SEC Delays Review of Prediction Market ETFs: Reuters

The US Securities and Exchange Commission has delayed the expected launch of the first exchange-traded funds (ETFs) linked to prediction markets after requesting more information about their structure and disclosures, Reuters reported Monday.

The delay affects more than two dozen proposed ETFs from Roundhill Investments, GraniteShares and Bitwise, according to Reuters, citing people familiar with the matter. The issuers filed for the products in February, and launches had been expected this week after a 75-day review period.

The proposed funds would give investors exposure to event contracts tied to binary outcomes, including elections, economic data and market prices, without requiring them to trade directly on prediction market venues such as Kalshi.

The delay marks another development in the US approach to regulating prediction markets, which have attracted scrutiny over insider trading, ethics and market manipulation concerns.

“Delay is likely temporary”

According to the sources cited by Reuters, the delay is likely temporary, suggesting that progress with the filings could resume once the SEC receives and reviews additional details from issuers on product structure and disclosures.

According to Bloomberg ETF analyst Eric Balchunas, the ETFs were expected to launch on Thursday. His colleague James Seyffart last week said Roundhill’s filing had an effective date of May 5, with the first prediction market ETFs linked to event-contract outcomes such as whether Democrats or Republicans control the House or Senate.

Source: James Seyffart

How prediction market ETFs would work

Prediction market ETFs are designed to give investors exposure to binary event contracts without requiring them to trade on specialized prediction markets platforms.

Specific features differ across more than 20 of the proposed ETFs, but the products generally use derivatives to track the odds of binary “yes” or “no” outcomes in underlying contracts traded on CFTC-regulated platforms such as Kalshi. These contracts settle at $1 if an event occurs and $0 if it does not.

Roundhill previously highlighted significant risks associated with the proposed ETFs in its February filings, stating that investments in event contracts involve “unique risks that differ from those associated with traditional futures, options or securities.”

Related: A16z sides with CFTC against states seeking to ban prediction markets

The company said such investments could result in significant losses, valuation uncertainty and deviations from the fund’s investment objective.

It also pointed to potential settlement issues tied to how event outcomes are interpreted, including errors, ambiguities or disputes over the definition of the underlying event, the data sources used or the timing of determination.

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