What is changing
Add the SEC to the list of agencies eyeing prediction markets. According to the regulator, contracts that reference a company's performance metrics or earnings figures may qualify as securities, placing them within its jurisdiction. Enforcement Director David Woodcock put a finer point on it, saying the agency is "following that very closely" and must be ready to act on fraud and other securities violations. He highlighted insider trading and market manipulation as the main issues and said enforcement is likely "in the future, for sure."
The current enforcement map
Day to day, the Commodity Futures Trading Commission has handled most oversight of platforms such as Kalshi and the U.S. arm of Polymarket, treating bets across topics like sports and elections as swaps within its jurisdiction. The CFTC has already brought several cases this year. This year's docket included Ex Congressman George Santos agreeing to pay more than $35,000 to resolve claims he manipulated Kalshi markets, while the CFTC also reached a settlement with a White House teleprompter operator over allegations by the CFTC tied to purported insider activity on Kalshi. In April, federal prosecutors and the CFTC alleged that a U.S. soldier exploited classified details regarding when then Venezuelan President Nicolás Maduro would be captured to earn over $400,000 on Polymarket; the case is still ongoing, and the soldier has entered a not-guilty plea.
Kalshi and Polymarket say they oppose insider trading, monitor for risks, and report suspicious activity to authorities. The CFTC views the venues as derivative exchanges, but some states call them illegal gambling outfits avoiding local rules, a clash that is expected to end up at the U.S. Supreme Court.
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Why investors should care
The jurisdiction lines are being redrawn. The SEC and CFTC jointly asked for public input on how to define certain swaps and derivatives to clarify who regulates what. Since that request, Cboe Global Markets won SEC approval to list options linked to corporate performance metrics, letting customers trade on items such as Citigroup's earnings per share and Apple's iPhone net sales.
The bottom line: products tied to company metrics can land on the SEC's plate, and the agency is preparing to act. If your portfolio touches markets that hinge on earnings or other corporate measures, expect more scrutiny and a greater premium on clean data and compliant structures.
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