Tidal Files for Two Prediction-Market ETFs Tied to Fed FOMC Rate Decisions

Tidal Investments has filed for two prediction-market exchange-traded funds that would invest in event contracts tied to US Federal Reserve interest-rate decisions.

Henry Jim, a Bloomberg ETF analyst, said on September 8 that Tidal had submitted filings to launch the Prediction Market Fed Funds Consensus ETF and the Prediction Market Fed Funds Surprise ETF. The two funds are set to become effective on November 20, and management fees have not yet been determined.

Tidal Investments, an affiliate of Tidal Financial Group, will serve as investment adviser to both ETFs. Tidal plans to bear most of the funds' operating expenses itself, or have third parties cover them, excluding management fees and certain other costs.

The ETFs are structured to invest in event contracts tied to Federal Open Market Committee decisions on the federal funds target rate. The contracts are regulated by the US Commodity Futures Trading Commission. Rather than investing directly in event contracts, the funds would mainly gain exposure through over-the-counter total return swaps and prepaid forward contracts.

The Prediction Market Fed Funds Consensus ETF would build its portfolio around event contracts reflecting the rate outcome the market views as most likely at scheduled FOMC meetings. It is expected to hold exposure to about five to 40 event contracts at a time across multiple FOMC meetings and federal funds target-rate outcomes.

The Prediction Market Fed Funds Surprise ETF would also use event contracts based on FOMC rate decisions. The filing materials did not specify how the Surprise ETF's portfolio would be constructed or how its strategy would differ in detail from the Consensus fund.

If launched, the products would allow investors to gain indirect exposure through ETFs to event contracts tied to FOMC interest-rate decisions without participating directly in individual prediction markets.