Prediction market firms like Polymarket and Kalshi have a new set of guidelines for U.S. operations, with the Commodity Futures Trading Commission laying out initial guidance and a proposed permanent rule Thursday for what the agency called “a proven source of reliable information for news media, sports leagues, financial institutions and ordinary Americans.”
The agency had once been a legal opponent of the prediction markets, warning that certain bets violated derivatives laws and that the CFTC could not act as a global political force fighting fraud and manipulation in political markets around the world. But under Chairman Mike Selig, the CFTC abandoned its old legal battle and embraced the firms. It has now issued a non-binding staff advisory to those prediction market firms regulated by the CFTC as “designated contract markets” and has begun a binding rulemaking process.
“This begins the process of new rulemaking based on a rational and coherent interpretation of the Commodity Exchange Act, while assuring the American people that the CFTC will exercise its exclusive jurisdiction over prediction markets,” Selig said of the regulatory process, which starts with what is known as an “advanced notice of proposed rulemaking.”
Selig, who can serve as the sole authority at the regulator because he is the sole member of what is meant to be a five-person commission, moved quickly to push the new policy effort. He has also waged a rhetorical campaign against state regulators who assert authority over sports betting, saying his agency is the primary regulator of that area. Several states have sued prediction market providers, alleging that they too are subject to their jurisdiction, at least for sports-related betting, and Selig filed a recent lawsuit arguing that the CFTC has exclusive jurisdiction.
The CFTC’s new advisory outlines how DCMs — a list that includes Kalshi, Coinbase and Polymarket — must get trading products approved with the regulator, and it says the firms must only handle “trading contracts that are not easily susceptible to manipulation.”
It also noted that firms listing sports contracts should engage in “communication with such relevant sports governing bodies or authorities when developing terms and conditions, compliance and market oversight programs for sports-related event contracts.”
However, the agency’s rulemaking initiative is much more complex and will likely take months to implement. At this stage, the CFTC is seeking public comment on how to proceed. The next step will be a more detailed proposal and then a final rule, each a lengthy administrative law process.
The agency has set a 45-day deadline for comments, which is relatively quick, suggesting a fast timeline.
The prediction markets are platforms where users can buy and sell contracts betting on a typical binary outcome, such as the winner of a sports competition or the victory of an election. Selig has argued that the process belongs to the derivatives watchdog in the same way that futures contracts do.
The initial rulemaking document emphasizes that companies engaged in this business have a legal responsibility to check their activity for market manipulation, as evidenced recently by Kalshi’s announcement that it had penalized a few of its clients.
The rulemaking text noted “the number of applications for DCM registration has more than doubled over the past year, mainly from entities primarily or exclusively interested in operating prediction markets.” At this stage, the 32-page document asks a series of questions to help outline the direction the more concrete proposal should take.
Read more: Senate Democrats push market limits on predictions, including ban on betting on war, death
