Prediction markets face potential SEC oversight as new contract types emerge

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Prediction markets SEC oversight

Highlights

Polymarket has discussed prediction market product definitions with both the CFTC and SEC, while Kalshi has not disclosed holding similar talks.
Legal experts and King and Spalding's Joe Zales note an increasing overlap where newer contracts could fall under SEC rather than just CFTC jurisdiction.
The SEC and CFTC jointly requested public comment last month on clarifying definitions for swaps and event contracts, potentially expanding SEC oversight for new product types.

Regulators review product definitions

As reported by CNBC, prediction market platform Polymarket says it has engaged with both the CFTC and SEC on definitional frameworks for prediction market products, while rival Kalshi declines to say whether it has held similar talks with the agencies.

The CFTC has served as the lead regulator for event contract exchanges for more than 30 years, following a 1992 ruling on the Iowa Electronic Markets, which is widely recognized as the first prediction market. Legal experts now say some newer contracts appear to fall closer to the SEC's remit, particularly where product structures begin to resemble securities-related instruments.

Joe Zales, a partner at King and Spalding, says the CFTC has asserted jurisdiction over event contracts but adds that some offerings seem more aligned with the SEC's domain. That is raising the prospect of a dual-agency framework for parts of the growing prediction market industry.

Industry implications for a growing sector

The regulatory question is already moving beyond theory. Last month, the SEC and CFTC issued a joint request for public comment on updating, clarifying and harmonizing certain definitions and issues, including definitions related to swaps, the derivative category under which event contracts are classified, and the treatment of novel or emerging products.

That review could shape how future prediction market contracts are launched, marketed and supervised in the U.S. For platforms introducing new contract types, the outcome may determine whether compliance obligations stay primarily with the CFTC or expand to include SEC oversight as the asset class develops.

Congressional scrutiny of the CFPB’s oversight and funding model has intensified, with lawmakers weighing proposals that would place the bureau under the congressional appropriations process to boost accountability and transparency. Our earlier coverage also noted the parallel debate in Europe, where the European Commission is reviewing EU bank rules to ease capital and reporting burdens and potentially enable more cross-border consolidation—underscoring how shifts in regulatory design can reshape markets.

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