SEC, CFTC Seek Public Input on Derivatives Rules as Kalshi, Polymarket Debate Grows

The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission are moving to revamp the regulatory framework for derivatives, including prediction markets.

In a joint statement on June 18, the SEC and CFTC said they are opening a public comment process on derivatives definitions and standards for regulatory jurisdiction. The agencies said the review will examine whether the current framework adequately reflects changing market structures and new financial products.

The review covers regulatory definitions and jurisdictional interpretations for swaps, security-based swaps, mixed swaps and new financial products. The agencies will also consider how to clarify areas where regulatory standards remain unclear and whether alternative regulatory frameworks should be introduced.

The SEC specifically cited the need to address regulatory uncertainty surrounding prediction markets. These markets, where people bet on the likelihood of events such as U.S. presidential election results, benchmark interest-rate decisions and whether the economy will enter a recession, have expanded rapidly in recent years, led by Kalshi and Polymarket.

SEC Chairman Paul Atkins said clarification of Title VII definitions, including those covering event-based products, had long been needed. He added that the effort should help create a level playing field so established financial firms and new entrants can compete and innovate regardless of whether they are registered with the SEC or the CFTC.

CFTC Chairman Michael Selig said the process offers a chance to resolve longstanding uncertainty under Title VII of the Dodd-Frank Act. Unclear rules have hampered fair competition and responsible innovation, he added.

Industry participants view the move as linked to the broader regulatory debate surrounding Kalshi and Polymarket. In the U.S., discussion has continued over whether prediction markets are financial products or gambling products, and whether they should be overseen by the SEC or the CFTC.

The two agencies will collect feedback from industry groups and market participants for 60 days after the notice is published in the Federal Register.