SEC hits brake on new ETF applications pending public input on risks

The U.S. Securities and Exchange Commission (SEC) has delayed the launch of “novel ETFs,” including event-betting products, after Chairman Paul S. Atkins requested public input on potential market effects.  

In a Wednesday statement, Paul Atkins stated that exchange-traded funds (ETFs) remain a “major driver of innovation in the securities markets.” He added that ETF assets had increased since 2019.

According to Atkins, several large fund issuers have freely agreed to delay the introduction or effectiveness of specific ETF products while the SEC evaluates their broader market ramifications. 

Prediction market ETFs face delays and uncertainty

Bloomberg ETF expert Eric Balchunas described the SEC’s move to solicit public feedback on prediction market ETFs as an indication that regulators are cautious about the new products. He pointed out that before granting broader market access, the Commission is considering the broader ramifications of the new ETF category and is requesting additional time and public feedback. 

SEC Chair is seeking public comments on prediction market ETFs.. the commission is clearly wrestling with these and wants more time and input. I get it. These are a whole new thing (kinda like crypto) and want to feel comfortable bf they open the barn door. pic.twitter.com/RdV0Rn8mSx

— Eric Balchunas (@EricBalchunas) May 20, 2026

Prediction markets are currently one of the most popular topics in cryptocurrency. According to industry experts, these markets currently handle over $15 billion in monthly trade activity, covering events such as elections, sports, financial results, and more.

The delay of novel ETFs follows a series of events, including the SEC’s pause on the launch of over two dozen exchange-traded funds (ETFs) linked to prediction markets on May 4. The agency is requesting further details from issuers on investor disclosures and product structure. The pause affected proposed funds from Roundhill Investments, GraniteShares, and Bitwise.

Bitwise submitted its filing on February 15 for several prediction-market ETFs under the PredictionShares brand to monitor the outcomes of the U.S. election. Roundhill Investments and GraniteShares both registered for prediction-market ETFs in February. 

The products were nearing the end of a 75-day review window before they would have automatically gone into effect under the SEC’s ETF fast-track regulations implemented last year. Bloomberg ETF analyst Eric Balchunas had anticipated a May 8 debut, while his colleague James Seyffart pointed out that Roundhill’s application had an effective date of May 5. 

In its February 2026 filings, Roundhill revealed that the risks associated with investing in event contracts are different from those associated with regular futures, options, or equities.

The company noted potential valuation uncertainty, settlement conflicts, and ambiguity about the definition of underlying events, including which data sources are used and when outcomes are determined. Investors could lose nearly all of their wealth if the verdict is unfavorable, according to some of the papers. 

Prediction markets face an expanding state and federal conflict

The latest SEC delay comes amid broader regulatory dynamics regarding prediction markets and associated platforms. Kalshi and other prediction-market operators have faced ongoing legal challenges in several U.S. state courts, highlighting the regulatory complexity as the industry seeks greater legitimacy. The SEC’s cautious review of prediction market platforms is influenced by Kalshi’s case and concerns of state-level outcomes. 

In March, Arizona became the first state to prosecute a prediction market platform. The state claimed that Kalshi Inc. operates an illegal gaming company in Arizona without a license and engages in election wagering. 

As of May 21,  at least 11 states have initiated enforcement action against prediction market platforms, and 30 have signed amicus briefs in support of cracking down on them. 

“Kalshi may brand itself as a ‘prediction market,’ but what it’s actually doing is running an illegal gambling operation and taking bets on Arizona elections, both of which violate Arizona law. No company gets to decide for itself which laws to follow.”

–Kris Mayes, Arizona Attorney General. 

The CFTC, meanwhile, has changed its stance on the regulation of prediction markets in recent years. According to Linda Goldstein, the agency is now “all in,” suing states to prevent enforcement, writing proposed rulemaking, and developing rules to prevent insider trading and market manipulation.

Initially, the government questioned whether event contracts constituted swaps within its jurisdiction. 

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