SEC pumps brakes on prediction market ETFs

The #SEC delayed the launch of a wave of novel #ETFs, including event contract and prediction market funds from Roundhill Investments, GraniteShares, and Bitwise PredictionShares. Chairman Paul Atkins said fund sponsors voluntarily agreed to delay effectiveness while the Commission seeks public input on how to treat these products. The move opens a jurisdictional question between the SEC and the CFTC, which currently oversees underlying prediction market platforms like Kalshi and Polymarket. #regulation #crypto #fintech

CFO take: prediction market ETFs raise fundamentally novel accounting questions for sponsors, including ASC 815 derivative scoping for binary event contracts, revenue recognition for performance-based payouts, counterparty risk disclosure when underlying CFTC-regulated venues sit between issuer and outcome, and valuation methodology that handles binary settlement and rapid information shocks around resolution events. Sponsors should pre-build investor disclosure templates, technical accounting memos, and valuation policies now, ahead of the public comment process, and audit committees should reassess whether prediction market exposure belongs in a separate disclosure category from traditional fund holdings. Expect the SEC to scrutinize whether existing 1940 Act exemptive relief frameworks remain appropriate for products of this design.

Ridgeway Financial Services provides accounting and CFO services for crypto hedge funds, fund sponsors, and digital asset investment products.

https://www.ridgewayfs.com/crypto-hedge-fund-accounting-expert/

Source: https://www.theblock.co/post/402125/sec-reviewing-prediction-market-etfs

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