TLDR
- On Thursday, the CFTC released staff guidance and initiated formal rulemaking procedures for prediction market regulation
- According to CFTC Chair Mike Selig, who serves as the commission’s only member, the agency holds exclusive regulatory authority over these markets
- Major platforms including Kalshi, Polymarket, and Coinbase received preliminary operational frameworks for U.S. market participation
- A federal court setback for Kalshi in Ohio has added complexity to claims of exclusive federal oversight
- A 45-day window for public feedback begins once the proposed rule appears in the Federal Register
The Commodity Futures Trading Commission has launched a dual-pronged regulatory initiative targeting prediction markets, releasing operational frameworks while simultaneously beginning formal rulemaking procedures that industry observers say could fundamentally alter the sector.
Chair Mike Selig unveiled both initiatives Thursday, characterizing prediction markets as representing “one of the most exciting innovations in financial markets” while acknowledging the agency’s prolonged absence of regulatory clarity.
The commission published staff guidance that categorizes event-based contracts on prediction platforms as a distinct financial asset category. Simultaneously, it filed an Advanced Notice of Proposed Rulemaking with the Federal Register, triggering a 45-day period for public input.
Prediction markets operate as trading venues where participants trade contracts based on binary event outcomes — ranging from electoral results to sporting event winners. Major platforms including Kalshi, Polymarket, and Coinbase currently operate under CFTC oversight as designated contract markets.
The published guidance establishes procedures for platform operators seeking regulatory approval for trading instruments. It specifies that platforms should exclusively offer contracts “not readily susceptible to manipulation.”
Regarding sports-focused contracts, the advisory instructs operators to maintain dialogue with appropriate sports governance organizations during the development of contract specifications, compliance frameworks, and market surveillance protocols.
Federal-State Jurisdictional Battle Intensifies
These regulatory developments emerge amid ongoing litigation between the CFTC and various state regulatory bodies. Several states have initiated legal action against prediction market operators, contending these platforms constitute gambling operations subject to state oversight — especially for sports wagering.
Selig has mounted an aggressive defense, maintaining the CFTC possesses exclusive federal authority over prediction market oversight. He has pledged to legally contest any state attempting to exercise regulatory control over these platforms.
Yet a recent judicial setback occurred when an Ohio court rejected Kalshi’s motion for preliminary injunctive relief against Ohio gaming regulators. The presiding judge determined that Kalshi failed to demonstrate federal law would definitively preempt Ohio’s sports betting regulations.
Terry Duffy, CEO of CME Group, suggested Thursday that the contradictory judicial rulings may ultimately require Supreme Court intervention. “I don’t see how it doesn’t go to the Supreme Court for a definition of what is a prediction market on sports,” he stated.
Single Commissioner Holds Unprecedented Authority
Selig currently serves as the CFTC’s sole commissioner. The commission typically maintains five members, though positions have remained unfilled following acting chair Caroline Pham’s December departure.
Given that only a majority quorum is required for rule adoption, Selig possesses unprecedented unilateral authority to approve final prediction market regulations independently. As of Thursday, President Trump had made no announcements regarding new agency appointments.
The rulemaking proposal spans 32 pages and presents multiple questions intended to shape the final regulatory framework. Applications for designated contract market status have increased by over 100% in the past year, predominantly from prediction market-focused entities.
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