US SEC begins review of over 24 election prediction market ETFs... Wall Street banks tighten internal controls

As the 2026 midterm elections approach, the U.S. Securities and Exchange Commission (SEC) is facing a decision that signals a landmark change in the ETF market. The approval of more than 24 funds designed to allow retail investors to bet directly on political outcomes through personal brokerage accounts is on the table. This is evaluated as an attempt to incorporate assets of a completely different nature from traditional stocks or bonds into institutional finance.

Currently, more than 24 prediction market ETFs applied for by major asset managers such as Roundhill, Bitwise, and GraniteShares are awaiting regulatory review. The industry compares ETFs to a 'Swiss Army knife' that can hold everything from stocks and bonds to gold and Bitcoin, viewing these products that track political events as the next step in financial innovation. However, criticism remains strong that these products fall into the realm of gambling rather than investment.

The SEC initiated a formal public comment process (Release No. 33-11426) on July 2, 2026, to gather public opinion on so-called 'novel ETFs.'

Applications for these funds were first submitted on February 18, 2026, but the SEC has continuously pushed back the approval schedule to clarify fund management methods and investor disclosure requirements. In particular, on May 4, it postponed the launch of the first prediction market ETF, suggesting that further review of the product structure was necessary. This July request for comments shows that regulators are treating these products as complex issues beyond simple derivatives.

Structure and Operating Principles of Political Event Contracts

These ETFs use 'event contracts' as underlying assets instead of traditional securities. Each fund tracks the real-time value of specific political outcomes, allowing investors to hedge economic risks based on election results or trade for purely speculative purposes. The product suite proposed by Roundhill is designed to allow investors to trade U.S. election results directly through brokerage accounts.

• Underlying Assets: Event contracts whose value is determined by whether a specific political event occurs
• Trading Method: Can be bought and sold through existing brokerage accounts, just like regular stock trading
• Goal: Tracking the real-time value of specific outcomes, such as the election of a particular candidate or a party securing a certain number of seats

The emergence of these products is causing jurisdictional disputes between the SEC and the Commodity Futures Trading Commission (CFTC). Conflicting legal interpretations over whether to view these contracts as securities or commodities are significantly impacting the approval timeline. This friction between regulatory authorities mirrors the confusion seen during past cryptocurrency regulation processes.

In contrast to asset managers rushing to launch ETFs, major Wall Street banks have begun internal crackdowns. According to a report on July 10, 2026, firms like Goldman Sachs and Morgan Stanley have started restricting employees from trading on prediction markets such as Polymarket or Kalshi. This measure follows growing concerns that financial sector employees with easy access to political information could engage in insider trading through prediction markets. A dual situation is emerging where institutional finance is moving to commoditize prediction markets while simultaneously guarding against their risks internally.

If the SEC approves these ETFs, it would significantly lower the barrier for individual investors who found it difficult to use existing decentralized platforms. Accessibility through standardized brokerage accounts is expected to provide massive liquidity to the market, which could have the side effect of increasing the accuracy of data regarding election results. However, as the November 2026 midterm elections approach, if the SEC maintains a cautious stance, the possibility that the actual launch could be pushed until after the elections cannot be ruled out.