CFTC moves to tighten oversight of prediction markets

The Commodity Futures Trading Commission (CFTC) published a staff advisory and an Advanced Notice of Proposed Rulemaking to increase oversight of event-contract prediction markets. The agency told registered exchanges to review product listings and compliance practices and invited public comment on possible new or amended rules within 45 days of the notice appearing in the Federal Register.

The Division of Market Oversight issued Letter No. 26-08, which reminds exchanges that event contracts-derivatives that pay out based on real-world outcomes such as elections or sports results-are subject to prohibitions on insider trading and market manipulation. The advisory warns the CFTC can halt listings that present compliance concerns and highlights elevated risks for sports contracts tied to injuries or single-player actions. It urges exchanges to coordinate with sports leagues and other relevant parties to address integrity risks.

The ANPRM asks whether current rules are sufficient or whether the commission should write new regulations specifically for prediction markets. The notice sets a 45-day comment period after publication in the Federal Register and outlines questions for market operators, exchanges and other stakeholders.

CFTC Chairman Michael Selig said that prediction markets are “here to stay” and that the agency will defend its jurisdiction and let those markets operate under U.S. rules. He announced the rulemaking at a recent industry conference and has warned state regulators the commission will litigate to protect its authority.

A federal judge recently remanded a case involving exchange Kalshi to Nevada state court, finding the Nevada Gaming Control Board’s claims arise under state law and that the Commodity Exchange Act does not completely preempt those claims. The remand allows Nevada regulators to seek injunctive relief against the exchange and creates the possibility of state enforcement actions or trading halts. Moreover, Kalshi was recently sued in California over the Khamenei market payout.

Industry advisers offered measured reactions. Peter Hammon, an attorney who advises online gaming and sports-betting firms, described the guidance as a restatement of existing rules and a request for stakeholder input. He noted Selig’s emphasis on responsible gambling as a public-relations concern and said prediction markets have operated under regulation in other jurisdictions. Hammon also pointed to past state licensing efforts that struggled because of high gaming taxes, low liquidity and complex rules for pooling liquidity across states.

Some platforms are investing in technology to strengthen market integrity. Polymarket plans to work with data analytics firm Palantir to monitor the integrity of U.S. sports prediction markets, using an engine known as Vergence AI to detect potential manipulation or abusive behavior.

Event contracts sit at the intersection of finance and wagering: supporters say they can provide price discovery for political and other outcomes, while some state regulators view sports-linked products as unlicensed betting. Exchanges and other parties now have a set comment period to respond to the ANPRM, and pending state and federal litigation will be part of the regulatory context as the CFTC considers any rule changes.