- Key takeaway: The Commodity Futures Trading Commission has proposed a rule that would establish a framework to help the agency determine whether prediction market contracts are contrary to the public interest and thus invalid.
- Expert quote: "This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward." — Commodity Futures Trading Commission Chair Michael S. Selig
- What's at stake: The CFTC will take comment on the proposal for 45 days following its publication in the Federal Register.
WASHINGTON — The Commodity Futures Trading Commission said Wednesday it wants to establish a new framework for evaluating prediction market contracts and determine whether they run counter to the public interest.
In a notice of proposed rulemaking, the CFTC said the number and variety of event contracts listed for trading have rapidly grown, particularly those tied to sports. As a result, the agency said it wants to establish a "structured framework" to assess whether contracts fall into restricted categories, including terrorism, assassination, war, gaming or conduct that is unlawful under federal or state law, and whether they are "contrary to the public interest."
"The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation," said CFTC Chairman Michael S. Selig. "This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward."
Selig added that the public often lacks reliable information to accurately assess the likelihood of events, and that individuals with sensitive national security information could be tempted to profit from that knowledge. "Bad actors may manipulate the price of contracts to send misleading signals to the public and our national-security agencies," he wrote. "And the inherent uncertainty and limited access to reliable information during these events means the resolutions of these contracts will often be clouded in ambiguity."
Still, Selig warned that even with clearer rules, some contracts deemed harmful could continue to be offered on offshore platforms outside the CFTC's jurisdiction.
"This gap is a reminder of what is at stake: Either prediction markets responsibly develop within the CFTC's transparent, accountable, and time-tested framework, as our derivatives markets have done for decades, or they drift into the shadows offshore," he said. "The latter is unacceptable."
The proposal comes as prediction markets
The CFTC has asserted authority over prediction markets, but some
The dispute with state regulators stems in part from the agency's decision to allow exchanges to list contracts tied to events traditionally regulated at the state level, including sports and other gaming-related outcomes.
"The reason they're in a big tussle with state regulators over this is not because state regulators tend to make any claims that they can regulate swaps," said Samuel Lazarus, a special assistant to the president at the Council on Foreign Relations,
Jaret Seiberg, managing director at TD Cowen, said the proposal is "a win for the industry" because event contracts tied to sports, contests, elections and financial outcomes would be treated as being in the public interest. Seiberg said he expects the CFTC to approve the rule in early 2027.
