Paradigm Files Comment Letter on Binary KPI Options Proposal

Today, Paradigm filed a comment letter with the SEC regarding a proposal to list binary options on company-reported performance metrics. These are contracts that pay a fixed dollar amount based on a company's reported numbers (for example, quarterly revenue or production figures), and there's an open question about whether they should be regulated as options on securities by the SEC or as event contracts by the CFTC.

In June, the SEC and CFTC jointly asked the public how to draw clearer regulatory lines for innovative products that touch both agencies' markets, including the very question this proposal presents: how to classify event contracts that reference public company performance metrics. Our letter asks the SEC to let that joint process actually finish before deciding on this proposal, using the generous review schedule Congress built into the Exchange Act for exactly this kind of situation. It’s imperative that the agencies get this right. A foot fault on process will lead to questions about this decision’s durability, and could trigger an unnecessary and lengthy second rulemaking process or litigation because one regulator started running before the starting gun sounded.

But there is something deeper at play too: the Commissions’ joint process is evidence of how multiple agencies can work together to tackle a complex regulatory process. Lines drawn jointly, on a broad public record, tend to be principled and durable; lines drawn piecemeal tend to be relitigated forever.

We look forward to submitting a substantive response on these definitional questions in our comments on the joint request later this month, and thank the SEC and CFTC for engaging in this thoughtful and timely process. In the interim, you can read our letter to the SEC here.