US: CFTC moves toward prediction market rules amid backlash
The US derivatives regulator is about to draft its first broad rulebook for prediction markets, as lawmakers and consumer groups step up pressure over contracts critics say look and feel like unregulated gambling, and, in the most controversial cases, like profiteering from war.
The Commodity Futures Trading Commission (CFTC) has submitted an “advance notice of proposed rulemaking” (ANPR) to the president’s budget office for review, according to a Reuters report. The ANPR is a preliminary step used to gather views before an agency writes a formal proposal.
The CFTC’s Republican chair, Michael Selig, framed it as a choice between establishing regulations domestically or allowing the industry to operate beyond U.S. jurisdiction. “The more we try to block these markets, we saw with crypto, it just goes offshore,” Selig said at an event in Washington, Reuters reported. “So my view on this stuff is that we’ve got to set the right rules and regulations for it here in the United States, or otherwise, we’re just going to have black markets offshore.”
Prediction markets sell tradable yes-or-no contracts on real-world outcomes, from sports and entertainment to politics and economics. Their rapid growth has sharpened a jurisdictional fight: the CFTC argues these are derivatives markets, while state gaming regulators contend that many of the products amount to gambling.
CFTC chair Michael Selig added that the regulatory regime should set a single national standard. “The U.S. regulatory regime should set a single standard across all 50 states,” Reuters reported him saying. “Our products are very much heavily regulated and have stringent requirements,” he explained.
War contracts intensify scrutiny
The latest push comes after a wave of outrage over contracts linked to geopolitical violence, including wagers tied to Iran’s leadership, that prompted threats of legislation to outlaw some markets.
The backlash has fed long-running concerns about whether some contracts are contrary to the public interest, and whether large traders might be using privileged information.
Pressure is also building on Capitol Hill. One senior Democrat, Senator Chris Murphy, called the concept of war-linked wagering morally grotesque, writing on X: “It’s insane this is legal.” He added: “People around Trump are profiting off war and death. I’m introducing legislation ASAP to ban this.”
Insider trading warnings and a new anti-gambling coalition
Regulators have also begun pointing directly at trading abuse risks. On 25 February, the CFTC’s Division of Enforcement issued an advisory following two cases involving “misuse of non-public information and fraud with respect to certain prediction markets, also known as event contracts,” traded on Kalshi.
In one case, the advisory said, a trader “acknowledged that he knew these trades were improper and violated Kalshi’s rules, which prohibit trading in a contract over which the trader has direct or indirect influence over the outcome.” In another, Kalshi found a trader “likely had access to material non-public information” through an affiliation with the subject of a contract, and concluded there was “reasonable belief that the trades were based on material non-public information misappropriated in violation of a pre-existing duty.”
Organised opposition is forming around the sports side of the business, where critics argue the biggest volumes are effectively wagers without state safeguards. On 2 March, a new coalition called Gambling is Not Investing launched to press for enforcement of “existing state and tribal gaming laws for prediction markets that facilitate illicit sports betting through event contracts.”
The group, led by former congressman Mick Mulvaney, accused platforms of using financial language to avoid gaming rules. “Gambling products – regardless of what you call them – must follow established state and tribal laws,” Mulvaney said. “Rebranding sports wagering as ‘trading’ or ‘investing’ or ‘predicting’ misleads consumers, undermines responsible gaming protections, and weakens the state and tribal systems built to protect the public and fund vital community services.”
Kalshi has said “sports events account for 90 percent of their volume,” according to the coalition’s statement, a statistic likely to fuel the argument that sports regulators, not derivatives officials, should have a larger say.
For the CFTC, the challenge is to define what belongs in federally regulated markets, what crosses ethical red lines, and how to police abuse, without simply pushing the trade into offshore corners that US regulators can’t easily reach.
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