In a groundbreaking move, Roundhill Investments is poised to introduce the first U.S. exchange-traded funds tied to prediction markets, with two additional asset managers preparing to launch similar products. According to a recent SEC filing, Roundhill will list six funds linked to the potential control of the White House, Senate, and House by either the Democratic or Republican parties. The launch is scheduled for May 5, as confirmed by Bloomberg ETF analyst James Seyffart.
The funds in question include the Roundhill Democratic President ETF, Republican President ETF, Democratic Senate ETF, Republican Senate ETF, Democratic House ETF, and Republican House ETF. 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 explicitly warns that if the targeted party fails to win, the fund will lose nearly all its value. Notably, Roundhill has opted 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 will treat the outcome as decided and transition into the next cycle. The prospectus also notes that if the market's prediction is later proven incorrect, there will be no recourse for shareholders.
Other companies, such as Bitwise and GraniteShares, have filed similar proposals, with distinct structures; Bitwise's funds will terminate shortly after each outcome is determined, whereas GraniteShares and Roundhill will roll into the next election. The introduction of these ETFs could significantly expand access to prediction markets, allowing them to be held in ordinary brokerage accounts and certain retirement accounts.
This development follows the CFTC's withdrawal of a proposal that would have banned political event contracts, although state regulators in several states continue to challenge these contracts in court. Additionally, Roundhill has filed to list non-political prediction market ETFs focused on the likelihood of a U.S.
recession.