SEC Faces Pushback Over ETFs Tied to Prediction Markets

The SEC opened a public comment request on June 30 asking whether exchange-traded fund sponsors should be allowed to expand products into unconventional asset classes and strategies, including prediction markets and additional cryptocurrency exposures. The comment period runs through the end of August.

The agency said the outreach aims to support fund innovation while addressing risks as ETF assets rose from $4 trillion in 2019 to more than $12 trillion by year-end 2025.

Early submissions to the SEC expressed skepticism about allowing ETFs that would track prediction-market–style contracts. Tim Thompson wrote that “ETFs as an investment vehicle should not be allowed for such speculative events” and warned that funds tied to event contracts would exacerbate gambling-like behavior. JoAnn Dolan urged regulators not to expand novel ETFs, writing they would “expose a broader number of investors to greater financial risk.”

Several ETF proposals prompted the agency’s review. Roundhill Investments filed in February to register six ETFs tied to presidential and congressional election results; the SEC paused consideration in May after the commission’s chair requested a pause, saying the filings raised “novel questions.” The agency has also delayed action on proposals from Bitwise and GraniteShares that would give ETF holders exposure to prediction-market outcomes.

The SEC asked for input on whether novel ETFs should remain governed by the Investment Company Act of 1940, whether the current registration and review process can handle more complex ETF structures, and whether Rule 6c-11 needs amendments to address liquidity, valuation and leverage risks in new product designs.

Brian Daly, director of the SEC Division of Investment Management, noted the agency is seeking public feedback to help answer those questions and guide future ETF development. Neil P. Osnato, founder of Persistence Analytics Group, wrote that regulators should not block new ETF structures outright but should ensure investors can understand and verify the exposures they are buying, summarizing his view as “Trust the wrapper. Verify the exposure.”

An analyst, Jeffrey Ptak, wrote in an op-ed that prediction-market ETFs would reference events with no intrinsic economic value and be effectively zero-sum, and that wider participation could further financialize wagering.

Some novel ETFs already trade, including products tied to bitcoin and other crypto. The SEC will collect comments through the end of August before determining whether to propose specific regulatory changes.