Key Highlights
- CFTC Chair Michael Selig to rewrite prediction market rules, withdrawing the 2024 ban and 2025 advisory.
- Legal battles intensify as states challenge sports-related contracts, raising jurisdiction questions.
- New framework aims to clarify federal oversight, support innovation, and protect investors.
The U.S. Commodity Futures Trading Commission (CFTC) is moving forward with a broad reset of its regulatory approach to prediction markets, announcing plans to write new rules that clarify how these fast‑growing platforms will operate under federal law.
The announcement comes from CFTC Chairman Michael Selig at a panel alongside Securities and Exchange Commission (SEC) Chair Paul Atkins, as the tension between federal regulators, states, and the courts intensifies.
Prediction markets let users trade contracts tied to future outcomes, such as elections, economic events, and sports results. Platforms such as Polymarket, Kalshi, Coinbase, DraftKings, FanDuel, Robinhood, and others operate or plan to launch products that let people buy and sell these contracts.
But questions about legality, jurisdiction, and consumer protections have always shadowed this sector, prompting the CFTC’s renewed regulatory effort.
Why the regulatory pivot?
Chairman Selig emphasized that the current framework for event contracts, the legal term used by the CFTC, has created “uncertainty” rather than clarity for market participants.
To address this, he directed staff to withdraw a 2024 proposal that would have banned political and sports-related event contracts, as well as a 2025 advisory cautioning the offering of sports‑related contracts amid legal disputes.
Selig told the audience that the previous efforts, while well‑intended, failed to provide clear guidance and instead left operators and traders in a regulatory gray zone.
“It is time for clear rules and a clear understanding that the CFTC supports lawful innovation in these markets,” he said, reflecting his goal to balance innovation with investor protection and market integrity.
The new rulemaking will aim to lay out precise standards for how event contracts should be structured, vetted, and overseen, including how they relate to derivatives law and whether federal jurisdiction preempts conflicting state gaming laws.
State vs Federal: A growing legal clash
Legal challenges have become widespread. Multiple states have argued that prediction markets’ sports‑related contracts resemble unlicensed gambling and should fall under state gaming laws, not federal oversight.
For example, Tennessee’s Sports Wagering Council recently ordered Kalshi, Polymarket, and Crypto.com to halt sports contracts and refund customers by Jan. 31, 2026, claiming these offerings violate state law.
Similar actions have been taken in Connecticut, and courts in Massachusetts have barred Kalshi from offering sports markets without state gambling licenses.
In contrast, federal courts previously ruled that some political event contracts did not constitute illegal gaming, underscoring the debate over jurisdiction. Selig signaled that the CFTC may engage more actively in these cases.
He directed staff to reassess how the agency participates in ongoing litigation, especially where jurisdictional questions are contested, asserting that “the Commission has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives.”
Growth, innovation, and scrutiny
Prediction markets are not new, they have operated under the CFTC’s jurisdiction for years. However, rapid adoption in the last few election cycles, expanding retail participation, and the integration of crypto platforms have dramatically increased their profile.
In late 2025, Polymarket re‑entered the U.S. market after acquiring a regulated exchange operator and winning CFTC approval to operate as a registered designated contract market.
Kalshi, meanwhile, has handled billions in trading volume, especially on questions tied to major sports leagues, elections, and economic events. These developments drew attention not just from regulators but also from legislators.
A proposed Public Integrity in Financial Prediction Markets Act of 2026 would seek to ban government officials from trading on contracts related to their official duties, after a controversial high-stakes trade on a Venezuelan political outcome sparked concern about insider trading.
Industry and market impacts
The regulatory pivot could have far‑reaching effects. Proponents argue a clearer federal framework will reduce legal risk, encourage responsible innovation, and support transparent markets.
The critics fear that the state regulators will still push their own standards, resulting in a patchwork of regulations that do not reflect the federal intentions. Daily volumes and contract offerings are growing, which investors and traders are observing.
While some states continue enforcement actions, federal efforts to harmonize rules may impact where and how prediction markets operate, especially if legislation formalizes the CFTC’s authority over event contracts.
Looking ahead
As Selig and the SEC coordinate on digital asset and prediction market rules, stakeholders across finance, gaming, and technology will be closely tracking how these regulatory contours take shape.
The outcome will affect not only specialized platforms like Kalshi and Polymarket but any exchange offering predictive financial products tied to real‑world events.
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