The U.S. government is formally reversing its previous stance on banning certain activities at prediction market firms such as Kalshi and Polymarket, and U.S. Commodity Futures Trading Commission Chairman Mike Selig on Wednesday proposed withdrawing a proposed rule on event contracts starting in 2024 and scrapping an earlier notice that he said confused the industry.
In 2024, the derivatives regulator proposed a rule that would have banned contracts based on the outcome of political events, legally equating them with illicit contracts on war, terrorism and murder and calling them “contrary to the public interest.” That rule never advanced to a final stage before President Donald Trump returned to the White House and named new CFTC leaders. The CFTC had allowed prediction markets to be launched based on political events after losing a court fight over Kalshi’s planned offering that same year.
The agency’s recently confirmed president, Selig, has already clarified this and a minor advisory issued in September regarding certain contract markets.
“The 2024 event contracts proposal mirrored the previous administration’s diversion from merit regulation with an outright ban on political contracts ahead of the 2024 presidential election,” Selig said in a statement. “The Commission is withdrawing that proposal and will advance new rulemaking based on a rational and consistent interpretation of the Commodity Exchange Act that promotes responsible innovation in our derivatives markets consistent with Congressional intent.”
Selig’s action is not surprising, as it closely followed his comments last week that indicated it was coming. He said he had “directed the CFTC staff to move forward with drafting an event contract rulemaking.”
The Trump administration’s embrace of prediction markets has paved the way for increased interest from companies looking to launch into the sector, such as Coinbase, or Cboe’s tangential pursuit of similar products.
The September notice that Selig withdrew was intended to warn platforms about litigation concerns, he said, but had “inadvertently created confusion and uncertainty for our market participants.”
The CFTC is expected to become a central voice in digital asset oversight, in which prediction markets have had an overlapping interest. Selig is working on a number of new initiatives and Congress is negotiating his cryptocurrency market structure bill which, among many other points, seeks to establish the CFTC as the legitimate watchdog for non-securities cryptocurrency spot markets.
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