Roundhill Investments is poised to introduce the first US exchange-traded funds tied to prediction markets, with the launch of six funds that will be listed, focusing on the control of the White House, Senate, and House by Democrats or Republicans. According to a filing with the US Securities and Exchange Commission, the funds - Roundhill Democratic President ETF, Republican President ETF, Democratic Senate ETF, Republican Senate ETF, Democratic House ETF, and Republican House ETF - will be available starting May 5. These funds will provide exposure through swap agreements referencing binary event contracts traded on CFTC-regulated markets, which settle at $1 if the predicted outcome occurs and $0 if it does not.
The prospectus highlights that if the targeted party does not win, the fund will lose nearly all its value. Once the market prices a winner above $0.995 or below $0.005 for five consecutive trading days, the fund will treat the outcome as decided and transition into the next cycle.
Other companies, such as Bitwise and GraniteShares, have filed similar ETFs, with varying structures, including termination after each outcome is determined or rolling into the next election. These ETFs could potentially expand access to prediction markets by allowing them to be held in ordinary brokerage accounts and some retirement accounts.
The introduction of these ETFs follows the CFTC's withdrawal of a proposal that would have banned political event contracts, although state regulators continue to challenge the contracts in court. Roundhill has also filed to list non-political prediction market ETFs focused on the possibility of a US recession.