SEC's novel ETF review draws early pushback over prediction markets
The SEC is reviewing more than 24 proposed exchange-traded funds that would hold prediction market event contracts, including some tied to the 2028 election. The agency opened a comment request to support fund innovation. Early pushback has emerged over the prediction markets component, with concerns centering on platforms akin to Kalshi and Polymarket. The ETFs are designed to pay out based on the outcome of specific future occurrences.
A securities classification would pull event contracts out of the CFTC's sole jurisdiction and force Kalshi and Polymarket to restructure for dual registration or kill certain products. The platforms are already stretched across federal legislation, state enforcement, and agency rulemaking; an SEC precedent adds a fourth front with its own compliance costs and timelines. The 60-day comment window is their only chance to argue for CFTC-exclusive treatment before the SEC establishes precedent.
Other platforms face identical exposure. The inquiry also risks emboldening state attorneys general pressing parallel actions, since SEC interest weakens the federal preemption defense both venues rely on. Dual registration would slow product launches and raise costs just as banks like Goldman Sachs and Morgan Stanley are already banning staff from trading on these platforms.
The SEC's ETF review joins a CFTC-registered platforms face a second front from the SEC after the CFTC sued Minnesota to block the nation's first felony prediction market ban, as federal regulators and state attorneys general press overlapping claims to govern event contracts.