US Elections to See First-Ever Prediction Market ETFs Launched on Wall Street

Roundhill Investments is poised to introduce the first US exchange-traded funds tied to prediction markets, with the launch of six funds that track the control of the White House, Senate, and House by Democrats or Republicans, as disclosed in a filing with the US Securities and Exchange Commission. The launch is scheduled for May 5, according to James Seyffart, a Bloomberg ETF analyst. These funds, including the Roundhill Democratic President ETF, Republican President ETF, Democratic Senate ETF, Republican Senate ETF, Democratic House ETF, and Republican House ETF, will gain exposure through swap agreements that reference binary event contracts traded on CFTC-regulated markets, which settle at $1 if the outcome occurs and $0 if it does not. As stated in the prospectus, if the targeted party does not win, the fund will lose nearly all its value.

Roundhill has decided not to terminate the funds after settlement; instead, once the market prices a winner above $0.995 or below $0.005 for five consecutive trading days, the fund treats the outcome as decided and moves into the next cycle, either the 2028 House and Senate exposure for the midterm funds or the 2032 presidential race for the presidential funds. However, the prospectus also notes that if the market is later proven wrong, there will be no recourse for shareholders. Other companies, such as Bitwise and GraniteShares, have filed similar six-fund slates, with Bitwise using a 'PredictionShares' brand, although their structures differ in that Bitwise's funds terminate shortly after each outcome is determined, while GraniteShares rolls into the next election, similar to Roundhill.

While political event contracts are already traded on prediction markets like Polymarket and Kalshi, wrapping them in ETFs could expand accessibility by allowing them to be held in ordinary brokerage accounts and certain retirement accounts. This development comes after the CFTC withdrew a proposal that would have banned political event contracts, although state regulators in several states continue to challenge these contracts in court. Roundhill has also filed to list non-political prediction market ETFs that track the likelihood of the US entering a recession, as flagged by Bloomberg ETF analyst Eric Balchunas.