All 11 Democrats on the Senate Banking Committee wrote to Chairman Tim Scott (R-S.C.) on Sept. 23 asking him to hold a public hearing on prediction markets, after reports that he had planned a closed, Republican-only session with industry executives, among them representatives of Kalshi.
The letter was led by ranking member Elizabeth Warren (D-Mass.) and Sen. Catherine Cortez Masto (D-Nev.). Sens. Jack Reed, Mark Warner, Chris Van Hollen, Tina Smith, Raphael Warnock, Andy Kim, Ruben Gallego, Lisa Blunt Rochester and Angela Alsobrooks also signed. Congress should examine the sector “on a bipartisan basis in a public hearing” and “not behind closed doors in a Republican-only, industry-friendly roundtable,” the Democrats said in a release.
“In the interest of transparency, we ask you to hold a public committee hearing on this critical topic and allow all members of the Committee to participate,” the senators wrote.
Democrats Point to the SEC
Event contracts pegged to corporate performance indicators “could meet the definition of security-based swaps that would be subject to SEC regulation,” they wrote. Banking oversees the Securities and Exchange Commission. The Commodity Futures Trading Commission, which has claimed the lead role over prediction markets, answers to the House and Senate Agriculture committees.
“As industry participants request SEC approval for options tied to corporate earnings, the full Senate Banking Committee has a critical oversight role to play,” the Democrats wrote in the letter.
The senators also raised risks to users. “Experts warn that prediction markets are prone to encourage market manipulation and insider trading,” they wrote, adding that early research found profits are “highly concentrated in a small fraction of users, while the majority lose money.”
Republicans Meet Kalshi’s CEO
Punchbowl News first reported on Sept. 18 that the committee would host a Republican-only roundtable on securities-based prediction markets with Kalshi in attendance. Committee Republicans met with Kalshi CEO Tarek Mansour at 10 a.m. on Sept. 23, The Block reported.
Scott said in a statement to The Block that he brought the group together “to better understand the opportunities and challenges presented by securities-linked products.” He added: “My goal is to ensure that America leads in financial innovation while protecting investors and providing the regulatory clarity these emerging markets need.” Kalshi did not immediately respond to The Block’s request for comment.
Wider Scrutiny
A day earlier, CFTC staff warned exchanges that contracts settling on what a named person says or does may be presumed susceptible to manipulation. On April 30, the Senate unanimously barred senators and their staff from trading on prediction markets. The CFTC has also argued that contracts on its registered exchanges fall under exclusive federal jurisdiction, as several states challenge Kalshi and others under gambling laws.
Related Listen: CME vs. Kalshi. Is Washington Picking a Winner in Prediction Markets?
