US Securities Regulator Delays Novel ETFs, Including Prediction Markets

The US securities regulator is delaying the launch of a recent wave of “novel ETFs,” including those that allow investors to bet on the outcome of events, to consider the implications of introducing the new products.

In a statement on Wednesday, SEC Chair Paul Atkins said that “novel products raise novel questions” and instructed his staff to seek public feedback on how the regulator should respond to these applications.

Bitwise filed in February for a series of prediction market ETFs under the PredictionShares brand to track US election results, while Roundhill Investments and GraniteShares also filed for prediction market ETFs that month.

Prediction markets have become one of crypto’s hottest use cases over the past 18 months and now consistently record more than $15 billion in monthly trading volume across markets spanning from sports and elections to financial results and cultural events.

A prediction market ETF would give investors a way to gain exposure to these binary event contracts directly through a traditional brokerage account. The journey mimics the institutionalization of cryptocurrencies such as Bitcoin (BTC) and Ether (ETH), which have seen billions in inflows into their respective crypto ETFs.

Bloomberg ETF analyst Eric Balchunas said the SEC is “clearly wrestling” with how to handle the new asset class, similar to how it navigated issues with spot crypto ETFs before approving them in January 2024.

The SEC wants to feel comfortable with prediction market ETFs before they “open the barn door,” Balchunas said.

Source: Eric Balchunas

The decision to delay the applications also comes as prediction market platforms like Kalshi continue to face court challenges in several US state courts.

SEC has been more open to innovative ideas

Atkins said ETFs have been a “major driver” of innovation in the securities markets, boosting capital and broadening investor choice while noting that ETF assets have tripled since 2019.

Related: Trump-backed Truth Social pulls bids for crypto ETFs

The SEC has shown more flexibility in approving innovative products in recent years, particularly after introducing the generic listing standard model in September and replacing the process of reviewing applications on a case-by-case basis.

Meanwhile, the SEC is reportedly considering creating an “innovation exemption” to allow tokenized stock trading, which would put versions of Apple (AAPL), Nvidia (NVDA), Tesla (TSLA) and other stocks on crypto rails.