July 2008, Cboe announced the launch of binary options linked to the S&P 500 (SPX) and the Cboe Volatility Index (VIX). According to the approval document released by the SEC in May of the same year, Cboe applied to add a "cash-settled, European-style exercise" binary index options framework to the exchange rules. The document also clarified that the OCC (Options Clearing Corporation) would be responsible for issuance, clearing, and settlement, and amended the relevant bylaws and rules accordingly.

Compared to the "black platform binary options" that later proliferated on the internet, Cboe binary options can be considered a standardized, centrally cleared derivatives innovation. It compresses the complex payoff curve of options into a fixed payoff, allowing traders to express their judgment on whether the index will reach a certain level in a more direct way. At its initial public offering, Cboe anticipated attracting diverse participants, including individual investors and hedge funds, to bet on the aforementioned index movements.

However, Cboe's product failed to generate the expected market enthusiasm, nor did it achieve substantial scale or sustained transactions, ultimately leading to its quiet removal from the market. This stems from both structural market issues and deeper problems arising from its product positioning.

At that time, the market was dominated by institutional investors, with very low participation from retail investors, resulting in insufficient liquidity and low subscription interest. Binary options, as a product, require a two-way flow of investment from both brokerages and retail investors. However, in the early stages of mobile internet development, the financial dissemination capabilities of social media were far from being established, and retail investors typically lacked the motivation and habit to trade.

If demand doesn't pick up, supply will be even more difficult to sustain. Thin trading weakens market-making incentives, and widening spreads further suppress demand, creating a reflexive "liquidity death spiral." This is the main reason why a compliant, centrally cleared binary options solution has failed commercially.

In terms of positioning, binary options in 2008 were more like a tool for professional traders, supplementing existing options participants with a new product. Their product language, settlement rules, and underlying asset selection were more "institutionalized" than products geared towards the general public. They were linked to the SPX and VIX, and the strike price and settlement rules were not intuitive for ordinary investors. Even though their returns were binary in form, the barrier to understanding them remained relatively high.

In contrast to today's booming prediction markets, these platforms have spread largely because they have shifted their focus to more intuitive events, including but not limited to political elections and sporting events. Retail investors can participate in trading without needing overly complex analytical logic. Cboe, on the other hand, did not have such an ecosystem back then.

Restart Plan When the Time Is Right

Cboe's proposed restart plan is closely related to the current market environment. Since the 2024 US presidential election, market trading activity has seen an "explosive growth." In January 2026, the combined trading volume of Kalshi and Polymarket exceeded $17 billion, setting a record high.

With the explosion of prediction markets leading to a surge in retail derivatives trading, the industry has widely come to see it as a new growth driver and an opportunity for exchanges and financial institutions to develop new businesses, thus joining the battle for users. In December 2025, the CME Group partnered with sports betting giant FanDuel to launch an official prediction market platform in select U.S. states.

Equally noteworthy as the prediction market is the surge in retail investor enthusiasm for derivatives trading. Following the impact of the 2020 pandemic, US options trading volume has repeatedly reached new highs, with retail investors contributing significantly. Data from options clearing companies shows that the average daily trading volume in the US options market in 2025 is approximately 61 million contracts, a record high.

At the same time, the rise of online brokerages and social media has fundamentally changed trading methods, allowing retail investors to quickly access trading strategies and contract information through mobile applications and online communities. In this environment, simple and clear derivative contracts have a natural appeal to retail users.

If the core reason for the failure of binary options in 2008 was the "absence of retail investors," then today's market is quite the opposite, with distribution channels and product strategies already mature. Cboe realized it was time to relaunch binary options contracts.

It's not about nostalgia, but a "battle for market entry."

Binary options have an unavoidable historical baggage.

In the US regulatory context, this term was once highly associated with internet fraud and manipulation. The CFTC and SEC jointly issued an investor warning, pointing out that regulators had received numerous complaints about fraud on online binary options platforms, including refusal to return funds, identity theft, and manipulation of trading software leading to customer losses.

This is precisely why Cboe is emphasizing strict compliance reviews and inclusion under SEC or CFTC regulation before listing, implying the platform's controllability, security, and transparency. This also explains why traditional exchanges feel the urgency amidst the prediction market boom. They don't want to gamble their retail results on demand, completely handing it over to a more complex and less clearly defined regulatory arena.

The relaunched binary options trading system differs from the 2008 version in several key ways. First, the target audience is different. The original product was mainly aimed at institutional and experienced investors, attracting almost no retail traders. This time, however, it is clearly targeting retail investors, aiming to provide a simple and easy-to-understand entry point for derivatives for the general public.

Secondly, there is a difference in product positioning. The contracts launched in 2008 were essentially special options linked to indices (SPX, VIX), used to precisely express bullish or bearish views on market indices. Now, Cboe emphasizes introducing simpler, event-based contract formats, aiming to cater to the interest of ordinary investors in betting on event outcomes.

Another key factor is the change in the external environment mentioned above. At the market level, Cboe's new products not only have different technical and channel support in marketing and participation; at the regulatory level, event-driven contracts are now more subject to CFTC regulation in the United States, while binary options used to require SEC approval. This reflects the regulatory boundary tension brought about by the prediction market.

Connecting the dots, Cboe's actions can be understood as a recapture of the retail trading gateway to the outcome of the event. In 2008, Cboe had already introduced binary options into the exchange system, but encountered an era characterized by a lack of retail investors, a high barrier to entry for understanding, and insufficient distribution channels, ultimately leading to its failure.

Today, prediction markets have cultivated a user mindset that relies on intuition, creating a vast market potential. Meanwhile, the volume of retail options trading has already demonstrated that retail investors are willing to pay for derivatives that are "simple, short-term, and have clear outcomes."

The most crucial question now is whether Cboe can, within regulatory constraints, provide a trading experience that is sufficiently close to the "intuitive, smooth, and low-friction" trading experience of prediction markets. If it fails, it may suffer the same fate again; if it succeeds, it will be a landmark event marking a "redrawing of the boundaries" between traditional exchanges and prediction markets.