A surge in filings for prediction market Exchange-Traded Funds (ETFs) is putting pressure on regulators, including the Securities and Exchange Commission (SEC), to quickly develop appropriate regulatory solutions. However, this hasn’t happened yet, as the SEC hasn’t approved any prediction-market ETFs.
There’s a Growing Number of Prediction Market ETF Filings
The issue became more apparent earlier this year when Roundhill Investments filed plans for a series of funds designed to hold baskets of political derivatives traded on yes/no exchanges. Bitwise and GraniteShares followed Roundhill’s lead, but the SEC subsequently put the approval of the electoral event contract ETFs on hold, saying it needed more time to examine what it described as “novel” fund structures.
According to analysts at Cornerstone Research, an economic and financial consulting firm, the two companies “extend the concept beyond politics to economic outcomes tied to technology-sector layoffs, recession risk, and prices in cryptocurrency and oil markets.”
Another issuer proposed a range of ETFs that, if approved, would hold baskets of event contracts tied to climate, economic, and policy decisions. The SEC has yet to approve any of these products. More recently, at least three issuers filed plans for a staggering 128 ETFs, which also include 32 leveraged funds, that would effectively allow investors to bet on NHL team performance.
Experts Warn of Risks
The SEC’s public comment period on novel ETFs is set to close at the end of this month. However, Cornerstone’s experts caution that the deadline does not necessarily signal that further regulatory action is imminent.
According to them, the request for comment is not tied to a proposed rule, and the SEC has not indicated whether it will act on pending filings before or after any resulting proposal. They also point to the Commodity Futures Trading Commission (CFTC)’s June 2026 rulemaking on prediction markets and ongoing litigation over state-law preemption as factors that could determine which event contracts remain available as reference assets.
The authors also flag several key risks facing prediction market ETFs. In addition to concerns over liquidity and concentration, these products raise questions about the potential for insider trading and remain caught in uncertainty over how the IRS will treat them for tax purposes.
In other news about the CFTC, an attorney criticized it after the organization allowed Kalshi to disobey orders from a New York court and continue offering its products in the state.