CFTC proposes rule framework for prediction markets as sports contracts stay in scope

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CFTC prediction markets rule

Highlights

CFTC released a 267-page proposed rule framework on Wednesday to clarify which prediction market event contracts are permissible, with sports-related contracts remaining in scope.
Rising trading volumes and recent insider trading cases involving Polymarket and Kalshi have prompted bipartisan legislative proposals and the platforms' introduction of new safeguards, including mandatory employment verification.
CFTC Chair Michael Selig is expanding federal oversight of prediction markets amid legal challenges from states and announced that further rulemakings beyond this proposal are planned.

Proposed framework for event contracts

According to The Block, the CFTC said in a proposed rule released on Wednesday that it is drawing clearer lines around which prediction market bets are permissible under federal law, as platforms such as Kalshi and Polymarket grow into a market worth tens of billions of dollars. The 267-page proposal marks a broader reset in how the agency approaches event contracts after an earlier rulemaking effort under the Biden administration was scrapped this year.

CFTC Chair Michael Selig said in a statement that the agency aims to protect regulated markets while allowing responsible innovation to continue. He said the proposal is meant to give the commission a durable and transparent framework for identifying contracts that Congress directed it to scrutinize while allowing legitimate markets to move forward.

Under the proposal, the agency seeks to distinguish between contracts that implicate terrorism and those that do not. The CFTC cited as an example that a contract on whether the Islamic State conducts an armed attack causing more than 10 civilian deaths in Baghdad during June 2026 would involve terrorism, while a contract on whether the Transportation Security Administration implements improved screening at certain airports would not.

The commission also said sports-related contracts are not likely to raise public interest concerns. It said prediction markets have successfully listed a wide range of sports event contracts and preliminarily found that some characteristics of those contracts reduce the basis for concluding they are contrary to the public interest.

Regulatory pressure and market integrity concerns

Prediction markets have come under greater scrutiny as trading volumes rise and the platforms expand into politically and commercially sensitive topics. Insider trading concerns have become more prominent after the Justice Department in April arrested an active-duty U.S. Army soldier accused of using confidential information to place bets on Polymarket ahead of former Venezuelan President Nicolás Maduro's capture earlier this year.

The DOJ and the CFTC are also reportedly investigating former Representative George Santos after Kalshi found suspicious trades tied to his attendance at President Donald Trump's February State of the Union address. Lawmakers have introduced bipartisan bills to restrict trading by people with access to non-public information, though those measures have not yet become law.

The platforms say they are adding safeguards as regulatory pressure builds. This week, Kalshi introduced mandatory employment verification for traders in sensitive markets and other measures aimed at limiting insider trading and manipulation, while Polymarket has also put in place controls designed to deter abusive trading.

Selig, who was chosen by Trump to lead the agency, is taking an expansive view of federal jurisdiction over prediction markets and is challenging states in court as state regulators argue the platforms may violate local gaming and gambling laws, especially around sports betting. In March, the CFTC issued guidance telling exchanges they serve as front-line regulators responsible for ensuring listed contracts are not readily susceptible to manipulation or abusive trading practices, and Selig said in a post on X on Wednesday that additional prediction market rulemakings are coming.

Our earlier article on Kalshi’s new employment verification checks explained how the platform is tightening compliance as U.S. scrutiny of prediction markets intensifies. We outlined how the screening is meant to flag presumptive insiders before they trade, alongside added surveillance tools such as market risk-scoring and an expanded whistleblower process to deter manipulation and abusive activity.

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