The U.S. Securities and Exchange Commission (SEC) warns that prediction markets that offer contracts linked to a company's financial reports and operational performance may face enforcement actions due to insider trading, fraud, and market manipulation.

• SEC is monitoring insider trading, fraud, and market manipulation in the predictive market.
• The person in charge of the law enforcement department, David Woodcock, stated that contracts linked to a company's profitability and performance data may fall under the regulatory scope of SEC.
• Regulatory authorities have recently approved Cboe options linked to the company's performance indicators, including earnings and sales data.
• The Commodity Futures Trading Commission ( CFTC ) continues to regulate federally registered futures exchanges, while also engaging in disputes with various states regarding gambling laws.
• Regulatory authorities have sought public feedback on how to define derivatives that may fall under the jurisdiction of two different agencies at the same time.

According to a report by Bloomberg on October 29, SEC, the head of law enforcement David Woodcock stated that the agency is monitoring activities on the forecasting platform and expects to take action regarding potential securities violations.

Woodcock said, "We are paying very close attention to this matter. We must be prepared to take action if anyone engages in fraud or other securities violations, and I believe we will do so."

He added that law enforcement actions "will definitely occur in the future," but he did not name any specific companies nor announce any new charges.

SEC Focusing on the forecast market linked to company financial reports

Comments on Woodcock mainly focus on contracts that allow traders to bet on financial results or key performance indicators ( KPI ). Such products may be linked to the quarterly earnings, sales data, or other operational performance indicators of listed companies.

The SEC is responsible for regulating the securities market, while the Commodity Futures Trading Commission ( CFTC ) oversees many derivative contracts. When the outcome of a contract depends on a listed company, predicting who has jurisdiction over it can lead to a question of which institution has authority.

Regulatory authorities have previously approved a proposal involving binary options put forward by Cboe Global Markets, which is linked to the company's performance indicators. The relevant contracts allow traders to take positions based on outcomes such as Citigroup's earnings per share or Apple's iPhone sales revenue.

In the approval order, SEC determined that these proposed instruments are classified as securities options under federal law.

However, this decision only applies to the specific products of Cboe and does not imply that any forecasting contracts related to the company's performance will automatically fall under the jurisdiction of SEC.

SEC and CFTC seek clearer rules

These two federal agencies have been studying how existing derivatives laws apply to newer financial products over the past few months.

In June this year, SEC and CFTC solicited public opinions on swaps, securities-based swaps, and products that possess characteristics of both.

Their issues involve market monitoring, law enforcement collaboration, as well as the handling of contracts that may involve overlapping regulatory authorities at the same time.

SEC The chairperson, Paul Atkins, stated that both institutions hope to establish clearer rules for event-based products, including the provision of similar tools for traditional financial exchanges and emerging trading platforms.

CFTC Subsequent to this, further regulatory measures were taken. On October 19th, a temporary rule that excluded casino-style gambling products from the definition of swaps came into effect.

Another proposed rule would explicitly include certain event contracts related to sports, politics, culture, and weather within the definition of swaps. The deadline for public comments on this proposal is November 18th.

Kalshi and Polymarket are facing review

CFTC continues to exercise primary regulatory oversight over federally registered prediction exchanges, including the US operations of Kalshi and Polymarket.

The jurisdiction of this institution has become a focal point of legal disputes with some states, which consider certain event contracts, especially those related to sports products, to be illegal gambling.

On October 26th, the organization filed a lawsuit against Utah in an attempt to prevent state officials from enforcing gambling restrictions on exchanges that are under federal regulation.

According to crypto.news, regulatory authorities also pointed out that similar disputes over federal and state jurisdiction have arisen in another 9 states as well.

Kalshi has also separately challenged state-level restrictions in multiple jurisdictions. In September, an appeals ruling involving Ohio and Tennessee continued previous judgments that reached different conclusions regarding the relationship between federal derivatives laws and state gambling regulations.

Meanwhile, on October 27, Reuters reported that CFTC is investigating whether Polymarket has complied with the restrictions in the 2022 settlement agreement regarding US users' access to its offshore platforms.

The investigation involves geographic location control, advertising, and customer protection. Polymarket has always stated that it prohibits users from bypassing geographic restrictions.

Concerns about insider trading extend to prediction platforms

Federal authorities have previously filed cases regarding allegations that traders profited from event contracts by utilizing privileged information.

According to Bloomberg, CFTC advanced law enforcement matters involving suspected manipulation and improper trading on Kalshi in 2026.

In April of this year, federal prosecutors and regulatory agencies accused a U.S. soldier of using confidential information to bet on the issuance of tokens related to Venezuela's former president. The defendant was arrested for profiting over $400,000 from such bets. The defendant has stated that they will not plead guilty, and the case is still under consideration.

In addition, officials in New York City have also reviewed the marketing practices of several forecasting platforms, which include allegations surrounding the promotion of insider trading.

Kalshi and Polymarket both indicate that they prohibit insider trading, monitor suspicious activities, and cooperate with regulatory authorities when potential misconduct occurs.