A derivatives and securities exchange operator is launching a product that allows for prediction markets to provide its users with partial payouts.
Cboe Global Markets is launching a new framework that expands the trading market choice beyond traditional yes/no outcomes.
New framework to reward “mostly right” traders
Launching the product, JJ Kinahan, Head of Retail Expansion and Alternative Investment Products, explained the technicalities behind the idea.
In a press release, he said: “Our new prediction market contracts essentially take the mechanics of a traditional vertical spread, one of the most popular options strategies, and package them in an intuitive, accessible format for a broader audience,
“These contracts will offer greater flexibility and clearly defined risk compared to traditional event contracts, along with the opportunity to earn a partial return when traders are directionally correct,
Real-world opinions aren’t always binary, and investors shouldn’t be confined to a yes-or-no framework. Our more nuanced model is designed to reward informed perspectives, giving retail traders credit even when they are mostly right, and introduce an entirely new way for people to engage with outcome-based trading that simply doesn’t exist today.”
The exchange intends to introduce the framework with a Mini S&P 500 Index prediction market contract. The plan follows Cboe’s earlier efforts to develop a regulated product structured like an option that would deliver all-or-nothing payouts.
Large U.S. exchange operators are increasingly looking to enter the event-prediction market sector, which has gained significant attention since the 2024 U.S. presidential election.
S&P 500 market events now more accessible, says Cboe
Rob Hocking, Global Head of Derivatives at Cboe, explained that there is strong demand from customers to trade around market events linked to the S&P 500 Index, and the new SPX prediction market contracts are designed to make it easier for more people to take part in that activity.
He added: “What sets our products apart from other SPX event contracts is that ours are built directly on top of the SPX options ecosystem, one of the deepest and most liquid options markets in the world,
“This means that pricing is grounded in real market activity, and customers can benefit from the transparency, liquidity and safeguards of our regulated securities exchange. As the home of SPX options, Cboe is uniquely positioned to bring this product to market in a way that reflects the strength and integrity of the broader SPX ecosystem,
“We are proud to support continued innovation within the S&P 500 ecosystem. Cboe’s planned prediction market contracts help new investors benefit from the market leading integrity, governance, and reliability of the S&P 500, within a simple and easy-to-access contract structure.”
However, state regulators may take a closer look at the framework as authorities across the U.S. have recently moved to challenge prediction markets they say resemble unlicensed gambling. There is a growing legal clash with states such as Nevada and Massachusetts, which have both filed lawsuits against prediction platforms, while nine others have issued cease-and-desist letters, arguing the contracts need stricter oversight.
Cboe’s new model shares features with betting apps such as early cash-out mechanisms. That similarity could intensify scrutiny from state governments already arguing that some prediction-style products blur the line between financial trading and online wagering.
New rulebook may be incoming for prediction markets
The future of event prediction markets moved closer to formal oversight last week, as Washington and Wall Street both signaled interest in the fast-growing sector.
The Commodity Futures Trading Commission (CFTC) submitted an advanced notice of rulemaking to the White House budget office, the first formal step toward creating regulations for platforms.
At the same time, Nasdaq has asked the Securities and Exchange Commission (SEC) for approval to launch its own prediction market, proposing binary contracts tied to the Nasdaq-100 index that would allow traders to wager on daily market outcomes.
Iran war bets continue to cloud prediction markets
Prediction markets are facing growing backlash after users placed large wagers tied to the Iran conflict, including bets on regime change and potential nuclear escalation. The markets have drawn hundreds of millions of dollars in activity as traders speculate on geopolitical outcomes.
Polymarket recently archived contracts allowing bets on the timing of a nuclear detonation after they attracted hundreds of thousands of dollars and sparked criticism online. The contracts appeared under markets asking whether a nuclear weapon would be detonated by a certain date.
Founder and CEO Shayne Coplan described the controversy as a “complicated question” but defended prediction markets as innovative tools that provide valuable information. He said some criticism reflects broader resistance to disruptive technologies.
The debate has also reached Washington, where lawmakers have raised concerns about insider trading and ethical risks. Proposed legislation would restrict bets tied to war, deaths or regime change, though the measures have yet to gain bipartisan support.
