CASTEN URGES SEC OVERSIGHT OF PREDICTION MARKETS

The following information was released by the office of Illinois Rep. Sean Casten:

U.S. Representative Sean Casten (IL-06) led seven House Democrats in asking the Securities and Exchange Commission (SEC) to clarify its jurisdiction over prediction markets that reference securities or related financial metrics.

"We recognize that event contracts tied to the performance of U.S. financial markets may present opportunities for investors and businesses to hedge their risks, protect their portfolios, and offset potential losses. However, without appropriate safeguards, these contracts can be highly susceptible to manipulation and insider trading," the lawmakers wrote. "...Therefore, we urge the SEC to issue guidance regarding the regulatory treatment of event contracts that reference individual securities, securities indexes, or other related metrics, which will help provide much-needed clarity to investors, market participants, and the public."

Event contracts, often referred to as "prediction markets", are generally structured as financial derivatives that are called binary options. These contracts "derive" their value from whether the underlying event occurs and provide investors with a predetermined all-or-nothing payout. Leading prediction market platforms currently offer event contracts that are based on the stock prices of publicly traded companies, the market capitalization of major stock indexes, and metrics that are linked to a company's SEC disclosures. These products are trading alongside other event contracts that are based on everything from the outcomes of sports games to the size of the national debt, the daily temperature in Chicago, and the winners of Love Island UK.

Under existing laws, the SEC has jurisdiction over derivatives markets related to securities, including security options and security-based swaps. In recent agency statements, the SEC specified that contracts based on the price of a public company's stock, or directly on a stock index, may fit within existing securities frameworks. As a result, these contracts would need to be listed and traded on SEC-registered exchanges, offered by regulated broker-dealers, cleared through an established and regulated clearing organization, and subject to robust investor protections.

In addition to Rep. Casten, the letter was signed by Reps. Bill Foster, Jim Himes, Vicente Gonzalez, Brad Sherman, Ritchie Torres, Gregory Meeks, and Janelle Bynum.

Text of the letter can be found below. Text of the letter can be found here.

Dear Chair Atkins:

We write to request that the Securities and Exchange Commission (SEC) issue formal guidance to clarify whether event contracts that reference securities or related financial metrics are subject to SEC oversight.

Event contracts, commonly referred to as prediction markets, are structured as binary options that settle based on whether the underlying event occurs. Some prediction market platforms allow users to trade event contracts based directly on securities indexes such as the SandP 500, Nasdaq-100, or the Russell 2000, or the share prices of large publicly traded companies like Apple, Amazon, and Nvidia.

Certain exchanges also list event contracts tied to metrics disclosed in quarterly or annual SEC filings that may inform a company's market value. This includes contracts that predict Google's quarterly earnings, Coinbase's total trading volume, how many restaurants Cava will open, or how many car deliveries Tesla will make.

We appreciate the SEC's efforts to provide clarity on the regulatory treatment of innovative, new financial products. Notably, in its January 28, 2026 statement on tokenized securities, the SEC stated that "any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities, including any interest therein or based on the value thereof" is excluded from the definition of a "swap" and subject to the SEC's exclusive jurisdiction. We further appreciate that the SEC and the Commodity Futures Trading Commission (CFTC) reference this exclusion in the June 18, 2026 joint request for comment on the definition of swaps and security-based swaps. This suggests that event contracts based on the price of a public company's stock or directly on a stock index fit within existing securities frameworks.

Legal experts have also indicated that contracts that are tied to specific outcomes for publicly traded companies, such as earnings announcements, could be considered securities subject to the SEC's jurisdiction. It would be prudent for the SEC to conduct the appropriate legal analysis and determine whether these contracts should be regulated as securities products.

We recognize that event contracts tied to the performance of U.S. financial markets may present opportunities for investors and businesses to hedge their risks, protect their portfolios, and offset potential losses. However, without appropriate safeguards, these contracts can be highly susceptible to manipulation and insider trading.

Under the existing regulatory framework for derivative securities, the SEC ensures that these products are offered by regulated broker-dealers, traded on SEC-registered exchanges, and cleared through a regulated clearinghouse. These rules appropriately balance investor protections, market oversight, and innovation.

You have previously indicated that prediction markets may involve "overlapping jurisdiction" and that the SEC "ha[s] enough authority" to regulate this space. Therefore, we urge the SEC to issue guidance regarding the regulatory treatment of event contracts that reference individual securities, securities indexes, or other related metrics, which will help provide much-needed clarity to investors, market participants, and the public.