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- The rapid expansion of stock-linked prediction markets on platforms like Polymarket and Kalshi has sparked a turf war between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) over which agency should regulate the new products.
- As traders increasingly speculate on corporate metrics and events tied to companies like Apple and Tesla, consumer advocates and lawmakers are warning that these contracts could bypass traditional investor protections and create new avenues for insider trading outside of SEC oversight.
Prediction markets tied to US stocks are drawing new scrutiny as platforms including Polymarket and Kalshi expand markets linked to companies such as Tesla and Apple, raising questions about whether the CFTC or SEC should be the primary regulator.
The issue matters because these products can let traders speculate on stock moves, company data and corporate events outside many of the investor protections and market surveillance rules that apply on regulated exchanges. Legal and policy experts told Reuters the rapid growth of these markets could eventually affect trading in the underlying shares and complicate regulators’ ability to police misconduct.
Over the past year, the platforms have offered tens of thousands of markets tied to stock moves and corporate metrics, according to the report published Sept. 28 by Moneycontrol, citing Reuters. The Commodity Futures Trading Commission has argued it should oversee prediction markets because they function as derivatives contracts, while calls are growing for the Securities and Exchange Commission to step in as well.
Why regulators see a market-structure problem
Under US law, contracts tied to a single stock are generally treated as security-based swaps, which fall under SEC oversight and are mostly limited to professional investors. Legal experts told Reuters that some KPI-style contracts could potentially meet that definition.
Kalshi disputed that view. Polymarket said it is working with agencies on how swap and security-based swap definitions apply to newer event contracts.
Vanderbilt University law professor Yesha Yadav described the development as “a new frontier for market structure” and said watchdogs should respond in an “urgent and creative” way.
Consumer advocates also raised concerns about market abuse. Ben Schiffrin warned that “You could envision insider trading taking place in these KPIs just as easily as you could in the stocks,” adding that policing that is “the SEC’s job.”
CFTC-SEC jurisdiction fight is still unresolved
The two agencies jointly sought public feedback in June on which one should be the lead watchdog for these contracts, leaving the core jurisdiction question unsettled as the explosive growth of any prediction markets continues to blur the lines between traditional finance and wagering..
Traditional financial firms and consumer groups want the SEC to take the lead, according to the report. The debate has also reached Capitol Hill. Sen. Adam Schiff said Congress should not let the industry “sidestep America’s securities laws by wrapping traditional financial products in the guise of prediction contracts.”
What happens next remains unclear. Open questions include whether either agency will claim primary oversight, whether formal rulemaking or enforcement follows the public-comment process, and how broadly regulators apply existing swap laws to stock-linked event contracts.
Source: As reported by moneycontrol.com.
