SEC seeks public input on prediction ETFs

The U.S. Securities and Exchange Commission has put on hold the launch of a new class of exchange-traded funds tied to real-world events and will seek public input before deciding how to regulate them, Chairman Paul Atkins said Wednesday.

The move delays 24 proposed “prediction market” ETFs that had been slated to begin trading earlier in May, and signals that regulators want a broader debate on the risks, structure, and legal status of these products before they reach mainstream markets.

Focus on event-based ETFs and unresolved regulatory questions

Atkins said the SEC is reviewing “complex regulatory questions” around ETFs whose value depends on the outcome of events rather than on traditional assets such as stocks, bonds, or commodities. He has instructed staff to gather public feedback before the Commission chooses a regulatory approach.

The affected ETFs, first filed in February, were nearing the end of a standard 75-day review window when the SEC intervened. The Commission has not provided a new timeline for when, or if, these offerings may proceed.

Products tied to elections, layoffs, and recession risk

The proposed funds would track the outcomes of political and economic events, including:

• the 2028 U.S. presidential election
• large-scale layoffs in the technology sector
• the likelihood and timing of a U.S. recession

Regulatory filings warned that traders in these funds could lose “substantially all” of their holdings if markets moved against them, underscoring the speculative nature of the products and their binary payoff structure.

Rapid growth in prediction markets behind ETF push

The ETF applications follow a sharp rise in activity on event-based trading platforms such as Polymarket and Kalshi. Together, those two platforms reached about $25 billion in monthly trading volume in April, supported by updated regulatory guidance and deeper engagement from U.S. authorities.

Across all prediction platforms, aggregate trading volume has climbed to roughly $29.8 billion. Recent data show a shift in market leadership, with Kalshi’s volume rising to $14.8 billion and Polymarket posting $10.2 billion in April, reflecting fast-changing competitive dynamics in a sector these ETFs aim to mirror.

Regulators weigh jurisdiction and legal boundaries

The SEC’s review comes amid an ongoing jurisdictional tussle over who should oversee event-based contracts, particularly between the SEC and the Commodity Futures Trading Commission. Both agencies have signaled interest in the space, but clear primary authority has not yet been established.

The uncertainty is amplified by scrutiny from federal lawmakers, who have questioned:

• whether event contracts invite insider activity when outcomes depend on policy or corporate decisions
• whether certain products are too close to gambling and could conflict with state-level gaming laws

Methodical approach could redefine access to speculative markets

Atkins said the pause is intended to ensure that the SEC handles these emerging products “transparently and methodically.” The approach suggests a preference for establishing clear frameworks and protections before allowing such instruments into standard brokerage accounts.

For traders familiar with high-volatility, lightly regulated prediction markets, the move is a sign that established financial authorities are drawing firmer boundaries around how, and where, event-driven speculation can occur. The outcome of this process could either open a regulated pathway for such products or sharply limit their access to public markets.

Public comment period to shape future rules

The forthcoming public consultation is expected to focus on:

• how to assess and communicate risk in event-linked products
• what disclosures are necessary for complex, outcome-based payoffs
• which types of traders these funds may be suitable for
• how to align ETF rules with derivatives and gaming laws

Submissions from fund sponsors, trading platforms, policy groups, and the public will offer the clearest view yet into how regulators are thinking about these instruments. Market participants are watching the process closely, as the eventual framework could define the rules of engagement for a new generation of event-driven financial products.

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