Prediction market companies like Polymarket and Kalshi have a new set of guidelines for U.S. operations, and the Commodity Futures Trading Commission on Thursday unveiled initial guidance and a proposed permanent rule for what the agency called “a proven source of trusted information for media outlets, sports leagues, financial institutions and everyday Americans.”
The agency had once been a legal adversary of prediction markets, warning that certain bets violated derivatives laws and that the CFTC could not function as a global political force combating fraud and manipulation in political markets around the world. But under Chairman Mike Selig, the CFTC abandoned its long-standing legal fight and embraced the companies. It has now issued a non-binding staff notice for prediction market companies regulated by the CFTC as “designated contract markets” and begun a binding rules process.
“This begins the process of new rulemaking based on a rational and consistent interpretation of the Commodity Exchange Act, while assuring the American people that the CFTC will exercise its exclusive jurisdiction over prediction markets,” Selig said of the regulatory process that is beginning with what is known as an “advance notice of proposed rulemaking.”
Selig, who can operate as the sole authority at the regulator because he is the only member of what should be a five-person commission, quickly moved to push the new political effort. He has also been waging a rhetorical campaign against state regulators who claim to have authority over sports betting, saying his agency is the primary regulator of that space. Numerous states have sued prediction market providers alleging that they are also subject to their jurisdiction, at least for sports-related betting, and Selig recently filed a court brief arguing that the CFTC has exclusive jurisdiction.
The CFTC’s new notice sets out how DCMs (a list that includes Kalshi, Coinbase and Polymarket) must obtain authorization from the regulator to market their products and says that companies should only handle “commercial contracts that are not easily susceptible to manipulation.”
It also noted that companies listing sports contracts should engage in “communications with relevant sports governing bodies or authorities when developing terms and conditions, compliance programs and market oversight for sports-related event contracts.”
However, the agency’s rulemaking initiative is much more complex and will likely take months to implement. At this stage, the CFTC is seeking public comment on how it should proceed. The next step will be a more complete proposal and then a final rule, each of which will be a lengthy process under administrative law.
The agency has set a relatively quick 45-day comment deadline, suggesting a quick timeline.
Prediction markets are platforms where users can buy and sell contracts that bet on a typically binary outcome, such as the winner of a sports contest or the winner of an election. Selig has argued that the process is in the hands of the derivatives watchdog, just as futures contracts are.
The initial rulemaking document stresses that companies involved in this business have a legal responsibility to monitor their activity for market manipulation, as recently demonstrated by Kalshi’s announcement that it had punished a couple of its clients.
The regulatory text notes that “the number of applications for DCM registration has more than doubled over the past year, largely from entities that are primarily or exclusively interested in operating prediction markets.” At this stage, the 32-page document poses a series of questions to help outline what direction the more concrete proposal should take.
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