Roundhill Investments is poised to introduce the first US exchange-traded funds tied to prediction markets, with the launch of six funds that will track the potential control of the White House, Senate, and House by Democrats or Republicans. The funds, which include the Roundhill Democratic President ETF, Republican President ETF, Democratic Senate ETF, Republican Senate ETF, Democratic House ETF, and Republican House ETF, will be listed on May 5, according to Bloomberg ETF analyst James Seyffart. The launch is significant as it marks the first time that prediction market ETFs will be made available to retail investors, allowing them to trade on the outcome of US elections through ordinary brokerage accounts and some retirement accounts. The funds will gain exposure to the election outcomes 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.
Investors should note that if the targeted party does not win, the fund will lose substantially all of its value, as stated in the prospectus. Roundhill's funds will not terminate after settlement; instead, they will roll into the next cycle once the market prices a winner at above $0.995 or below $0.005 for five consecutive trading days.
Other asset managers, including Bitwise and GraniteShares, have also filed to list similar prediction market ETFs, with Bitwise's funds terminating shortly after each outcome is determined and GraniteShares' funds rolling into the next election. The introduction of these ETFs comes after the CFTC withdrew a proposal that would have banned political event contracts, although state regulators continue to challenge the underlying contracts in court. Roundhill has also filed to list non-political prediction market ETFs tied to the potential recession in the US, further expanding the scope of prediction market trading.