The Commodity Futures Trading Commission on Wednesday proposed new rules on how it will evaluate whether certain contracts offered on prediction market platforms are in the public interest.
“The Commission has continued to observe growth in the number and variety of event contracts listed for trading by CFTC-registered entities, including contracts referencing sporting events,” the agency said in a press release. “In light of these developments, the proposal would establish a structured framework for evaluating whether such contracts involve an activity enumerated in Section 5c(c)(5)(C) of the Commodity Exchange Act —activity that involves terrorism, assassination, war, gaming, or conduct that is unlawful under federal or state law—and, if so, whether that contract is contrary to the public interest.”
Per the Wall Street Journal, the proposed rules would likely limit certain types of sports-related contracts, such as bets on player injuries and so-called first-pitch wagers such as those that led Major League Baseball to suspend Cleveland Guardians all-star relief pitcher Emmanuel Chase. Chase place bets that two of teammate Luis Ortiz’s pitches would be balls. Ortiz threw both pitches far outside the strike zone, triggering the probe.
Wagers involving the timing of political leaders’ removals from office would also be prohibited if the path to removal involves war or assassination. Contracts specifying outcomes as a result of ordinary “electoral defeat, resignation, constitutional removal, negotiated departure, or natural death,” would still be permitted.
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“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” CFTC Chairman Michael S. Selig said in a statement. “This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”
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The proposal will now undergo a 45-day public comment period before any rules are finalized.
The new proposed rules, spelled out in a 238-page Notice of Proposed Rulemaking (NPRM), come as the CFTC continues to battle state authorities over regulation of the markets, particularly those involving sporting events. The CFTC regards event contracts, including sporting events, as “swaps,” a type of derivative under its exclusive jurisdiction.
“The Commission preliminarily believes that the record supports the conclusion that event contracts involving aggregate outcomes can be operated consistent with the public interest,” the NPRM reads.
Prediction platforms such as Kalshi and Polymarket have also seen a rise in wagers that appear to be based on non-public information, raising concerns over possible illegal insider trading. Kalshi recently announced it plans to require some users to disclose the identity of their employer in an effort to combat the practice.
Many state regulators, however, regard sports contracts as a form of gambling and have charged prediction platforms with operating unlicensed sportsbooks. The Commission has responded by filing lawsuits against Connecticut, Illinois, New York, Arizona and Wisconsin charging them with interfering with the operation of federal law.
The platforms themselves have strongly favored federal oversight as preferable to a patchwork of state regulations.
“We are fully supportive of the CFTC’s initiative to provide clarity for prediction markets and remain committed to working toward a federal framework that protects the public and supports innovation—we look forward to commenting on the Commission’s proposed rule,” a Polymarket spokesperson told Decrypt Wednesday.
