Kalshi asks SEC to delay Cboe's binary options as 2 regulators clash

Kalshi asked the SEC to delay Cboe Global Markets' new binary options tied to corporate earnings line items, escalating a regulatory turf war between prediction markets and incumbent exchanges across two federal agencies.

"Those are risks that don't promote safety and soundness," Craig Donohue, chief executive officer at Cboe, said at a CFTC event last week. "They don't protect customers, and they do the opposite of what I think the spirit of this whole meeting today is to do, which is foster legal certainty and protect customers, give them a safe environment to execute."

The letter, signed by Kalshi Chief Compliance Officer Sudhir Jain, argues the SEC should wait until the two agencies complete a broader public-comment process clarifying their jurisdictional lines before approving Cboe's notice for the new contracts. Kalshi separately asked the CFTC for approval of perpetual equity futures that would compete with Cboe's S&P 500 Index options, one of the exchange's most popular product lines.

The dispute inverts the industry's original regulatory debate, in which Cboe and CME Group argued the CFTC approved prediction market products too quickly. The outcome will determine whether prediction markets operate under the CFTC's derivatives framework, face additional product-specific restrictions, or fall partly under state gambling standards — and how quickly the sector can continue expanding.

The friction surfaced publicly at a CFTC roundtable last week, where Kalshi co-founder Luana Lopes Lara sparred with CME chief executive officer Terry Duffy over the legitimacy of prediction market products. Duffy mocked the economic significance of some Kalshi offerings, including a contract tied to Nathan's Famous Hot Dog Eating Contest. Lara countered by questioning CME's record on market manipulation, prompting Duffy to note that CME's regulatory department employs more people than Kalshi's entire staff. "Learn a bit about efficiency," Lara responded. "Learn about credible markets," Duffy shot back.

Kalshi has been offering wagers tied to what it calls key performance indicators of public companies — the same term Cboe uses for its newly proposed contracts. Kalshi currently lists contracts tied to what Nvidia executives will say on their next earnings call and what the chipmaker's headcount will be in the current fiscal year.

Oversight Split

The jurisdictional split sits at the center of the dispute. The SEC has historically governed financial products tied to public stocks, including equity options. Kalshi has operated its contracts under CFTC oversight, which has classified prediction markets as derivatives exchanges. Cboe sought SEC approval for its new binary options tied to corporate performance metrics, arguing the SEC's slower approval process is more rigorous and attuned to investor protection.

"Securities markets have obviously been geared toward protecting individual investors and retail customers," Donohue said last week.

The SEC and CFTC have been seeking public comment on a broader effort to clarify the lines between the two agencies. Kalshi's letter argues that approving Cboe's notice before that process concludes would preempt unresolved questions.

"Approval of the Notice would answer these questions before the public has considered them and had the opportunity to provide their views on several unresolved matters on which the Notice depends," Jain wrote.

A Kalshi spokesperson pointed to the exchange group's public filings but declined to comment further. In an Aug. 18 press release announcing the perpetual equity futures application, a Kalshi spokesperson said: "Did we need SEC approval? No."

The stakes extend beyond the two companies. Prediction markets began as venues for betting on elections and economic data but have expanded into sports and, more recently, corporate events that were once the exclusive province of traditional financial exchanges. How regulators draw the line will shape whether this expansion continues at its current pace or slows under a more fragmented oversight regime. For Cboe, a delay in SEC approval could push back a product launch that would give the exchange a foothold in the prediction market space. For Kalshi, the outcome determines whether its CFTC-approved contracts face new competition from SEC-regulated products — or whether the agency boundary holds.

This article is for informational purposes only and does not constitute investment advice.