ETF Filings Seek to Bring Election Outcomes into Mainstream Financial Markets

A new set of exchange-traded fund (ETF) proposals aims to bring election outcomes into the mainstream financial markets. The filings, submitted by Roundhill, GraniteShares, and Bitwise's PredictionShares brand, seek to create funds that track binary event contracts tied to US political outcomes, such as which party wins the presidency and controls Congress.

The proposed ETFs would use a 'yes' or 'no' settlement mechanism, where the contract is worth $1 if the outcome occurs and $0 otherwise. This design allows investors to bet on election results in a straightforward way, but also creates concerns about market manipulation and regulatory oversight.

Regulators are already grappling with the implications of making event contracts a tradable product. The SEC and CFTC have jurisdictional disputes over who should oversee these types of products. If approved, the ETFs would be registered with the SEC, but the underlying event contract venues would fall under CFTC supervision.

The proposed ETFs also raise questions about how they will interact with other financial markets, including cryptocurrency trading platforms. The introduction of election-outcome exposure as a mainstream investment product could lead to a shift in demand from crypto-native prediction markets, potentially reducing the need for wallets and other infrastructure that supports these types of bets.

The regulatory challenges posed by these ETFs are complex and multifaceted. However, they also offer an opportunity for regulators to clarify their stance on event contracts and their relationship with traditional financial instruments.