SEC delays prediction market ETF decisions while seeking public input on event contract funds

The US Securities and Exchange Commission (SEC) has postponed decisions on a series of proposed prediction market exchange-traded funds (ETFs) while it examines how event-based contracts should fit within the existing ETF regulatory framework.

In a statement issued May 20, SEC Chairman Paul Atkins said the agency plans to seek public input on the treatment of what he described as novel ETF products, including funds linked to event contracts.

“Novel products raise novel questions, and I appreciate the willingness fund sponsors have shown in delaying the effectiveness of a number of novel ETFs, including event contract ETFs, while we consider the implications,” Atkins said. “To ensure we do this in a transparent and thoughtful manner, I have instructed the staff to seek input from the public on how the Commission should respond to recent market changes.”

The move confirms that the SEC has delayed action on the first group of prediction market ETFs submitted earlier this year. The affected filings include products from Bitwise Asset Management, Roundhill Investments, and GraniteShares, which sought to offer exposure to event-based outcomes through traditional investment vehicles.

The delay applies to 24 ETFs that were approaching the end of a 75-day review period after being filed in February. Several of the proposed funds are tied to outcomes such as the 2028 US presidential election, technology-sector layoffs, and recession probabilities.

Prediction markets draw investor attention

The ETF proposals arrive as prediction markets continue to attract activity from both retail and institutional participants.

Industry data shows monthly trading volume across prediction markets covering sports, elections, economic indicators, and cultural events regularly exceeds $15 billion. Prediction market platforms Polymarket and Kalshi together recorded more than $25 billion in monthly trading volume in April.

The proposed ETFs would provide investors with access to event contracts through standard brokerage accounts rather than requiring participation through crypto-native prediction market platforms. Market observers have compared the products to spot cryptocurrency ETFs, which provided regulated access to digital assets such as Bitcoin and Ether through traditional financial channels.

However, the filings also disclose the risks associated with event-based investing, warning that investors could lose “substantially all” of their investment if contract outcomes move against their positions.

Regulatory concerns remain under review

Industry analysts say the SEC appears to be taking a cautious approach before allowing event-contract ETFs to enter public markets.

“The commission is clearly wrestling with these and wants more time and input,” Bloomberg Senior ETF Analyst Eric Balchunas said on X. “These are a whole new thing (kinda like crypto) and want to feel comfortable [before] they open the barn door.”

Balchunas also said that the review process resembles the SEC’s extended evaluation of spot Bitcoin ETFs before those products received approval in January 2024. He suggested regulators may be seeking additional safeguards before permitting funds tied to binary event outcomes.

The review comes while prediction market operators continue to face legal and regulatory challenges across the United States.

Earlier this week, the Commodity Futures Trading Commission (CFTC) filed suit against the state of Minnesota after Gov. Tim Walz signed legislation that would prohibit prediction markets beginning August 1.

According to court filings, the CFTC argued that the law conflicts with federal oversight of derivatives markets and could criminalize activity connected to federally regulated event contracts, including weather-related markets.

Minnesota Attorney General Keith Ellison said the state was reviewing the lawsuit and would respond in court.

At the same time, prediction market operators Kalshi and Polymarket remain under examination by several state regulators regarding whether certain event contracts constitute unlawful gambling products. Kalshi has challenged some state restrictions through litigation, while Polymarket has maintained that federally supervised prediction markets should not be subject to state wagering laws.

ETF growth continues while new products emerge

While discussing the delayed filings, Atkins noted that ETFs continue to play a significant role in the evolution of US capital markets.

In his statement, Atkins said ETF assets have tripled since 2019, a trend he linked to increased investor choice and capital formation. He also referenced procedural changes introduced last year that allow some ETFs to move through a streamlined listing process rather than undergoing individual regulatory reviews.

Alongside the review of prediction market ETFs, the SEC is considering an “innovation exemption” framework related to tokenized securities. The proposal under discussion could permit blockchain-based versions of publicly traded stocks, including AAPL, NVDA, and TSLA, to operate under modified regulatory conditions using crypto-based infrastructure.