Some US Prediction Market Contracts Could Be Classified as Securities — Potentially Triggering a Wave of Lawsuits

^{Craig Donohue, CEO of Cboe}

Craig Donohue, CEO of U.S. exchange operator Cboe Global Markets, said some contracts offered by prediction market platforms could fall under U.S. securities laws. Donohue made the comments at a meeting of an advisory committee of the U.S. Commodity Futures Trading Commission (CFTC), according to iGaming Express.

He was not referring to all types of prediction contracts, but specifically to those linked to stocks and market indices. For example, Kalshi offers contracts on whether the S&P 500 — an index tracking the performance of major U.S. companies — will finish above or below a certain level. Users choose between two outcomes in advance, such as whether the index will exceed a specified threshold. If the selected outcome occurs, the contract pays out; if it does not, the user loses the money invested.

According to the Cboe CEO, such contracts are essentially financial instruments — binary options that allow traders to profit from movements in the value of market assets.

Donohue noted that similar products were already traded in the United States under securities-market rules about 15 years ago. In his view, simply offering such an instrument on a prediction market platform does not change its legal status.

That could also create potential litigation risks.

If a court determines that a particular product is an unregistered security, a buyer could seek to challenge the transaction and recover the money paid. If such claims become widespread, prediction market platforms could face significant financial losses.

Donohue stressed that he is not opposed to prediction markets or the development of new financial products, but believes their legal status needs to be clearly defined.