All 11 Democratic Senators on U.S. Senate Banking Committee Urge Public Hearing on Prediction Markets
All 11 Democratic Senators on the U.S. Senate Banking Committee wrote to Chairman Tim Scott, requesting a public, bipartisan hearing on prediction markets, opposing discussions being held behind closed doors with only Republican participation in industry roundtables.
The letter stated that the committee has a "critical oversight responsibility" regarding prediction markets and named signatories including Elizabeth Warren, Catherine Cortez Masto, Jack Reed, Mark Warner, Raphael Warnock, Ruben Gallego, and Angela Alsobrooks. Democrats referred to a closed-door meeting at 10 AM the same day between Republican senators and Kalshi CEO Tarek Mansour as a "pro-industry" arrangement, calling for it to be changed to a public hearing.
Tim Scott later explained that he convened Republican members with Kalshi to discuss the opportunities and challenges of securities-linked products, how to keep innovation in the U.S., how investors use these products, how to protect retail investors, and regulatory issues Congress should address. The topic was clearly framed as "securities prediction markets," rather than commodity event contracts typically handled by the Senate Agriculture Committee.
Earlier arrangements indicated that the Banking Committee originally planned to hold a prediction market roundtable with only Republican participation that week, focusing on securities contracts, with Kalshi representatives expected to attend. This was seen as a step by the Banking Committee to engage in the prediction market issue: jurisdiction remains with the Senate Agriculture Committee and the Commodity Futures Trading Commission, but the Banking Committee oversees the Securities and Exchange Commission, thus pulling contracts linked to corporate performance towards securities and swaps.
The Democratic letter also noted that securities prediction markets could constitute securities swaps, requiring intervention from the Securities and Exchange Commission; it cited research indicating profits concentrated among a few users, losses for most participants, and risks of manipulation. The House Financial Services Committee also held a similar roundtable with only Republican participation in June, attended by representatives from Kalshi, Polymarket, and Robinhood.
Mechanically, this is a jurisdictional struggle driven by events, not a spot trading market. Kalshi, as a registered exchange with the Commodity Futures Trading Commission, needs the Banking Committee's recognition of its securities-linked products to avoid being reclassified by the Securities and Exchange Commission; Democrats are using public hearings to bring retail protection, state gaming laws, and tribal gaming rights to the forefront. The benefiting side seeks federal uniform rules and to turn contracts into institutionalized products, while the pressured side includes state regulators, sports betting licensees, and the Agriculture Committee path that wants to keep prediction markets locked under commodity law.
On a supplementary level, after the Clarity Act failed procedural voting 49 to 50 on September 15, the regulatory vacuum expanded; Kalshi also applied to the Commodity Futures Trading Commission on September 22 to allow institutions to use margin for non-sports event contracts, no longer requiring full collateral. The Banking Committee's discussion of "securities-linked" at this time effectively pushes the product classification from commodity contracts to securities contracts one step further.
Source: Public Information
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Kalshi previously followed the path of being a registered exchange with the Commodity Futures Trading Commission, using event contracts to bypass state gaming licenses, and received support from the federal appeals court in election contract litigation; the Commodity Futures Trading Commission has continuously sued multiple states from 2025 to 2026, claiming exclusive jurisdiction over event contracts on registered platforms. The Banking Committee now reclassifying the same batch of products as "securities-linked" effectively uses the jurisdiction of the Securities and Exchange Commission to dismantle the walls of commodity law.
The direction of capital movement is clear: the platform seeks institutional funds and leverage, not just another wave of retail sports bets. By entering the Banking Committee while applying for an institutional margin framework, Kalshi is transforming products from fully collateralized retail event contracts into swap-like tools that can be cleared by brokerages and futures brokers. The motivation is scale and pricing power: once recognized as securities or securities swaps, the channel will connect to the existing brokerage system, but compliance costs and disclosures will also increase.
Similar structures have appeared around the approval of Bitcoin spot exchange-traded funds: the Commodity Futures Trading Commission first oversees futures, while the Securities and Exchange Commission later oversees spot and linked products, with two sets of rules running in parallel, and the product forms in between being repriced. The current prediction market is in a phase of expanding from commodity contracts to a struggle over regulatory classification, with Kalshi, Polymarket, and Robinhood already appearing together at the House roundtable, indicating that the industry is no longer only targeting the Agriculture Committee.
The essence is that regulatory changes drive the transfer of pricing power. Event contracts under commodity law are cleared according to futures logic, while securities law prices based on information disclosure and investor suitability; which set of language the committee chooses determines who can sell, who must be licensed, and whether state law can continue to block sports contracts. Mechanically, after legislative proposals are stalled, the committee uses closed-door roundtables and public hearings to seize definitional power, with definitional power preceding licensing, and licensing preceding institutional funds.
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- Seize definitional power first, then licensing, and finally funding.
- Closed-door roundtables set the framework, public hearings set the cost.
- Whether the product is called a commodity or a security determines who pays taxes and who compensates.