Prediction Markets Draw Wall Street as Regulatory Fight Deepens

Kalshi and Polymarket allow users to trade contracts tied to the outcomes of elections, economic data releases and other events, combining crowd forecasting with financial speculation. As the market expands rapidly, banks must decide whether to offer trading, clearing or client services while assessing regulatory and reputational risks and competition with traditional derivatives.

Analysts estimate prediction market trading volume will rise from $16 billion to $64 billion in 2025, quadrupling in size. The growing prominence of Kalshi and Polymarket offers opportunities to generate fees and attract new customers, but banks must still weigh compliance costs, concerns about market manipulation and potential losses from event contracts.

Kalshi structures outcomes in sports, elections and other areas as event contracts and operates as a designated contract market regulated by the U.S. Commodity Futures Trading Commission (CFTC). Minnesota, however, considers the activity gambling subject to state law. The dispute centers on whether the Commodity Exchange Act grants exclusive federal jurisdiction that preempts the state ban under the U.S. Constitution’s Supremacy Clause. The outcome could reshape regulatory boundaries nationwide.

Governor Tim Walz signed SF 4760 on May 18, 2026, before replacing it with SF 3432 on May 26. Effective August 1, the law makes operating, facilitating or advertising prediction markets a felony. The CFTC sued on May 19 and sought an injunction, followed by Kalshi on May 27. Kalshi also argued that the advertising restrictions violate the First Amendment. The litigation is expected to continue through appeals and could ultimately be decided by the U.S. Supreme Court.