The Commodity Futures Trading Commission has been the lead regulator on event contract exchanges for over 30 years, but legal experts now increasingly expect the U.S. Securities and Exchange Commission to also play a role in this booming asset class. The jurisdictional question is actively being sifted through by both agencies, which last month issued a joint request for public comment on updating definitions related to swaps and novel products.
Why the SEC could get involved
The potential for SEC involvement stems from the 2010 Dodd-Frank law, which gives the SEC jurisdiction over securities-based swaps. While the CFTC typically regulates swaps, event contracts tied to a single security — such as a contract asking whether Nvidia stock will end the month up more than 5% — may fall under the SEC's purview. The definition of securities-based swaps also includes contracts that directly affect a company's financial statements, but what "directly affects" means has long been an open question.
"That ambiguity is exactly what's being tested now in real time," said Sarah Razaq Sallis, a partner at Husch Blackwell. For example, a contract on when Apple will release a new iPhone model isn't directly tied to share price but could impact Apple's stock. Whether such contracts are securities-based swaps will determine the SEC's role.
A complicated history between the agencies
The SEC and CFTC have a decades-long rivalry over jurisdictional boundaries, most recently clashing over cryptocurrencies. Despite similar structures, the two agencies have fundamentally different regulatory approaches. In March, they announced a memorandum of understanding to establish clear definitions and coordinate oversight. With both agencies currently having vacant commission seats — the SEC has three Republican commissioners seated, while the CFTC has only its Republican chairman — experts say this is a convenient time for cooperation.
"I think this is the easiest time for these two agencies to get on the same page," said Aaron Klein, a senior fellow at the Brookings Institution.
What this means for prediction market platforms
Legal experts broadly expect the SEC to take a supportive role while the CFTC retains primary authority. Prediction market platforms like Polymarket and Kalshi are already engaging with both agencies. Polymarket confirmed it has discussed definitional frameworks with the CFTC and SEC, while Kalshi declined to comment. The CBOE has filed to operate binary options contracts under the SEC's regulatory orbit.
Troy Dixon, co-head of global markets at TradeWeb Markets, said clarity from both agencies is critical for institutional adoption. "To the extent that the SEC actually chimes in, and there's some sort of broad co-working between the two agencies… it expedites it pretty substantially," he said. However, some experts warn that SEC involvement could bring tighter trader protections, including more cumbersome account opening processes. Peter Chan, a former SEC employee now at Baker McKenzie, advised the agencies not to rush rulemaking but to focus on real-time learning first.