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US Exchanges Crash Prediction-Markets Party
Wall Street wants to put a suit and tie on prediction markets.
Nasdaq and Cboe are introducing binary betting products that let investors wager on financial market outcomes, such as whether a stock index will hit a certain level or where a share price might land after a company’s earnings call. That subject matter could differentiate them from prediction market platforms known for hosting bets on topics like what color Gatorade will be splashed on Super Bowl champions or when the US government will confirm aliens exist (a real bet on Polymarket with more than $44 million in contracts).
The main way exchanges are trying to button up prediction markets is by launching their offerings under the approval of the Securities and Exchange Commission, not the Commodity Futures Trading Commission. While the former polices stock markets and has historically taken a more aggressive approach to enforcement, and the latter oversees markets for physical assets from gold to coca and corn, the boundary gets murkier with digital assets. In the world of prediction markets, the distinction is about as messy as a line a toddler might make with a marker, a wall, and five minutes unsupervised.
Kalshi, the largest platform in the US by far, and Polymarket’s US outfit are both regulated by the CFTC, as are binary-betting options from crypto exchanges Coinbase and Gemini.
But while these platforms maintain that their offerings should be federally regulated, many states don’t agree. Prediction markets have been on the hot seat for years as states side-eye their claims that outcome-related contracts on sports events aren’t the same as sports gambling, which is highly regulated by individual states.
While Minnesota enacted the first statewide ban on the platforms last week, President Trump is on the side of prediction markets, writing on Truth Social last week that the CFTC has, and should continue to have, sole authority over prediction markets. He called out state-level regulators who have pursued legal action against prediction markets, including Minnesota Gov. Tim Walz.
While Minnesota’s law doesn’t explicitly mention wagers on financial outcomes in its definition of prediction markets, it kicks off its list with the phrase “including but not limited to.”
Cboe’s executive vice president and head of derivatives, Rob Hocking, draws a clear line on what kinds of binary bets should fall under the SEC’s jurisdiction. “If it directly affects the company’s financial performance or is material non-public information that, if I were trading in the traditional markets, would be disclosed, it should be a security regulated by the SEC,” Hocking said.
Any less direct prediction-style bets about a company (Hocking made up an example about how many times Elon Musk says “XYZ” in an earnings call) aren’t securities and aren’t going to directly affect a company’s performance, according to Hocking. Platforms including Kalshi and Polymarket offer bets similar to Hocking’s example, but also bets that more closely mirror the kinds of wagers Cboe and Nasdaq are planning for their own products. Kalshi’s “Finance” tab shows users have wagered billions on contracts for how high the S&P and Nasdaq will reach this year, as well as whether companies like Tesla and eBay will meet different financial targets.
Ambiguity could extend beyond the “Finance” tab, James Angel, an associate professor at Georgetown who specializes in financial regulation, explained to The Daily Upside. When asked about prediction-market bets on the weather, Angel said, “You can make arguments that there are people who have legitimate risk management issues around things like rain, like farmers.”
Angel said the reason financial companies want their products regulated by the SEC and not the CFTC could be as simple as, “The devil you know is better than the one you don’t.” Cboe and Nasdaq have long-standing relationships with the SEC that platforms like Kalshi lack.
Kalshi and Polymarket, which aren’t registered security exchanges, have valid reasons for wanting the CFTC’s mandate over prediction markets to be as broad as possible, Hocking said. “If these get designated as securities, either they need to go through the registration process to become a licensed securities exchange or they have to alter the contracts,” he noted. For now, the platforms have Trump’s backing to stay under the CFTC.
The Trump presidency has skewed the power balance toward the CFTC, a sharp pivot from when a Gary Gensler-led SEC (under former President Joe Biden) pushed to regulate another emerging market that stirred debates about which agency should monitor it: crypto. Under Trump, the SEC has backed down from attempts to have more oversight over new financial products, scrapping various lawsuits.
