The CFTC and SEC are planning a rountable to discuss the prediction market situation
There is great concern among sports betting regulators about the legality of prediction markets
This roundable is scheduled for September 29
The Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) are finally coming together to discuss prediction markets. Regulators in the gambling industry are hoping it will lead to a final solution to the US prediction market issue. The CFTC and SEC are the two regulatory bodies that oversee derivative exchanges in the US.
Releasing a
joint staff statement, the two government organizations were announcing a combined SEC-CFTC roundtable on regulatory harmonization. This roundtable will be held on September 29. Issuing the statement were SEC Chairman Paul Atkins and acting CFTC Chair Caroline Pham.
"Prediction markets, while they have existed around the world for decades, are undergoing rapid growth with growing demand from both market operators and the public," the statement read. "We should work together to provide clarity for innovators that want to list event contracts on prediction markets responsibly, including those based on securities.
"The SEC and CFTC should examine opportunities to collaborate to consider where event contracts may be made available to U.S. market participants, regardless of where the jurisdictional lines fall."
The changing landscape of prediction markets is impacting sports betting
Derivative exchange sites such as Kalshi, Robinhood, and Crypto.com are today offering event contracts on sports outcomes. These may include yes/no propositions on whether a team will win a championship. However, these markets are rapidly expanding.
On the weekend, as the NFL regular season got underway, Kalshi was offering event contracts on games that were remarkably similar to player prop wagers offered at legal and regulated US sports betting sites. Sites are offering event contracts around the country, including several states where sports betting is illegal.
Many state gambling regulatory bodies insist these prediction markets are nothing more than illegal sports betting operations. The derivative exchange markets counter that they are legally licensed by the CFTC, which is a federal government body. They argue that federal law supersedes any state law. Ongoing court cases are arguing this issue in many states.
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Too few guardrails are in place to govern prediction markets
Kristin Johnson, an outgoing member of the CFTC, cautioned that
government regulators need to address
the volatile prediction market situation. She feels it's time to make a firm decision on the legality of these new styles of event contracts.
"In my final months at the Commission, we also witnessed a surge in new applicants and registered market participants in prediction markets," Johnson wrote. "These prediction market contracts enable retail investors to take a position on everything from U.S. elections to whether Michigan would take New Mexico in the season opener in Ann Arbor last weekend.
"I am disappointed that during my time at the Commission we were not able to successfully advance a final rule that addressed the introduction of political event contracts. Activity in markets in most recent months underscores my concerns and the concerns of others about prediction markets.
"As of today, we have too few guardrails and too little visibility into the prediction market landscape. Because the target audience for these contracts is retail customers, and some market participants seem to be marching down a path to offer leveraged, margined prediction market contracts to retail investors, there is an urgent need for the Commission to express in a clear voice our expectations related to these contracts.
"The stakes are high. And, if I only have one piece of wisdom to share, it would be the following: Get it right. Measure twice, cut once."
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