US prediction markets — regulated landscape

SEC-regulated prediction markets (securities-based event contracts)

Two distinct SEC tracks: (A) pure securities path on full national securities exchanges, and (B) Section 6(g) notice registration by CFTC contract markets, producing genuine dual SEC/CFTC regulation

Track A · Pure securities path (options on securities or securities indices)

Listed on SEC-registered national securities exchanges, not CFTC DCMs · structured as options on securities or securities indices · rest on the Shad-Johnson securities-option exclusion from CFTC jurisdiction (CEA § 2(a)(1)(C)(i)(I), with the SEC-exempted-security exception at (i)(II)) and on the parallel carve-out of securities options from the “swap” definition (CEA § 1a(47)(B)(iii)) · cleared by OCC (dual SEC/CFTC-registered SIFMU), except Cboe’s binary KPI options, slated for Cboe Clear US · new underlying classes require a Section 19(b) rule filing, public comment, and an SEC order

Cboe Predicts · two product families under separate rule sets, both Cboe Exchange, Inc. · no cash-settled single-stock-price binaries approved or requested (would require a new Section 19(b) filing)

Other securities exchanges

Track B · Section 6(g) notice registration (dual SEC/CFTC regulation of security futures products)

CEA § 2(a)(1)(C)(iv) otherwise bars futures on an individual security, so the security-future carve-out is the only door to single-name exposure · CFTC-designated contract markets file Form 1-N to register as national securities exchanges solely for security futures products under Exchange Act § 6(g) · registration is effective contemporaneously with submission, with no SEC review, comment period, or approval order · scope limited to futures on single securities and narrow-based indices (plus options on such futures) and futures on exempted securities or broad-based indices · conditioned on remaining a CFTC DCM in active status and not serving as a marketplace for other securities · product listing runs through CFTC self-certification under CEA § 5c(c), which is what makes the rule change effective under Exchange Act § 19(b)(7), subject only to SEC summary abrogation · cleared by the venue’s own DCO, not OCC · Exchange Act antifraud and insider-trading provisions reach the products, and intermediaries must be dual registered (FCM plus notice-registered broker-dealer)

Intermediary leg · CFTC-registered FCMs/IBs file Form BD-N (with NFA, not EDGAR) to notice-register as broker-dealers under Exchange Act § 15(b)(11) solely for security futures products · effective on filing, no SEC approval order

Why this matters: The landscape is trifurcating, not bifurcating. Track 1 is CFTC-only event contracts (Kalshi, Polymarket, Crypto.com, et al., facing state-gambling-law preemption litigation). Track 2 is the pure securities path (Cboe, prospectively Nasdaq and MEMX), which rests on more settled securities-law preemption but moves at Section 19(b) speed: Cboe asked for binaries on any index it lists traditional options on in April 2026 and came out in July with exactly one. Its Oct 13, 2026 KPI approval shows the securities path can reach single-name exposure, but only on issuer-reported metrics rather than share prices, and only after a 3½-month Section 19(b) review. Track 3, opened Sep 8, 2026, is the dual path, and it is the speed arbitrage: a one-page notice effective on submission plus CFTC self-certification gets Kalshi, Coinbase Derivatives and Bitnomial to individual stocks, while Cboe cannot list a cash-settled single-stock binary at all because § 2(a)(1)(C)(i)(I) keeps securities options on the SEC side of the line and only a Section 19(b) order can add the class. The cost of Track 3 is two regulators, Exchange Act liability attaching to the products, and dual-registered intermediaries. That intermediary leg is now filling in: Underdog’s FCM, UDM LLC, became a notice-registered broker-dealer on Oct 2, 2026, giving a sports/DFS operator a registered path to broker single-stock futures.

This exact wrapper has been tried before and failed. OneChicago (CME, Cboe, Interactive Brokers) and NQLX (Nasdaq, LIFFE) both took Section 6(g) notice registration in 2001 and began trading Nov 2002. NQLX closed Dec 2004. OneChicago discontinued all trading Sep 2020.