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SEC Chair Paul Atkins called prediction markets “a huge issue” for federal regulators Wednesday, as the Senate Banking Committee pressed officials from both the SEC and CFTC to explain who holds authority over platforms like Kalshi and Polymarket — which have grown to tens of billions of dollars in trading volume with no clear regulatory home.
The hearing underscored mounting concern in Washington over how to oversee platforms such as Kalshi and Polymarket, which allow users to speculate on elections, sports, and economic outcomes.
As volumes swell into the tens of billions of dollars, lawmakers and regulators are grappling with who has authority and how to apply existing securities and commodities laws to this emerging market structure.
The debate over prediction markets regulations reflects broader questions about financial innovation, investor protection, and the boundaries between securities and derivatives law.
With both the SEC and the Commodity Futures Trading Commission (CFTC) potentially claiming jurisdiction, the issue has evolved into a test case for interagency coordination in digital-era markets.
At the hearing, Atkins acknowledged that the legal framework governing these platforms is not always straightforward.
“Prediction markets are exactly one thing where there’s overlapping jurisdiction potentially,” — Paul Atkins, Chair, U.S. Securities and Exchange Commission.
Historically, the CFTC has served as the primary federal regulator for derivatives markets, including certain event contracts.
However, prediction markets regulations may fall under SEC oversight if contracts are structured in ways that resemble securities. Atkins told lawmakers that statutory definitions remain central to determining jurisdiction.
“We have enough authority,” — Paul Atkins, Chair, U.S. Securities and Exchange Commission.
He added that “a security is a security regardless how it is and some of the nuance with prediction markets and the products depends on wording.”
The remarks highlight how prediction markets regulations hinge on contract design and disclosure language.
If a contract meets the legal definition of a security, it would trigger SEC registration and compliance requirements.
If categorized as a derivative or commodity-based event contract, it would more likely fall under CFTC supervision.
SEC officials are reportedly meeting weekly with their counterparts at the CFTC, reflecting the urgency of clarifying oversight boundaries as these platforms scale.
Platforms such as Kalshi and Polymarket have expanded significantly since the 2024 U.S. election cycle, offering markets tied to political outcomes, macroeconomic data releases, and major sporting events.
The acceleration in trading activity has pushed prediction markets regulations into the spotlight as volumes grow and public participation widens.
CFTC Chair Michael Selig signaled that regulators are seeking balance rather than outright prohibition.
“We want to make sure that we have a framework that protects market participants without driving activity offshore,” — Michael Selig, Chair, Commodity Futures Trading Commission.
That tension protecting participants while preserving domestic innovation lies at the heart of current prediction markets regulations discussions.
Lawmakers have raised questions about market integrity, insider trading risks, and whether political event contracts blur the line between financial hedging tools and gambling.
Recent reports have also highlighted state-level litigation, where some authorities argue that certain offerings could constitute illegal gambling under local statutes.
The patchwork nature of these challenges adds another layer of complexity to federal prediction markets regulations, as state and federal standards may diverge.
As regulators evaluate prediction markets regulations, insider trading and information asymmetry have emerged as focal points.
Political event markets, in particular, raise concerns that participants with privileged information could gain unfair advantages.
Although no sweeping federal enforcement actions have been announced in connection with these hearings, legislators have introduced proposals aimed at limiting or refining political event betting structures.
The debate reflects longstanding U.S. sensitivities around wagering on elections and other civic processes.
The broader question is whether prediction markets serve a legitimate economic function such as price discovery and risk hedging or whether they operate primarily as speculative venues.
Advocates argue that such platforms can aggregate information efficiently, while critics contend that the social and ethical implications warrant tighter guardrails.
For crypto investors and fintech entrepreneurs, the trajectory of prediction markets regulations could shape how future tokenized event contracts or decentralized derivatives platforms are treated under U.S. law.
Clear jurisdictional guidance may encourage compliance-driven innovation, while ambiguity could push development into less regulated offshore markets.
The Senate hearing signals that prediction markets regulations are moving higher on the federal policy agenda.
With overlapping authority between the SEC and CFTC, ongoing interagency meetings suggest that a coordinated framework may be forthcoming.
Atkins’ assertion that existing authority is sufficient indicates that regulators may rely on current statutes rather than seeking entirely new legislation.
At the same time, calls for clarity reflect industry demand for predictable compliance pathways.
As trading volumes grow and political event contracts remain controversial, prediction markets regulations will likely continue evolving through a mix of agency guidance, enforcement decisions, and potential legislative adjustments.
For market participants, the outcome will determine whether these platforms become a mainstream financial product or remain a regulatory gray zone under sustained scrutiny.
