SEC Chairman Paul Atkins said the agency could coordinate with the CFTC to regulate the market, anticipating the industry quadruples by 2025 to reach $63.5 billion.
Speaking before the Senate Banking Committee, Atkins asserted that the prediction market falls under the jurisdiction of both the Securities and Exchange Commission and the U.S. Commodity Exchange Commission due to its mixed nature of finance and gambling. Some people use these platforms to trade based on economic or market expectations, while others bet on election results, sports, or major public events.
According to the SEC chairman, some forecast contracts are resembling securities, requiring the SEC to not stand aside and leave the entire job to the CFTC. The agency may need to intervene if the products operate as investments tracking already managed assets, such as when contracts track the price of a single stock. Mr. Atkins emphasized that the SEC already has the authority to act without waiting for Congress to pass new legislation, and encouraged coordination with the CFTC to avoid legal vacuum.
Rapid growth attracts close scrutiny.
A report from Certik shows that the prediction market has more than quadrupled in size this year, reaching a valuation of $63.5 billion. This is a significant increase for a sector that started operating in the US less than two years ago. The largest platforms, such as Kalshi and Polymarket, are now valued at approximately $11 billion and $9 billion respectively, indicating that the prediction market has penetrated deeply into mainstream finance, with much of the growth occurring in 2024, coinciding with the election period.
The sector's rapid growth has led many officials to worry that regulations are not keeping pace. It faces opposition from state regulators, with some states filing lawsuits arguing that sports-betting-like contracts are unlicensed and should fall under state gambling laws.
Reports of insider trading, where some individuals may trade unfairly before information is publicly available, have prompted agencies to propose legislation restricting certain types of betting, particularly related to political events.
CFTC Chairman Michael Selig explained that the forecast market can still be used to determine public expectations and the amount of risk, but stressed the need for a robust regulatory framework to ensure legitimacy and safety. He warned that without proper regulation, the industry could shift to countries with lower levels of regulation, weakening the U.S.'s ability to oversee this rapidly growing sector.
