Roundhill Investments is poised to introduce the first US exchange-traded funds linked to prediction markets, with an expected launch of six funds that are tied to the control of the White House, Senate, and House by either Democrats or Republicans. According to a recent SEC filing, the funds will be listed on May 5, as confirmed by Bloomberg ETF analyst James Seyffart, and will 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 to the outcomes of the US elections 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 fund prospectus explicitly warns investors that if the targeted party fails to win, the fund's value will be substantially lost.
Rather than terminating the funds after the settlement, Roundhill will roll them into the next election cycle once the market has priced a winner above $0.995 or below $0.005 for five consecutive trading days. It is noted in the prospectus that if the market's prediction is later proved incorrect, shareholders will have no recourse. Other asset managers, such as Bitwise and GraniteShares, have filed for similar ETFs with distinct structures, highlighting the growing interest in prediction market ETFs.
By wrapping political event contracts in ETFs, these funds could potentially expand access to prediction markets, allowing them to be held in standard 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 continue to challenge these contracts in court. Additionally, Roundhill has filed to list non-political prediction market ETFs focused on the likelihood of a US recession, as reported by Bloomberg ETF analyst Eric Balchunas.