CFTC Unveils Proposed Rules for Prediction Markets; Seeks Public Comments

Key Insights

• CFTC begins public comment period on prediction market rules
• The regulator is focused on establishing a framework for types of event contracts that can be listed.
• CFTC is currently battling states over the prediction markets as the sector continues to grow.

The Commodity Futures Trading Commission (CFTC) has opened a public comment period on proposed rules governing prediction markets. CFTC Chairman Michael Selig announced the move, saying the agency seeks clearer standards for evaluating event contracts while supporting responsible innovation.

The proposal enters a 45-day comment period before the regulator considers a final framework. The rules would establish how the agency evaluates contracts and determines whether they comply with the public interest standard.

CFTC Proposal Targets High-Risk Event Contracts

The proposed CFTC rules, contained in a 267-page document, focus on prohibiting contracts that are contrary to the public interest. These include event contracts on sensitive topics such as assassinations, terrorism, and wars.

The growing sector has already attracted scrutiny over allowing betting on these events. The top two prediction market platforms, Kalshi and Polymarket, both listed contracts on the arrest of Venezuela president Nicholas Maduro and the assassination of Iranian leader Ayatollah Khomeini.

These contracts attracted significant concerns over the potential use of insider information. One user made over $400,000 in profit wagering on Maduro’s arrest. The user was later identified as an active US soldier and charged in April.

Meanwhile, CFTC also wants to block wagers that are highly vulnerable to market manipulation. This could likely include some sports-related gambling, such as bets on player injuries, referee calls, and other events highly dependent on a single individual’s action.

CFTC’s decision to create a framework for what could be listed on prediction markets is not surprising. Already, several proposed laws in Congress seek to ban prediction markets for such events.

CFTC Sides with Prediction Platforms Against State Regulators On Sport-Related Contracts

Interestingly, the proposed rules show that CFTC plans to allow contracts on most sports events. This is not surprising given that the regulator is currently engaged in a legal battle with states on the matter.

The CFTC has sued several states for challenging its jurisdiction over sports-related contracts involving a prediction market platform. In April, it sued Arizona, Illinois, and Connecticut.

It also filed a lawsuit against Minnesota after the state enacted a law seeking to ban prediction makers outright. The CFTC’s latest lawsuit was against Rhode Island in late May, taking the number of states it has sued to seven.

The battle between states and the CFTC centers on whether to allow sports betting. While states claim that sports betting falls under their regulatory authority, the CFTC insists it has exclusive jurisdiction over sports-related contracts involving prediction markets, noting that they are derivatives.

So far, 18 states are currently involved in litigation over prediction markets. Despite the ongoing legal drama, the prediction market has continued to grow, with Wall Street firms actively exploring the sector that Bernstein predicts will reach $1 trillion by 2030.

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