Nasdaq Files for Prediction Market Binary Options — The SEC/CFTC Turf War Goes Wall Street

Nasdaq’s March 2 filing to list binary options on its MRX exchange marks the first time a major securities exchange has sought SEC approval for prediction-market-style products, blowing open a jurisdictional fault line that could reshape how — and by whom — America’s fastest-growing gambling market gets regulated. The 48-page filing (SR-MRX-2026-05) proposes “Outcome-Related Options” tied to the Nasdaq-100 Index, structured as securities rather than CFTC-regulated event contracts. That single design choice is the filing’s most consequential feature: it routes prediction-market mechanics through a completely different regulatory apparatus than every existing platform — Kalshi, Polymarket, ForecastEx, FanDuel Predicts — currently uses.

At a moment when 38 state attorneys general, 60 tribal nations, the American Gaming Association, and sports leagues from the NFL to the NCAA are waging legal war against CFTC-regulated prediction markets they call unlicensed sportsbooks, Nasdaq has quietly proposed an alternative path that sidesteps the entire fight.

The timing is not coincidental. On the same day Nasdaq filed, a new advocacy group called “Gambling Is Not Investing” launched under former Trump Chief of Staff Mick Mulvaney, declaring that “if it looks like a sports bet, sounds like a sports bet, and pays off like a sports bet — it’s a sports bet.” Combined prediction market volume hit $63.5 billion in 2025 — a fourfold increase year-over-year — with sports contracts comprising roughly 90% of Kalshi’s business. The legal fiction that these platforms are financial exchanges conducting price discovery, not sportsbooks processing wagers, is under coordinated assault from every direction. Nasdaq’s filing is both a validation of prediction markets’ commercial potential and a tacit admission that the current regulatory framework is unsustainable.

What Nasdaq Actually Filed — And Why the Structure Matters More Than the Product

Nasdaq MRX, an options exchange operated by Nasdaq Inc., submitted a proposed rule change under Section 19(b)(1) of the Securities Exchange Act and Rule 19b-4 to create a new rulebook section called “Options 3B — Outcome-Related Options.” The product itself is straightforward: cash-settled, European-style binary options on the Nasdaq-100 Index (NDX) and its micro counterpart (XND). Each contract has a $100 multiplier, trades between $0.01 and $1.00 (reflecting the market’s implied probability), and pays a fixed $100 settlement if the specified condition is met at expiration. If NVIDIA closes above $200 on a given Friday, you collect. If not, the contract expires worthless.

The filing explicitly invokes precedent from SR-Amex-2004-27, when the American Stock Exchange first received SEC approval for binary options (branded “Fixed Return Options”) in 2008. CBOE followed shortly after with binary options on the S&P 500 and VIX. Those earlier products never gained meaningful traction and were eventually delisted. Nasdaq’s bet is that the prediction market boom — combined with vastly improved retail distribution infrastructure — makes the timing right for a second attempt.

But the structural architecture matters far more than the product specifications. By filing with the SEC and classifying these as securities under 15 U.S.C. § 78c(a)(10), Nasdaq has made a deliberate jurisdictional choice. The contracts would clear through the Options Clearing Corporation (OCC), be subject to FINRA surveillance and Intermarket Surveillance Group participation, and carry a 25,000-contract position limit. This is the full weight of securities market infrastructure — the same pipes that process every equity option in America. No mention of the CFTC appears anywhere in the 48-page document.

Top Nasdaq executives told reporters the firm would be “very focused on the Nasdaq-100 Index to start.” The initial scope is intentionally narrow: financial benchmarks only, no sports, no elections, no weather. This limited scope makes SEC approval more straightforward — there are no gambling optics to navigate — while establishing the principle that binary outcome products belong in the securities regulatory framework. The filing is a beachhead, not a destination.

Notably, Cboe Global Markets had already moved first, announcing its own SEC-regulated binary event options initiative around February 6, targeting a Q2 2026 launch. CoinDesk framed Nasdaq’s filing as “Nasdaq follows Cboe joining world of binary bets.” Two major securities exchanges pursuing the same regulatory approach is not a coincidence — it is a coordinated institutional bet that the SEC pathway offers more durable legal protection than the CFTC’s.

Inside the SEC/CFTC Jurisdictional Collision

The regulatory landscape for prediction markets has devolved into something approaching institutional chaos. Two federal agencies claim overlapping authority. At least 18 active lawsuits pit platforms against state regulators. Federal courts have issued directly contradictory rulings. And the Supreme Court almost certainly gets the final word — just not anytime soon.

“Prediction markets are exactly one thing where there’s overlapping jurisdiction potentially. That is a huge issue we’re focused on.”
— SEC Chair Paul Atkins, Senate Banking Committee testimony, February 12, 2026

CFTC Chairman Michael Selig, confirmed in December 2025, has taken a far more combative posture. On February 17, 2026 — two weeks before the Nasdaq filing — Selig published an amicus brief in the Ninth Circuit asserting the CFTC’s “exclusive jurisdiction” over prediction markets and released a video statement declaring: “To those who seek to challenge our authority in this space, let me be clear: we will see you in court.” His Wall Street Journal op-ed the same day argued event contracts “serve legitimate economic functions” and that state enforcement efforts constitute a “power grab.”

The legal roots of this conflict trace to the Commodity Exchange Act and its 2010 Dodd-Frank amendments. Section 5c(c)(5)(C) of the CEA — the “Special Rule” — authorizes the CFTC to prohibit event contracts that “involve” five enumerated activities: terrorism, assassination, war, activity unlawful under state or federal law, and “gaming.” Congress never defined “gaming,” “involve,” or “event contract.” Those three undefined terms are now the subject of conflicting federal court opinions, a Supreme Court case in waiting, and a regulatory turf war between two agencies that meet weekly but agree on very little. The prediction market legal war is headed for the Supreme Court, and Nasdaq’s filing adds an entirely new dimension to that fight.

Selig’s four-part agenda, announced January 29, 2026, reveals the CFTC’s strategy: withdraw the Biden-era proposed rule that would have banned sports and political event contracts (completed February 4), draft new “clear, workable standards” via an Advanced Notice of Proposed Rulemaking, actively litigate to defend exclusive jurisdiction, and negotiate a joint SEC-CFTC interpretation of Title VII definitions. The last point is critical. If the agencies can agree on where commodity derivatives end and securities begin, Nasdaq’s filing becomes either a complement to the CFTC framework or a direct competitor to it.

Nasdaq’s move forces the question that both agencies have been deferring. If binary options on the Nasdaq-100 are securities, what about binary options on the Super Bowl? The economic structure is identical — a fixed payout contingent on a binary outcome. The only difference is the underlying event. And if the SEC can regulate one and the CFTC regulates the other, the boundary between the two jurisdictions depends entirely on whether the event involves a financial benchmark or a football game. That distinction is legally coherent but economically meaningless. It is precisely the kind of regulatory arbitrage that sophisticated market participants — and Nasdaq is nothing if not sophisticated — are built to exploit.

Kalshi’s 90% Problem: How the Prediction Market Poster Child Became a Sportsbook

Kalshi received its CFTC Designated Contract Market designation on November 4, 2020 — the first exchange in U.S. history dedicated to trading event contracts. Its original pitch was elegant: a regulated financial exchange where users could trade on real-world outcomes spanning economics, weather, politics, and culture. Then sports happened. On January 24, 2025, Kalshi self-certified sports event contracts through the CFTC’s self-certification process. Within months, sports consumed the platform. With prediction markets and traditional sportsbooks locked in an existential power struggle, Kalshi’s transformation tells the most important story in the industry.

The numbers are unambiguous. Kalshi’s 2025 fee revenue totaled $263.5 million, of which $234.6 million — 89% — came from sports contracts. In the final four months of 2025, sports exceeded 90% of total fee revenue. The company generated $22.88 billion in total trading volume, with revenue growing 994% year-over-year from $24 million in 2024. Super Bowl LX generated over $1 billion in trading volume alone — a 2,700% increase from the prior year.

Kalshi now offers moneylines, point spreads, over/unders, futures, and — as of October 2025 — custom parlays. The NHL became its first major league partner. The platform is available to 18-year-olds in all 50 states, including California and Texas, where sports betting is illegal. It pays no state gambling taxes, holds no state gaming licenses, and until recently employed no responsible gambling safeguards.

“I just don’t really know what this has to do with gambling. If we are gambling, then I think you’re basically calling the entire financial market gambling.”
— Kalshi CEO Tarek Mansour

The tension between this framing and the 90% sports reality has not gone unnoticed. Wikipedia now describes Kalshi as “used primarily for traditional sports betting.” The Massachusetts court found that Kalshi “makes a larger percentage of its money from sports than DraftKings or FanDuel — businesses that are synonymous with sports betting.” A November 2025 class action lawsuit alleges that Kalshi’s in-house market-making arm, Kalshi Trading, means users may be “unknowingly betting against Kalshi or its partners rather than other users” — undermining the core exchange-model defense.

The legal battle Kalshi now faces is existential. Its September 2024 victory in KalshiEX LLC v. CFTC — where Judge Jia Cobb ruled that elections are not “games” and therefore election contracts don’t trigger the CEA’s gaming exclusion — applied narrow statutory interpretation to a narrow product. Sports contracts are a different animal entirely. Sporting events are, by any definition, “games.” The same textual analysis that saved election contracts may doom sports contracts under the Special Rule.

38 Attorneys General, One Message: Gambling Is Gambling

The state-level offensive against prediction markets has escalated from scattered cease-and-desist letters to a coordinated multi-front legal war. Two separate amicus briefs — one covering 34 states plus D.C. in the Third Circuit (New Jersey case), another covering 38 states plus D.C. in the Fourth Circuit (Maryland case) — represent the broadest coalition of state law enforcement officials ever assembled against a single financial product category.

Both briefs are co-led by Nevada AG Aaron Ford and Ohio AG Dave Yost. Their core argument is devastating in its simplicity: “Stripping away the semantics, this case most directly concerns gambling on sports.” The 34-state brief cites Kalshi’s own prior marketing, noting the company once described itself as the “First Nationwide Legal Sports Betting Platform” before scrubbing the language. The attorneys general quote the Supreme Court’s 2018 Murphy v. NCAA decision, which held that Congress cannot bar states from authorizing sports betting — then argue the inverse: Congress equally cannot strip states of authority to regulate sports betting simply by calling it something else.

“When Congress removes the States’ historic police powers, it does not whisper in the dark of night.”
— 34-State Amicus Brief, Third Circuit

The Massachusetts ruling established the most important state-level precedent to date. On January 20, 2026, Suffolk County Superior Court Judge Christopher Barry-Smith issued a preliminary injunction requiring Kalshi to halt sports-related event contracts in the state. His 17-page ruling found that “the manner in which Kalshi’s contracts are offered mirrors other digital gambling experiences” and that sports-related wagers account for “more than 80% of Kalshi’s business.” The court explicitly rejected federal preemption, holding that Kalshi could comply with both federal and state law — for example, by obtaining a Massachusetts gaming license.

Federal courts elsewhere remain deeply divided. A Tennessee judge ruled that Kalshi’s sports contracts are likely swaps under the Commodity Exchange Act, blocking the state’s crackdown. New Jersey similarly granted Kalshi a preliminary injunction on federal preemption grounds. But Maryland and Massachusetts have sided with the states. Most significantly, on March 3, 2026 — one day after Nasdaq’s filing — a Nevada federal court rejected Kalshi’s federal preemption argument entirely, remanding the case to state court and finding that the Commodity Exchange Act “does not completely preempt” Nevada’s gaming claims. Nevada’s ruling directly empowers the Gaming Control Board to seek an injunction that could force geofencing.

The circuit split — Third Circuit (pro-Kalshi, New Jersey) versus Fourth Circuit (anti-Kalshi, Maryland), with the Ninth Circuit pending — virtually guarantees eventual Supreme Court review.

The political dynamics around the coalition are notable for their bipartisan character. While the Trump administration’s CFTC has aggressively backed prediction markets, Republican officials are not uniformly aligned. Utah’s Republican Governor Spencer Cox has publicly opposed prediction markets. Former Trump Chief of Staff Mick Mulvaney now leads “Gambling Is Not Investing,” declaring: “The CFTC is not set up for this. They’re not set up to protect consumers. They’re set up to protect markets.” The American Gaming Association estimates prediction markets have already cost state governments more than $500 million in potential sports betting tax revenue.

Polymarket’s Parallel Universe: From CFTC Outlaw to $9 Billion Regulated Exchange

Polymarket’s trajectory illustrates both the transformative potential and structural vulnerabilities of prediction markets. Founded in 2020 by then-22-year-old Shayne Coplan, the blockchain-based platform spent its early years in regulatory purgatory. The CFTC fined it $1.4 million in January 2022 for operating an unregistered trading platform and ordered it to block U.S. users. Polymarket complied — nominally. U.S. users continued accessing the platform via VPNs, a reality the DOJ investigated after FBI agents raided Coplan’s Manhattan penthouse in November 2024, seizing his phone and laptop.

The political winds shifted dramatically after the 2024 election, during which Polymarket’s odds became fixtures on cable news and its $3.3 billion presidential election market proved more accurate than most polls. The DOJ and CFTC dropped their investigations in July 2025. Polymarket then executed a remarkable regulatory transformation: acquiring QCEX, a CFTC-licensed derivatives exchange, for $112 million, receiving an Amended Order of Designation from the CFTC in November, and formally relaunching for U.S. users on December 2, 2025. The full story of Polymarket’s US relaunch is one of the most dramatic regulatory reversals in financial history.

The platform’s commercial momentum has been staggering. Intercontinental Exchange (ICE) — parent of the New York Stock Exchange — invested up to $2 billion in October 2025 at a roughly $9 billion valuation, making 27-year-old Coplan the youngest self-made billionaire per Bloomberg. Former CFTC Commissioner J. Christopher Giancarlo chairs Polymarket’s advisory board. Donald Trump Jr. joined as an advisor through his venture fund 1789 Capital. The company’s 2025 trading volume reached approximately $21.5 billion across 95 million transactions.

But Polymarket’s structural vulnerabilities remain acute. The Maduro trade became the defining case study. On January 3, 2026, hours before U.S. forces captured Venezuelan President Nicolás Maduro, a newly created account placed $32,537 on Maduro being ousted by month’s end — when odds were just 5.5%. The trader netted $436,759, a 12x return. No charges have been filed. The incident prompted Rep. Ritchie Torres (D-NY) to introduce the Public Integrity in Financial Prediction Markets Act of 2026, which would ban federal officials from trading on material nonpublic information in prediction markets.

The ZachXBT/Axiom investigation, published February 26, 2026, revealed an even more structurally disturbing dynamic. On-chain investigator ZachXBT documented how employees at Axiom, a Solana-based trading platform, allegedly used internal dashboards to track private wallet addresses of prominent traders. The investigation itself became a prediction market event: Polymarket hosted a contract asking “Which crypto company will ZachXBT expose?” that generated roughly $40 million in volume. Nine hours before ZachXBT named Axiom, the company’s odds surged from under 28% to above 40%. At least 12 wallets collectively profited over $1 million betting on the answer — insider trading on a market about insider trading, with no enforcement mechanism to address either.

The Wall Street Gold Rush: Every Major Exchange Wants In

Nasdaq’s filing does not exist in isolation. It is the most prominent entry in what has become a full-scale institutional migration into prediction markets. With DraftKings, FanDuel, Coinbase, and others battling for a $40 billion industry, the competitive landscape as of March 2026 includes virtually every major name in American financial infrastructure.

Robinhood entered prediction markets in October 2024 through a partnership with Kalshi and has seen the product become its fastest-growing line ever — the quickest to reach $100 million in annualized revenue. The platform traded over 9 billion contracts with more than 1 million customers in its first year, capturing an estimated 30-35% of the U.S. prediction market. In November 2025, Robinhood announced a joint venture with Susquehanna International Group to acquire LedgerX, giving Robinhood its own exchange infrastructure and reducing its dependence on Kalshi.

Both DraftKings and FanDuel subsequently withdrew from the American Gaming Association, citing “fundamental disagreements over prediction markets” — a schism that reflects the industry’s identity crisis as sportsbooks embrace the same CFTC-regulated products that state regulators call illegal gambling. Total U.S. commercial sports betting revenue was $16.96 billion in 2025 on $166.94 billion in handle; prediction market trading volume was $63.5 billion the same year. The convergence is no longer hypothetical.

The Gaming Exclusion That Might Eat the Industry

The legal question at the center of everything is deceptively simple: does the word “gaming” in CEA Section 5c(c)(5)(C) encompass sports event contracts?

Judge Cobb’s September 2024 ruling in KalshiEX LLC v. CFTC held that “gaming” means “the practice or activity of playing games” or “playing games for stakes.” Elections, she reasoned, are not games. Therefore election contracts do not involve “gaming.” The ruling explicitly applied the Supreme Court’s 2024 Loper Bright Enterprises v. Raimondo decision, which overturned Chevron deference, to independently interpret the statute rather than deferring to the CFTC’s reading.

Chairman Selig has not adopted that position. His CFTC has instead argued that all event contracts — including sports — are commodity derivatives under exclusive federal jurisdiction. But Selig has also acknowledged the definition of gaming is “a complex issue” and “best left to the courts.” That ambiguity is deliberate: taking the position that sports contracts constitute gaming would undermine 90% of the industry’s volume overnight.

The UIGEA (Unlawful Internet Gambling Enforcement Act of 2006) provides the other critical statutory framework. Its definition of “bet or wager” explicitly excludes “any transaction conducted on or subject to the rules of a registered entity under the Commodity Exchange Act” — the exemption that shields Kalshi and every other CFTC-registered prediction market from federal gambling prosecution. But UIGEA’s definition of “bet or wager” also includes “the staking or risking by any person of something of value upon the outcome of a contest of others, a sporting event, or a game subject to chance.” The circular logic is apparent: sports prediction contracts are exempt because they’re on CFTC-registered exchanges, but they’re on CFTC-registered exchanges because the CFTC hasn’t classified them as “gaming,” and the CFTC hasn’t classified them as gaming because the question is “best left to the courts.”

Two bills in Congress aim to resolve pieces of this puzzle. Rep. Dina Titus (D-NV) introduced the Fair Markets and Sports Integrity Act on February 10, 2026, which would amend the CEA to prohibit any registered entity from listing contracts based on sporting events. Rep. Ritchie Torres’ (D-NY) Public Integrity Act targets insider trading but leaves the underlying jurisdictional question unresolved. Neither bill is expected to advance under the current pro-prediction-market Trump administration, but they establish legislative markers for a future Congress that might be less friendly.

Legal analysts from Sidley Austin, Holland & Knight, and Paul Hastings converge on the same assessment: the issue is headed to the Supreme Court. The conflicting circuit court rulings on federal preemption create the classic circuit split that triggers Supreme Court review. Under Loper Bright, the Court will owe no deference to either the CFTC’s or the SEC’s interpretation. The result will define whether “gaming” encompasses sports betting, whether “involve” refers to the underlying event or the act of trading, and whether CFTC registration immunizes a product from state gambling laws.

Nasdaq’s Real Play: Making the SEC the Prediction Market Regulator

Understood in context, Nasdaq’s filing is less about binary options on the Nasdaq-100 and more about establishing the SEC as a viable alternative regulatory pathway for prediction-market-style products. The filing is the opening move in a larger strategy.

Products listed on Nasdaq MRX clear through the Options Clearing Corporation — the same counterparty guarantee backing every equity option in America. They are subject to FINRA surveillance, SEC disclosure requirements, and the full apparatus of securities market regulation. Every major brokerage in the United States already connects to Nasdaq. Institutional investors, hedge funds, and market makers can participate through existing workflows with zero additional infrastructure. The distribution advantage over Kalshi — which must partner with individual brokerages one by one — is enormous.

More critically, SEC-regulated products may face less resistance from state gaming regulators. Binary options on a financial index don’t trigger gambling concerns the way moneyline bets on Packers-Cowboys do. If Nasdaq establishes the principle that binary outcome products can be regulated as securities, the path opens for other exchanges to propose binary options on broader categories of events — economic indicators, interest rates, election outcomes, and eventually, perhaps, sporting events — under the SEC framework rather than the CFTC’s embattled event contract model.

The implications for Kalshi are existential in the medium term. Nasdaq’s OROs don’t directly compete with Kalshi’s sports contracts — they’re financial-index-only, at least initially. But they compete directly with Kalshi’s economic and financial event contracts, which represent the company’s entire non-sports business. More importantly, they demonstrate that the market’s most sophisticated participants believe the future of binary outcome products lies under SEC jurisdiction, not the CFTC’s. If that view prevails, Kalshi’s DCM license — the crown jewel it spent years securing — may prove to be the wrong regulatory asset.

Where This Goes: Supreme Court, Congress, or Market Consolidation

Three endgames are plausible, and they are not mutually exclusive.

The judicial path leads to the Supreme Court within two to four years. The circuit split on federal preemption — Third Circuit versus Fourth Circuit, with the Ninth Circuit pending — creates the procedural vehicle. Under Loper Bright, the Court will independently determine what “gaming” means. The CFTC’s interpretation will receive no special judicial deference. Every major prediction market’s business model hangs on the answers.

The legislative path is slower but potentially more definitive. CFTC reauthorization — the agency’s formal authorization expired in 2013 — provides a vehicle for Congress to clarify the event contract framework, define “gaming,” and allocate jurisdiction between the SEC and CFTC. Under the current administration, legislative action restricting prediction markets has long odds. But the 2026 midterms could change the calculus, particularly if state AG coalitions and the AGA successfully frame prediction markets as a tax revenue drain and consumer protection failure.

The market path may render the regulatory question partially moot through consolidation. If Nasdaq and Cboe succeed in establishing SEC-regulated binary options — even on financial benchmarks only — institutional capital will gravitate toward the more legally durable framework. The prediction market industry’s projected growth to $113.46 billion by 2035 ensures massive capital flows regardless of regulatory framework — the question is which framework captures them.

Nasdaq’s filing is a 48-page document about binary options on an index. Its significance lies entirely in what it represents: the recognition by America’s most sophisticated financial institutions that prediction markets are a permanent, high-growth asset class — and that the CFTC framework under which they currently operate is legally fragile, politically contested, and structurally inadequate for the products’ actual function. By establishing the SEC as a viable alternative regulator for binary outcome products, Nasdaq has created an exit ramp from the jurisdictional collision that prediction markets’ explosive 90%-sports reality made inevitable.

The industry’s founding legal fiction — that trading contracts on the Packers covering the spread is fundamentally different from betting on the Packers covering the spread — is collapsing under the weight of $234.6 million in annual sports fee revenue, 38 state attorneys general, and a former Trump Chief of Staff willing to say publicly what everyone in the industry knows privately. Nasdaq’s response is not to defend the fiction but to build around it. Financial-index binary options under SEC regulation face none of the gambling objections that consume Kalshi’s legal team. They offer institutional-grade clearing, universal brokerage access, and regulatory durability that no CFTC-registered prediction market can currently match.

The question Nasdaq’s filing forces is whether the prediction market industry will bifurcate — SEC-regulated products for financial events, CFTC-regulated products for everything else — or whether the SEC pathway will eventually absorb the entire category. For Kalshi, Polymarket, and every platform built on the CFTC model, the answer determines whether their regulatory moats are assets or liabilities. For the 38 state AGs, it determines whether their gambling enforcement authority survives federal preemption. For the sophisticated bettors and industry professionals tracking this market, it determines which regulatory framework to build around — and which products will still exist when the Supreme Court finally draws the line.

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Sources

• SR-MRX-2026-05: Proposed Rule Change for Outcome-Related Options — Nasdaq Listing Center
• Self-Regulatory Organization Rulemaking — U.S. Securities and Exchange Commission
• CFTC Files Amicus Brief Urging Exclusive Federal Jurisdiction of Event Contracts — WilmerHale (February 24, 2026)
• Prediction Markets at a Crossroads: The Continued Jurisdictional Battle — Holland & Knight (February 2026)
• U.S. CFTC Signals Imminent Rulemaking on Prediction Markets — Sidley Austin (February 2026)
• Fair Markets and Sports Integrity Act (H.R.) — U.S. Congress (February 10, 2026)
• Loper Bright Enterprises v. Raimondo — Supreme Court of the United States (2024)