Key facts
- The CLARITY Act, under consideration in the US Senate, could grant the CFTC more authority to regulate prediction markets.
- A lawyer testified that the CFTC may be too understaffed to fully regulate prediction market platforms.
- CFTC Chair Michael Selig maintains the agency has exclusive jurisdiction over event contracts on these platforms, classifying them as 'swaps'.
- Some US states have initiated lawsuits against prediction market companies like Kalshi and Polymarket.
- The text of the CLARITY Act is expected to be released soon, with Republican senators pushing for a vote before the August recess.
Lawmakers on a US House subcommittee are exploring how the Commodity Futures Trading Commission (CFTC) can oversee prediction market companies, with discussions including pending crypto market structure legislation. Carl Kennedy, a partner at Katten Muchin Rosenman, testified that the CFTC might be too understaffed to fully regulate platforms like Kalshi and Polymarket. He suggested that the Digital Asset Market Clarity (CLARITY) Act, currently under consideration in the Senate, could provide the agency with additional authority to address the "explosive growth of prediction markets" and digital assets.
Kennedy's remarks highlighted ongoing debates about the CFTC's regulatory approach. CFTC Chair Michael Selig has asserted the agency's exclusive jurisdiction over these platforms, classifying event contracts as "swaps." This stance has led to friction with some Democratic senators and state authorities, with several states filing lawsuits against prediction market companies. Selig recently directed Kalshi to disregard a Michigan court ruling, creating a conflict between state and federal regulatory mandates. Some legal experts anticipate that these jurisdictional clashes could eventually reach the US Supreme Court.
Republican senators are pushing for a vote on the CLARITY Act before Congress's August recess and expect to release the bill's text soon. Details regarding how the act might specifically address prediction markets and other concerns remain undisclosed. In June, gambling industry groups petitioned the US Senate to include language explicitly prohibiting event contracts tied to sports and casino-style gaming within the CLARITY Act. The White House has indicated that the Trump administration agreed to comprehensive ethics provisions within the bill.