Commodity Futures Trading Commission (CFTC) chairman Michael Selig has launched the Innovation Advisory Committee in response to increasing pressure to regulate the evolving prediction market industry.
Key Takeaways
- The CFTC launched a committee to guide the agency on emerging fintech.
- U.S. senators have raised concerns over prediction markets.
- The gaming industry has urged Congress to address sports event contracts.
The newly formed Innovation Advisory Committee (IAC) has been renamed from the Technology Advisory Committee. It will provide a variety of viewpoints, with representation from the financial industry, regulatory bodies, and public interest groups. Selig will nominate initial participants, but a public process will choose others.
The committee has been given a broad mandate, including advising the commission on the implications of technologies such as blockchain, AI, and cloud computing. It will also provide input on how the CFTC can adapt its surveillance and enforcement capabilities.
Prediction market operators, such as Polymarket and Kalshi, are regulated by the CFTC. However, concerns have been expressed by lawmakers, industry groups, and others regarding prediction markets' legal status, the manner in which they are regulated, and their connections with sports leagues and broadcasters.
This includes a group of 12 U.S. senators, led by Senator Catherine Cortez Masto of Nevada, who formally questioned Selig in a recent letter about the CFTC’s approach to regulating prediction markets.
The lawmakers cited recent reporting on trading activity linked to the capture of Venezuelan President Nicolas Maduro, which they said raised red flags about insider trading and manipulation.
Senators pointed to a surge in trading volume just before public announcements related to Maduro’s detention, as well as the creation of contracts tied to sensitive geopolitical events, arguing prediction markets lack the monitoring and reporting mechanisms that the sports betting industry has built.
The new committee will aim to gather expertise and recommendations on financial markets and provide advice on commercial, economic, and practical aspects of new markets, enabling the development of clear rules for the future of prediction markets.
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Gaming groups call for Congressional action
Concerns about event contracts are certainly held within the regulated gambling industry. Two leading organizations, the American Gaming Association and the Indian Gaming Association, wrote to members of Congress, urging them to address unregulated sports event contracts as part of upcoming legislation on the cryptocurrency market.
The associations claim sports event contracts are similar to sports betting but often bypass most of the rules that apply to sports betting companies. They also highlighted that 39 state attorneys generals agreed that prediction markets tied to armed conflicts and terrorism wouldn’t be allowed under sports betting law.
The letter called on Congress to enforce existing rules and provide clarity, as Selig has stated he will not stop sports betting contracts under his leadership. However, he did state the CFTC will follow Congress if it was to step in.
