Key facts
- The CFTC has proposed new rules to regulate prediction markets.
- The proposal aims to differentiate between permissible and restricted event contracts.
- Sports betting contracts are expected to be largely permitted.
- Bets on sensitive topics like terrorism, assassinations, and war will face stricter limitations.
- Concerns over insider trading have led to investigations and market safeguards.
- The CFTC seeks to establish a durable framework for scrutinizing event contracts.
The Commodity Futures Trading Commission (CFTC) has unveiled a comprehensive proposal for new rules governing prediction markets, aiming to establish a clear framework for permissible bets while addressing significant concerns about insider trading and market manipulation. The proposed regulations, detailed in a 267-page document, seek to differentiate between various types of event contracts. While sports betting contracts are expected to be largely permitted due to reduced public interest concerns, bets related to terrorism, assassinations, and war will face more stringent limitations. The CFTC provided examples, such as a bet on whether the Islamic State would conduct a specific attack, to illustrate what constitutes a terrorism-related bet under the proposed rule.
These developments come amid growing popularity and market value of prediction platforms like Kalshi and Polymarket, which allow users to wager on real-world events. The rise in popularity has also brought increased scrutiny, particularly concerning insider trading. The Justice Department recently arrested a U.S. Army soldier for allegedly using confidential information to bet on Polymarket. Reports also indicate investigations into former Rep. George Santos related to suspicious trades on Kalshi.
In response to these concerns, both Kalshi and Polymarket have implemented their own safeguards, including mandatory employment verification for sensitive markets and other measures to deter manipulation. Lawmakers have also introduced bipartisan bills to restrict insider trading in these markets, though none have yet been passed.
CFTC Chair Michael Selig has been assertive in claiming federal jurisdiction over prediction markets, even challenging state regulators in court. This stance has been supported by Donald Trump, who has emphasized the importance of exclusive federal jurisdiction. Notably, Donald Trump Jr. has financial ties to both Polymarket and Kalshi through investments and advisory roles.
This new regulatory approach differs from previous attempts under the Biden administration, which had proposed rules restricting contracts tied to gaming, war, terrorism, and assassination but were later scrapped. The current proposal aims to provide a durable and transparent framework for evaluating event contracts.