The Texas Senate State Affairs Committee held a hearing in Austin on September 15 to examine prediction markets, pressing Kalshi and the American Gaming Association on sports contracts, election markets and consumer protections, according to Prediction News.
Robert DeNault, Kalshi's legal counsel, testified that the platform offers trading in event contracts, also known as swaps, and senators debated whether venues like Kalshi function as derivatives markets or constitute sports gambling, per the report. Committee Chairman Bryan Hughes described prediction markets as potential loopholes in Texas's 1903 gambling ban, according to esports.gg. American Gaming Association vice president Tres York criticized the platforms, arguing they bypass state-level policy decisions and could expose young Texans to sports gambling under the guise of financial investing, per esports.gg. DeNault responded that prediction markets are fundamentally different from gambling because they operate as financial exchanges under the regulatory oversight of the Commodity Futures Trading Commission, per esports.gg.
The hearing traces back to July 2026, when Lieutenant Governor Dan Patrick released his 2026 interim legislative charges. One directive, titled 'Closing Gambling Loopholes,' told the State Affairs Committee to study how prediction markets use federal law to get around Texas gambling prohibitions, and to examine the relationship between federally regulated derivative markets and state-prohibited gambling, recommending ways to protect the integrity of Texas elections and sports, per esports.gg. Because Texas holds no regular legislative session in 2026, the hearing serves as groundwork for the 90th Legislature, which is slated to begin January 12, 2027.
Eight days later, the fight moved to Washington. All 11 Democrats on the U.S. Senate Banking Committee wrote to Chairman Tim Scott on September 23 asking him to hold a public hearing on prediction markets, per Unchained. The letter was led by ranking member Elizabeth Warren and Senator Catherine Cortez Masto, and it followed a September 18 Punchbowl News report that the committee had planned a closed, Republican-only roundtable with Kalshi in attendance. Committee Republicans met with Kalshi CEO Tarek Mansour at 10 a.m. on September 23, The Block reported, per Unchained.
The Democrats argued that some prediction market products raise issues within the Banking Committee's oversight. Event contracts pegged to corporate performance indicators 'could meet the definition of security-based swaps that would be subject to SEC regulation,' they wrote, per Unchained. Banking oversees the Securities and Exchange Commission, while the Commodity Futures Trading Commission, which has claimed the lead role over prediction markets, answers to the House and Senate Agriculture committees. The senators asked that Congress examine the sector 'on a bipartisan basis in a public hearing' and 'not behind closed doors in a Republican-only, industry-friendly roundtable.' They also wrote that experts warn prediction markets are prone to encourage manipulation and insider trading, and that early research found profits 'highly concentrated in a small fraction of users, while the majority lose money.'
Scott said in a statement to The Block that he brought the group together 'to better understand the opportunities and challenges presented by securities-linked products,' per Unchained. 'My goal is to ensure that America leads in financial innovation while protecting investors and providing the regulatory clarity these emerging markets need,' he added. Kalshi did not immediately respond to The Block's request for comment.
The push for hearings is part of a wider Washington squeeze, per Unchained. A day before the Banking Committee letter, CFTC staff warned exchanges that contracts settling on what a named person says or does may be presumed susceptible to manipulation. On April 30, the Senate unanimously barred senators and their staff from trading on prediction markets. For venues, the message is that the industry's Washington engagement is becoming a permanent cost of doing business: what happens next depends on whether Chairman Scott schedules a public hearing and on what bills emerge in Texas in the 2027 session.