The SEC has warned that prediction markets offering contracts tied to corporate earnings could face enforcement over insider trading, fraud and market manipulation. Enforcement Director David Woodcock named no company and announced no charges. The CFTC, meanwhile, keeps oversight of federally registered prediction exchanges.
The SEC is monitoring prediction platforms and expects to pursue potential securities violations, Enforcement Director David Woodcock said, according to an October 29 Bloomberg report. He added that enforcement was likely in the future, but did not identify a particular company or announce new charges.
According to Bloomberg: "We're following that very closely", Woodcock said.
SEC targets contracts tied to company earnings
Woodcock's comments centered on contracts that let traders bet on financial results or key performance indicators. Such products can involve quarterly earnings, sales figures or other measures of a listed company's business performance.
The SEC has already approved a Cboe Global Markets proposal for binary options tied to corporate performance measures. The contracts let traders take positions on outcomes such as Citigroup's earnings per share or Apple's iPhone sales revenue. The approval covered Cboe's particular products, however, and did not establish that every prediction contract involving a company's performance falls under SEC jurisdiction.
SEC and CFTC seek clearer rules
In June, the SEC and CFTC requested public comments on the definitions of swaps, security-based swaps and products that combine features of both. Their questions covered market surveillance, enforcement cooperation and contracts that could involve overlapping regulatory authority across the derivatives market.
The CFTC has since taken further steps. An interim rule excluding casino-style gambling products from the definition of swaps took effect on October 19. A separate proposed rule would explicitly include certain event contracts involving sports, politics, culture and weather in that definition, with public comments due November 18.
Kalshi and Polymarket face scrutiny
The CFTC maintains primary oversight of federally registered prediction exchanges, including Kalshi and Polymarket's U.S. operations. On October 26, the agency filed a lawsuit against Utah to prevent state officials from enforcing gambling restrictions against federally regulated exchanges.
Insider trading allegations have already reached these platforms. In April, federal prosecutors and the CFTC accused a U.S. soldier of using classified information to earn more than $400,000 through Polymarket bets connected to the capture of Venezuela's former president Nicolás Maduro. The defendant pleaded not guilty, and the case remains pending.
Kalshi and Polymarket have said they prohibit insider trading, monitor suspicious activity and cooperate with regulators when potential misconduct arises.
Source: crypto.news
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