The Commodity Futures Trading Commission proposed new rules Wednesday for prediction markets that delineate what bets would be allowed under federal law. The rules would permit sports betting while limiting contracts on terrorism, assassinations, and war. Prediction markets such as Kalshi and Polymarket allow bets on real-world events and gained significant traction in the 2024 elections, with platforms now worth tens of billions of dollars each.
CFTC Defines Terrorism and Sports Betting Parameters in 267-Page Proposal
The new 267-page proposed rule provides specific examples distinguishing terrorism-related bets. According to the proposal, betting on whether "the Islamic State conducts an armed attack causing more than ten civilian deaths in Baghdad during June 2026 involves terrorism." However, a bet on whether the Transportation Security Administration implements better screening at certain airports would not involve terrorism.
For sports betting, the CFTC stated that contracts are not likely to "raise public interest concerns." "The Commission observes that prediction markets have successfully listed for trading a wide variety of event contracts based on sports activities," the agency said in its proposed rule. "The Commission preliminarily finds that certain characteristics of event contracts involving sports activities would reduce the basis for finding that the event contracts are contrary to the public interest."
CFTC Chair Michael Selig said in a statement: "The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation. This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward."
DOJ Arrests and Investigations Target Insider Trading on Prediction Platforms
In April, the Justice Department arrested an active-duty U.S. Army soldier for using confidential information to place bets on the prediction market Polymarket ahead of former Venezuelan President Nicolás Maduro's capture earlier this year. The DOJ and the CFTC are also reportedly investigating former Rep. George Santos after Kalshi found suspicious trades tied to his attendance at Trump's February State of the Union address.
This week, Kalshi rolled out mandatory employment verification for traders in sensitive markets, among other measures to combat insider trading and market manipulation on the platform. Polymarket has likewise implemented safeguards designed to deter insider trading and preserve market integrity.
Lawmakers have introduced several bipartisan bills to restrict trades by people with access to non-public trading to prevent insider trading. These bills have not yet been passed into law.
CFTC Scraps Biden-Era Restrictions Under New Trump Administration Approach
The new rule takes a different approach than in years past. Under the Biden administration, the CFTC voted to propose rules restricting event contracts tied to gaming, war, terrorism, and assassination because they could be "contrary to the public interest." That rulemaking was scrapped earlier this year.
Chair Selig Asserts Federal Jurisdiction Over Prediction Markets
CFTC Chair Selig, whom President Donald Trump tapped to lead the agency, has taken an aggressive approach in asserting the federal agency's jurisdiction over prediction markets, including challenging states in court. States have pushed back, saying that the platforms are violating local gaming and gambling laws, particularly those related to sports betting.
Trump has backed Selig, calling the issue "critically important" for the CFTC to have exclusive jurisdiction over prediction markets. Trump's son, Donald Trump Jr., has invested in Polymarket through the venture capital firm 1789 Capital and is also a strategic advisor to Kalshi.
In March, the CFTC released guidance outlining how exchanges should approach listing prediction market contracts, including emphasizing that exchanges designated as contract markets act as the front-line regulators responsible for ensuring listed contracts are "not readily susceptible to manipulation" or abusive trading practices.
In a post on X on Wednesday, Selig indicated that more rules are coming. "Rest assured, this will not be the last prediction market rulemaking as the agency continues to balance market integrity with responsible innovation."
FAQ
What did the CFTC propose on Wednesday regarding prediction markets?
The CFTC proposed new rules for prediction markets that would allow sports betting while limiting contracts on terrorism, assassinations, and war. The 267-page proposal provides specific examples to distinguish what types of bets would be permitted under federal law.
Why did the Justice Department arrest a U.S. Army soldier in April?
In April, the Justice Department arrested an active-duty U.S. Army soldier for using confidential information to place bets on the prediction market Polymarket ahead of former Venezuelan President Nicolás Maduro's capture earlier this year.
How does the new CFTC approach differ from the Biden administration's rules?
Under the Biden administration, the CFTC voted to propose rules restricting event contracts tied to gaming, war, terrorism, and assassination because they could be "contrary to the public interest." That rulemaking was scrapped earlier this year, and the new Trump administration approach permits sports betting while providing specific criteria for limiting other contract types.
