SEC Chairman Gary Gensler indicated that the agency could exercise jurisdiction over certain prediction markets. The main change under consideration is classifying some of them as securities, creating a direct regulatory overlap with the Commodity Futures Trading Commission.
The SEC chairman’s guidance framed the debate within current securities law. This means that if a contract fits the Howey Test’s definition of an “investment contract,” the agency maintains that both the platform and the products offered may be subject to securities regulations. This interpretation is not merely academic: it redefines registration obligations, disclosure standards, and audit risks.
The analysis centers on the four classic elements of the Howey Test: investment of money, common enterprise, reasonable expectation of returns, and material dependence on the efforts of others. When these factors converge, the SEC argues that the instrument functions as a security, even if it is externally presented as a bet or event contract.
In the case of prediction markets, the concern arises when the products aggregate capital from multiple users, depend on liquidity managed by the platform, or generate returns tied to the intermediary’s own operational activity. Under this logic, the economic structure is what determines jurisdiction.
Shared jurisdiction, market size, and compliance risks
Estimates place the market size at around $63.5 billion in 2025, a scale that naturally attracts greater institutional attention. At the same time, regulatory overlap persists with the Commodity Futures Trading Commission, which has historically overseen derivatives and certain event contracts. This friction creates operational uncertainty: platforms and exchanges must anticipate which regime to apply—or whether they will face concurrent claims.
If a prediction contract is deemed a security, the platform could be required to register, comply with periodic disclosure requirements, and submit to stricter anti-fraud rules. This alters the economics of the product, raises compliance costs, and changes the legal risk profile.
Looking ahead, the market will be watching three key variables: whether platforms redesign contracts to reduce reliance on centralized management, how quickly enforcement priorities become clear, and whether the SEC and CFTC formally delineate their jurisdictions or end up litigating the jurisdictional boundary.
