SEC chair signals prediction markets are a regulatory flashpoint

Washington regulators have made prediction markets a focal enforcement and policy issue as event-based trading scales and produces novel legal questions. SEC Chair Paul Atkins told lawmakers the emergence of these instruments raises intertwined securities and commodities concerns, prompting more routine coordination with the Commodity Futures Trading Commission even as the precise division of authority remains unsettled. CFTC leadership under Chair Mike Selig has reframed some betting-style venues as economically akin to tradable derivatives, emphasizing regulation by economic substance and announcing the withdrawal of a 2024 rulemaking notice and a prior staff advisory to pursue a statutes-grounded rulemaking. Platform operators continue to argue that many outcome contracts fit within the Commodity Exchange Act and therefore belong under CFTC supervision, while several states have pressed gambling statutes against the same products. That tension has concrete consequences: a Nevada court granted a short-term order temporarily barring Polymarket from serving state residents and set a preliminary injunction hearing for Feb. 11, 2026, signaling how state enforcement can produce stop-gap restrictions even as federal agencies deliberate. Regulators’ concerns extend beyond jurisdictional lines to market integrity risks, including several reported instances where large, timely trades look like potential insider-driven wagers and where on-chain records can publicly expose coordinated timing of bets. Agency staffing and partisan composition at both commissions—and related White House appointment choices—will shape enforcement posture, the speed of rulewriting, and the leverage available in any statutory fixes Congress may consider. In practice, regulators are projecting a hybrid path: near-term supervisory guidance and enforcement priorities, followed by negotiated rule text that could codify clearing, trade reporting, and participant protections. For operators and liquidity providers the current mix of federal coordination, active state litigation, and administrative adjustment raises compliance costs, forces investment in geofencing, KYC, and trade-monitoring systems, and creates strategic uncertainty about product roadmaps. Market participants should expect phased deliverables from the CFTC and ongoing SEC engagement, while also preparing for litigation and divergent state rulings that could compel delistings or refunds. The coming months will likely see intensified inter-agency engagement, targeted rule proposals, and parallel court fights that together will determine whether prediction markets can scale under an American regulatory framework or fragment across jurisdictions.