Market maker Citadel Securities has written to regulators stating that performance market contracts linked to public companies should be regulated by the U.S. Securities and Exchange Commission (SEC) rather than the Commodity Futures Trading Commission (CFTC). The letter characterizes contracts tied to key performance indicators as swaps based on securities, which fall under the SEC's jurisdiction, and warns that if the CFTC continues to lead, the market will become fragmented.

Policy head Stephen Berger wrote that Congress established a dual-track framework because stock-linked products directly affect the integrity of the underlying securities market and investors. He pointed out that the SEC and stock exchanges have decades of experience in insider trading investigations and cross-market surveillance. Existing platforms have launched contracts based on metrics such as Kroger sales, United Airlines passenger volume, Tesla production, and McDonald's same-store sales, as well as contracts directly linked to weekly stock price performance. Prediction markets typically operate under CFTC-designated contract markets or exemption frameworks, with the CFTC viewing them as derivatives; in March, the CFTC issued a notice seeking comments and signed a memorandum of understanding with the SEC to address jurisdiction. CBOE and others have also applied to the SEC to issue binary options based on company metrics. Citadel's president previously stated that liquidity might be provided for non-sports event contracts. Overall trading in prediction markets has expanded to include sports, macroeconomic, and corporate events.

In market mechanics, buyers are institutions hedging earnings reports and customer traffic, while sellers are event contract platforms and market makers; the driving force is turning company operational numbers into tradable contracts, after which jurisdiction determines who can make markets and who must disclose under securities insider rules. Funds flow from the price difference of binary contracts to platforms and market makers. The beneficiaries are the SEC system with stock option surveillance and Citadel-like stock market makers, while those under pressure are prediction platforms that have rolled out company KPI contracts under CFTC licenses, as well as contract buyers with weaker information disclosure than the public companies themselves.

Source: Public Information