Prediction market platforms may soon come under the scrutiny of a second federal agency.
The Commodity Futures Trading Commission (CFTC) is currently the regulator for sites like Kalshi that offer sports outcome contracts. The CFTC announced in a joint letter with the U.S. Securities and Exchange Commission (SEC), a bipartisan body that protects investors and enforces securities laws, that they have an interest in clarifying the controversial markets.
The statement, released Friday, came from SEC chair Paul Atkins and acting CFTC chair Carolina D. Pham.
“Prediction markets, while they have existed around the world for decades, are undergoing rapid growth with growing demand from both market operators and the public,” the two federal agencies wrote in their letter. “We should work together to provide clarity for innovators that want to list event contracts on prediction markets responsibly, including those based on securities. The SEC and CFTC should examine opportunities to collaborate to consider where event contracts may be made available to U.S. market participants regardless of where the jurisdictional lines fall.”
Kalshi’s battles
The last point is a big contention right now in the U.S. Kalshi, which burst on the scene last fall when it won a court decision to allow outcome contracts on the Presidential Election, is federally regulated. The prediction market company does not answer to state regulators where sports betting is legal, even though Kalshi introduced sports contracts earlier this year in all 50 U.S. states.
Kalshi has been battling state regulators who want to end the prediction platform’s ability to offer sports contracts on popular leagues like the NFL, NBA, MLB, NCAA, and others.
However, the CFTC has not made any definitive ruling or made any real enforcement concerning prediction markets, despite the constant growth.
Other parties involved
How soon the CFTC and SEC could start working together on prediction markets, and how involved they will get with sports contracts, is unknown, but this joint announcement comes at an interesting time for FanDuel.
The No. 1 sports betting operator in the U.S. recently partnered with CME Group to offer non-sports prediction markets on its highly accessible and popular app. FanDuel operates in more than 20 U.S. jurisdictions.
Underdog, which operates both a sportsbook and a popular daily fantasy sports site, is now offering “game winner” picks in 16 states where sports betting isn’t legal and regulated through a partnership with Crypto.com.
A new era
The SEC and CFTC are set to join forces in several other areas, including cryptocurrency, perpetual contracts, other 24/7 markets, and portfolio margining. The duo’s goal is to help innovation thrive in the U.S. by providing new regulatory environments.
“Today, we are ready to usher in a new era of innovation by recalibrating our posture toward regulatory cooperation,” the CFTC and SEC chairs said in the statement. “By harmonizing our regulatory frameworks, leveraging exemptive authorities, and collaborating on innovative products and trading platforms, the two agencies could unlock new opportunities for market participants, foster innovation, and solidify the United States as the global leader in crypto and blockchain technology.”
