Citadel Securities sent a letter on Sept. 9 to the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, asking the SEC to reassert primary oversight over event contracts tied to U.S. listed companies. The firm also criticized exchanges for using the CFTC’s self-certification process to avoid SEC review.
The letter was submitted in response to a recent joint request for public comment issued by the SEC and the CFTC. Citadel’s central argument was direct: a trading venue should not be allowed to decide for itself which regulator has authority over a product.
CFTC self-certification versus SEC approval
Citadel said the current framework leaves a gap between the two regulators. Under CFTC rules, a registered Designated Contract Market can launch a new product through self-certification, potentially listing it as soon as the next day and without a public comment process.
The SEC framework is stricter. A venue must show compliance, open the proposal to public comment, and obtain explicit SEC approval before trading can begin.
Stephen John Berger, Citadel’s global head of government and regulatory policy, wrote in the letter: 「An exchange should not be able, based on its own unilateral definition, to effectively choose the regulator for a stock-linked product.」
KPI contracts and insider trading concerns
Berger pointed to what he described as a concrete example. Some CFTC-registered contract markets have self-certified key performance indicator, or KPI, contracts as products under CFTC jurisdiction, even though those contracts are linked to the financial metrics and operating data of public companies.
Citadel argued that these instruments create a new form of insider trading risk for two reasons:
- the issue is not limited to whether a specific metric is achieved;
- it also involves whether the issuer will disclose the information, and how that disclosure will be made.
In Citadel’s view, people with access to internal corporate information could use event contracts to profit outside the traditional stock market, even though that kind of activity should fall within the SEC’s remit.
Citadel’s legal argument
The firm set out two legal classifications in the letter. First, binary options linked to KPI outcomes should be treated as securities under federal securities laws. Second, if a contract is tied to a single-issuer event and directly affects that issuer’s financial statements, financial condition, or obligations, it may also meet the definition of a security-based swap.
Citadel also asked the SEC to commit to timely review of new product filings and to clarify how stock-linked event contracts should be classified relative to perpetual derivatives.
Berger ended the letter with this point: 「New products should succeed on their own merits, not by exploiting differences between the SEC and CFTC regulatory frameworks.」
Possible impact on Kalshi and OG.com
While the letter was addressed to the SEC and the CFTC, the report said the practical targets were clear, including prediction market platforms such as Kalshi and OG.com.
Kalshi, a CFTC-registered prediction market, has rolled out a large number of event contracts tied to public company revenue, earnings, and product launches in recent years. If the SEC accepts Citadel’s argument, those products could be reclassified and may need to go through a more demanding SEC review process.
The report also noted that Citadel is a market maker active across multiple venues. Its push for tighter SEC oversight may reflect competition with platforms operating under what it sees as the lighter-touch CFTC framework, while also amounting to a forceful compliance challenge.