A new proposal from the Commodity Futures Trading Commission (CFTC) is setting the stage for what could become one of the prediction market industry’s favorite recurring traditions, i.e., arguing with regulators.
The agency has released a 267-page notice of proposed rulemaking, Prediction Markets; Public Interest Determinations, outlining how it intends to decide whether certain event contracts should be prohibited for conflicting with the public interest—a phrase that, as always, promises lively debate over what exactly the public’s interests happen to be.
In response to the plans, CFTC Chairman Michael S. Selig stated: “The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation.
“This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”
It arrives as prediction markets continue their steady extension into sports, politics, and other areas guaranteed to attract attention, controversy, and lengthy legal briefs. It also follows several years of litigation, hearings, and regulatory soul-searching over the CFTC’s authority to oversee event contracts, with virtually every stakeholder insisting that the future of the industry depends on getting the answer right.
The commission is proposing a more flexible framework. Instead of deciding that certain subjects are off-limits on sight, regulators would evaluate contracts based on a variety of factors when determining whether they involve unlawful activity, terrorism, assassination, war, gaming, or any future category that regulators may later decide belongs on that list. Unusually, while murder contracts would be prohibited, an “event contract that settles on whether Bernard Madoff is convicted of securities fraud” appears to be permissible.
How the CFTC wants to draw the line in the prediction markets proposal
The agency’s approach reflects arguments that prediction market operators have been making for years. According to industry participants, event contracts can facilitate price discovery, risk management, and information gathering.
Under the proposal, the central question is whether regulators would examine how the contract functions, how it settles, and whether it creates wider public-interest concerns.
Exchanges seeking regulatory certainty will likely welcome that distinction. Others may view it as a potentially elegant way of calling something “not gambling” while it looks suspiciously like gambling from across the room.
One of the most closely watched sections addresses sports-related markets. The CFTC indicates that contracts tied to professional or collegiate sporting outcomes may not automatically be contrary to the public interest. Markets based on objective settlement criteria, including final scores, point spreads, win-loss records, tournament advancement, and season performance metrics, could potentially qualify.
It also suggests safeguards that might support such products, including market surveillance programs, trading restrictions, and coordination with sports governing bodies. In other words, trust, but verify.
Mick Mulvaney, Executive Director of the advocacy group, Gambling is Not Investing, criticized the CFTC’s proposed Rule 40.11 amendments, arguing sports event contracts are sports betting and should remain subject to state and tribal regulation.
In a statement provided to ReadWrite, he said: “Let’s call this what it is: sports betting.
“It is settled law that states and tribes are the rightful regulators of sports gambling. State and tribal officials have established thoughtful, voter-approved frameworks – complete with age minimums, consumer protections, integrity standards, and tax structures to support investment in community programs.
“Now the CFTC wants to supplant state and tribal law and anoint itself a national gaming regulator, allowing companies to simply route sports betting through federal commodities law and avoid the rules.”
The American Gaming Association also chimed in, with its president Bill Miller, calling it “a mockery of congressional intent.”
However, the regulator is considerably less enthusiastic about certain other categories.
Player injury contracts are identified as raising “serious public interest concerns.” Regulators note that such products could create incentives that conflict with athlete welfare, rely on confidential medical information, and generate disputes over settlement outcomes. Put differently, markets perform many useful functions, but encouraging strangers to monitor MRI reports like earnings releases is apparently not one of them.
The agency also expresses concern about contracts tied to officiating decisions. Markets involving penalties, fouls, replay reviews, or ejections may depend heavily on a relatively small number of subjective judgments and could create risks for competitive integrity. Critics of sports officiating may be shocked to learn that not everyone agrees on every call.
Sports and election contracts aren’t completely off the table in the CFTC prediction markets proposal
The sports discussion may ultimately become one of the proposal’s most contentious elements. If federally regulated exchanges are permitted to offer sports event contracts across the country, state regulators and licensed sportsbooks are likely to argue that federal derivatives oversight is being used to enter territory traditionally governed by state gambling laws.
The agency said that it acknowledges that sports-related information has value beyond wagering. Broadcasters, advertisers, sponsors, fantasy sports operators, and analytics firms may all benefit from the pricing information these markets generate. Whether that observation settles the debate is another matter entirely.
Politics represents an equally significant fault line.
In language likely to draw attention, the proposal states that “political elections are not gaming.” Many previous disputes over election contracts have centered on whether such markets belong within the statutory definition of gaming.
The commission argues that elections differ fundamentally from recreational games. In its view, election outcomes are determined by voter decisions rather than the luck, skill, or athletic performance that characterize sporting contests and other traditional games.
Supporters of political prediction markets will view that reasoning as validation. Opponents will likely continue raising concerns about manipulation, misinformation, and the wisdom of turning democratic outcomes into tradable assets. The fact that both sides are certain they are defending democracy should surprise no one.
Regulators reject the notion that an activity becomes gaming simply because participants risk money on an outcome. Instead, gaming is tied to activities designed primarily for recreation or entertainment, operating under established rules and producing measurable outcomes that depend on luck, skill, or athletic ability.
Another major issue involves federal preemption.
The commission states that prediction markets operating as swaps or futures fall within the federal derivatives framework. The proposal argues that Congress grants the agency exclusive jurisdiction over such products and warns against a “patchwork of 50 state regulations”—a phrase that regulators in Washington often use when describing federal authority and that state regulators often hear somewhat differently.
It is unlikely to pass without resistance.
State regulators, commercial gaming operators, and tribal governments are all expected to scrutinize the proposal closely.
“The original rule didn’t allow the CFTC to ban certain types of prediction contracts that the CFTC determines are against the public interest. That is how Kalshi was able to win against the CFTC in their original lawsuit, which opened the floodgates. If the case had been litigated under this proposed rule, Kalshi might have lost.” – Peter Sanchez Guarda, former CFTC Special Counsel
The CFTC draws attention to the Indian Gaming Regulatory Act, tribal-state compacts, and the importance of gaming revenue to tribal communities. Nevertheless, it maintains that event contracts traded as derivatives belong within the federal regulatory sphere. Tribal governments and other stakeholders are being invited to submit comments, which is regulatory shorthand for “the conversation is just beginning.”
The regulator’s role in prediction markets has already been tested in court. Recent litigation involving prediction market operators has elevated questions about the agency’s authority and helped fuel a broader debate over where derivatives regulation ends and gambling regulation begins.
Former CFTC Special Counsel Peter Sanchez Guarda told ReadWrite the proposal appears to reflect a strategic retreat from some of the agency’s earlier legal battles.
“It seems like they are trying to do as much as possible to promote prediction markets and abandon the fight for territory that they know they will lose in court,” Sanchez Guarda said.
He said prediction market advocates have advanced the view that “you can trade anything on an approved DCM and the CFTC has exclusive jurisdiction over it,” including products that resemble casino games. But, he added, that theory has already faced judicial scepticism.
“The derivatives markets have always been about hedging and price discovery, so things that don’t have those elements don’t belong there,” he said. “A roulette wheel doesn’t hedge any commercial risk, and there is no price discovery.”
Sanchez Guarda said the proposed rule partly reflects that concern by moving toward a contract-by-contract review. In his view, the CFTC gave prediction market supporters “part of what they wanted” by defining gaming and taking the position that many sports contracts may be suitable for prediction markets. But he said the agency had stopped short of drawing a bright line.
“What is surprising is that rather than a clear line, the CFTC will decide on a case by case basis which contracts are acceptable and which ones aren’t, based on a list of factors,” he said.
He added that the proposed framework could have changed the legal posture of earlier disputes over event contracts.
“If the case had been litigated under this proposed rule, Kalshi might have lost,” Sanchez Guarda said.
Former General Counsel of the CFTC Rob Schwartz wrote on X: “The final version ultimately will be challenged in court, but whatever you think about event contracts, the existing rules are problematic.
“The statute is filled with undefined terms whose meaning has been left to the eye of the beholder. Again leaving policy choices aside for the moment, putting meat on the bones will be helpful to the public, the Commission, and its staff.”
Public hearings have exposed similarly sharp divisions among regulators, academics, industry participants, and critics. Depending on whom one asks, prediction markets are either powerful forecasting tools, innovative financial products, a new form of wagering, or all three before lunch.
For the CFTC, the proposal appears to reflect an effort to get ahead of unregulated and offshore markets before they gain a foothold.
What happens during contract reviews
The proposal also addresses the review process for self-certified contracts.
Under the framework, the Commission could initiate a 90-day review when a newly listed contract appears to involve one of the specified activities and may conflict with the public interest. That means trading could begin before the review is completed.
Although regulators could request that trading be paused, platforms would not be required to comply.
Supporters, such as the Coalition for Prediction Markets, argue that this prevents regulators from delaying innovation indefinitely and provides exchanges with greater procedural certainty. Critics counter that potentially problematic contracts could attract substantial trading volume before regulators reach a final determination. As with many regulatory debates, both sides are convinced they are defending market integrity.
The proposal also preserves the commission’s authority to identify additional comparable activities through future rulemakings. This may help regulators adapt to new products. But it may also ensure that lawyers remain gainfully employed for years to come.
UPDATE: Comments from Peter Sanchez Guarda added on June 11, 2026.
Featured image: G. Edward Johnson via WikiCommons / CC BY 4.0
