For more than 30 years, the Commodity Futures Trading Commission (CFTC) has been the lead regulator for prediction markets. The agency's oversight began after a 1992 decision regarding the Iowa Electronic Markets. But the business has grown a lot since then. Platforms like Polymarket and Kalshi let people bet on various events, such as whether a company's stock will hit a certain price.
That growth has created a gray area. The Dodd‑Frank law, passed in 2010, gave the Securities and Exchange Commission (SEC) authority over something called securities‑based swaps. Those are contracts tied to a single stock or bond.
If a prediction market lets you bet on a company's stock price or the launch date of its next product, that starts looking a lot like a swap. And that means the SEC might have a claim.
"The CFTC has come out saying that they have jurisdiction over the event contracts, but there's also some that seem like they're more in the SEC's realm," says Joe Zales, a partner at law firm King and Spalding.
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The two agencies have a history of bumping into each other. Jerome Tomas, who works at Baker McKenzie as a partner and previously served at the SEC, offers a blunt assessment: "These agencies have been at each other's throat jurisdictionally."
The push for clarity picked up speed this year. In March, both agencies stated they had reached a memorandum of understanding concerning definitions and coordination.
Right now, neither agency is fully staffed. At the SEC, just three of the five commissioner positions are filled, all by Republicans. Michael Selig, the CFTC chairman and a Republican, serves as the sole seated commissioner on a board that normally has five members.
Industry players are watching closely. Polymarket has engaged with both agencies on product definitions. Kalshi declined to say whether it has talked to them. The CBOE filed to operate binary options contracts under SEC rules.
"I think this is the easiest time for these two agencies to get on the same page," says Aaron Klein, a senior fellow at the Brookings Institution.
The big question for anyone using a prediction market is what comes next. The two agencies are working to harmonize their definitions so they don't write conflicting rules. Attorneys generally agree that the situation is still uncertain.
Nobody knows exactly how it will shake out. Jeff Le Riche, a former CFTC chief trial attorney now at Husch Blackwell as a partner, describes the situation as a "jump ball."
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