Key facts
- Charles Schwab is developing S&P 500 binary options contracts with Cboe Global Markets.
- The contracts will pay a fixed settlement if the S&P 500 closes above or below a set level.
- A 'plus zone' feature will offer partial payouts for predictions close to the target.
- Schwab aims to limit contracts to financial outcomes, differentiating from sports or entertainment bets.
- The move brings Schwab's substantial client assets and accounts into the prediction market space.
- This strategy aims to avoid regulatory issues faced by competitors like Kalshi and Polymarket.
Charles Schwab is set to enter the prediction market arena by launching 'yes-or-no' binary options contracts tied to the S&P 500's closing price, in partnership with Cboe Global Markets. These contracts will offer a fixed cash settlement if the index closes above or below a predetermined level, and nothing if the prediction is incorrect. Schwab also plans a version with a 'plus zone' feature, providing partial payouts for predictions that are close but not exact.
The move signifies a strategic shift for Schwab, particularly for CEO Rick Wurster, who has previously voiced skepticism about event contracts, especially those linked to sports and entertainment, viewing them as blurring the lines between gambling and investing. By focusing on financial outcomes like the S&P 500's close, Schwab aims to navigate the complex regulatory landscape and avoid the legal challenges that rivals such as Kalshi and Polymarket are currently facing from state lawsuits accusing them of operating unlicensed sportsbooks.
Schwab's entry into this space brings its substantial client base, estimated at $13 trillion in assets and tens of millions of brokerage accounts, to the prediction contract market. This initiative follows Schwab's recent expansion into offering spot bitcoin and ether trading, reflecting an effort to retain retail traders within its platform. Other competitors, including Robinhood, Interactive Brokers, and Coinbase, have also been expanding their event-contract offerings, with Robinhood notably establishing its own CFTC-regulated exchange.
Cboe executives have indicated that binary options can serve as an accessible entry point for traders interested in prediction markets before they move to more complex options strategies. The CFTC, meanwhile, maintains that licensed prediction markets fall under its exclusive federal jurisdiction and has taken legal action against states attempting to regulate them.