The prediction market in the United States has rapidly emerged in recent years, with trading volume and user numbers continuously increasing. In response, SEC Chairman Paul Atkins stated at a Senate Banking Committee hearing on Thursday that the prediction market has become a “major issue” closely monitored by regulators.
Walking the Line Between “Gambling” and “Financial Instruments”
When asked by a senator about the rapidly growing prediction industry, Paul Atkins said that this is not only a focus of his personal concern but also a top priority for Commodity Futures Trading Commission (CFTC) Chairman Michael Selig.
He said, “Prediction markets are one of the areas where regulatory overlap may occur.”
Over the past year, prediction markets like Polymarket and Kalshi have expanded rapidly, especially during the 2024 U.S. presidential election, even becoming a more prominent indicator than traditional polls.
Prediction markets use “event contracts” that allow users to bet on election outcomes, economic data, sports events, and other specific occurrences. However, whether these products are considered derivatives or regulated as gambling or betting under state laws has become a core controversy, sparking jurisdictional disputes between federal and state governments.
Platform operators argue that, under the Commodity Exchange Act, event contracts fall within the scope of derivatives and should be under the exclusive jurisdiction of the CFTC; meanwhile, multiple state governments in the U.S. have begun lawsuits against certain platforms, especially Kalshi, which involves sports-related transactions, alleging violations of local gambling and betting laws.
Paul Atkins stated that prediction markets “still primarily fall under the jurisdiction of the CFTC,” but the two major regulatory agencies will continue to cooperate. When asked whether clearer rules will be established, he responded, “We will continue to observe.”
Paul Atkins emphasized, “I believe we have sufficient statutory authority. Securities are securities, regardless of how they are packaged. Whether certain products in prediction markets constitute securities depends on the specific wording and nuances of the contract terms.”
Meanwhile, CFTC Chairman Michael Selig also shared his views on prediction markets during a Bloomberg Odd Lots podcast interview:
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