As the United States predicts a rapid rise in market transactions, the issue of regulatory attribution begins to move from industry discussions to formal harmonization. The CNBC reported that the legal community generally expected that the United States Securities and Exchange Commission (SEC) might soon assume some of its supervisory responsibilities in this emerging asset class, while the Commodity Futures and Exchange Commission (CFTC) would retain its dominant position.
Polymarket confirmed to CNBC that the company had communicated with SEC and CFTC on a definitional framework for predicting market products. The competitor, Kalshi, did not respond to any contact with the two institutions. The core issue of the current United States forecast market is no longer just whether the platform can be expanded, but who should regulate the different types of event contracts.
Joint comments initiated
CFTC is permanently responsible for the regulation of the Incident Contract Exchange. As early as 1992, the Agency ruled on Iowa Electronic Markets, a platform that was usually considered one of the earliest forecast markets.
However, with the expansion of product coverage, some of the contracts began to touch the regulatory scope of the SEC. Last month, the SEC and CFTC jointly issued a public consultation on how to update, clarify and harmonize a number of definitional issues, including swap contracts and the treatment of “new or emerging products”.
According to legal sources, this means that the two institutions are already looking substantively at the boundary of the forecast market, rather than remaining in theoretical controversy.
The key difference is whether the contract is tied to the securities.
Under the current framework, CFTC usually regulates swap products, but the SEC may also have jurisdiction if the relevant contract is a “securities swap”. The focus was on whether the event contract was directly related to a single security or whether it would directly affect the financial position of a listed company.
For example, if the question of a particular contract is “Isn't Britain's stock price rising by more than 5 per cent this month”, the result depends directly on the performance of a single listed company's stock, which is closer to a stock swap.
However, the lack of a uniform legal answer to the boundaries of the expression “direct impact” has also led to the eventual involvement of the SEC, with considerable uncertainty.
Wall Street is more concerned about the harmonization of rules.
In addition to the predictive platform, traditional exchanges are also trying to introduce similar products under the SEC regulatory system. Cboe has submitted a paper seeking to introduce a dual option contract around key performance indicators of several large companies.
The market is more concerned about whether the two institutions can avoid duplication of regulation. Polymarket indicates that the cost of innovation may be raised if the SEC and CFTC make overlapping or conflicting compliance requirements. For the Platform, clearer definitions and more consistent regulatory processes are more important than simply adding a regulator.
Institutional investors also await clear rules. Tradeweb, a market infrastructure company that works with Kalshi, believes that a clearer framework for collaboration between the two institutions would help facilitate faster access to the forecast market on Wall Street.
Some legal sources expect that even if the SEC were involved, its role would be more likely to favour support, and that the CTC would remain the primary regulator. But if the SEC is more involved, the opening and compliance processes of the platform for traders may also be tightened.