The Commodity Futures Trading Commission is moving beyond defending prediction markets from state regulators and is working to establish a permanent federal framework for the rapidly expanding industry.
- CFTC chair Michael Selig outlined a three-part agenda covering event-contract definitions, reporting requirements, and retail safeguards.
- The commission continues to defend its exclusive jurisdiction as states challenge federally regulated sports event contracts under their gambling laws.
- Traditional sportsbooks, established exchanges, and newer platforms are divided over consumer protection, surveillance, and self-certification standards.
CFTC chairman Michael Selig outlined a three-part prediction market agenda at last week’s Innovation Advisory Committee meeting that would define the event contracts subject to heightened scrutiny, modernize reporting requirements, and introduce new consumer protection and market-design standards. The roadmap comes as traditional sportsbook operators enter prediction markets, established exchanges question the safeguards employed by newer competitors, and state regulators continue trying to apply their gambling laws to sports event contracts.
“We have a lot of work ahead of us at the CFTC, but we’re energized by the innovation that’s happening in our markets,” Selig said.
CFTC again defends federal authority
Selig’s proposal suggests the industry’s central regulatory question is beginning to shift. Legal fights over whether the CFTC or individual states have authority over sports event contracts remain unresolved, but companies are increasingly competing to influence how the federally regulated market will operate.
Selig placed prediction markets within a broader history of derivatives products that were initially derided as gambling before becoming established components of the U.S. financial system. State lawmakers applied anti-gaming and anti-bucket shop laws to early futures exchanges, Selig said, creating the regulatory fragmentation Congress ultimately sought to replace with a federal commodities framework.
“Today, prediction markets find themselves enduring the same type of assault that state and national politicians plagued the Chicago Board of Trade with for much of its early existence,” Selig said during an address that began last week’s advisory committee meeting.
A growing number of states have argued that sports event contracts constitute gambling and must comply with their gaming laws. Nevada, Michigan, and Washington have all successfully pushed for full or partial bans, while New York is taking an aggressive approach against Kalshi, the nation's leading prediction market by trading volume.
Selig rejected that interpretation, saying Congress gave the CFTC exclusive jurisdiction over designated contract markets (DCMs).
“Many states seek to nullify federal law and apply state anti-gaming law to DCMs,” Selig said. “That’s why we’ll continue to promote responsible innovation and lawful derivatives and defend our exclusive jurisdiction in court.”
Rule changes lead roadmap
The first part of Selig’s roadmap involves proposed amendments to CFTC Rule 40.11, which governs event contracts involving gaming and certain other subjects that Congress determined could raise heightened public-interest concerns.
The Commodity Exchange Act gives the commission discretion to prohibit contracts involving gaming, war, terrorism, assassination, or unlawful activity. However, Selig said the statute does not define important terms such as “gaming” or establish criteria for determining when a contract should be prohibited in the public interest.
“As a result, contracts are at the risk of rejection based on arbitrary whims or political biases, and DCMs have been left operating in the dark,” Selig said.
The proposed amendments would define key statutory terms and enumerate factors the commission should consider when reviewing a contract. Those definitions could determine which sports and cultural markets are permitted and provide exchanges with greater certainty before listing products.
The CFTC has also proposed modernizing reporting rules for fully collateralized event contracts. Selig said the changes would give the commission information needed to oversee the market while eliminating unnecessary regulatory burdens.
Retail protections coming
The final and potentially most consequential portion of the roadmap involves proposed amendments to two key CFTC regulations.
Selig said the proposal would modernize the core principles and listing standards governing DCMs that offer event contracts. It would also establish requirements involving retail consumer protection, product governance, market design, and customer incentive programs.
“We’ve heard the concerns of the public loud and clear regarding the inadequacy of our existing consumer protection requirements for retail,” Selig said.
That acknowledgment reinforced testimony later in last week's meeting from leaders of DraftKings, FanDuel, and Fanatics. The three companies have extensive experience with state sportsbook requirements and urged the CFTC to adopt uniform protections as event contracts attract more recreational customers.
Industry divided over market standards
The commission will also have to determine how closely newer prediction platforms should follow the standards of established derivatives exchanges.
CME Group chairman and CEO Terry Duffy said approximately 2,500 contracts had been self-certified since January 2025 and warned that some products could be susceptible to manipulation. He argued that consumer protections, market surveillance, and a level playing field are necessary as event-contract offerings proliferate.
Kalshi cofounder Luana Lopes Lara countered that emerging markets inevitably present new risks and said regulators should focus on identifying and addressing misconduct without preventing innovation. She defended self-certification as an important part of the existing federal framework.
Selig noted during the exchange that the specific examples Duffy cited were offered only on offshore sites, not federally regulated prediction markets.
The disagreement demonstrated how technical CFTC rules could shape the competitive field. More extensive surveillance, governance, and compliance requirements could favor established exchanges and sportsbook operators with mature integrity systems, while looser standards could allow newer platforms to bring products to market more quickly.
Selig nevertheless made clear that the commission does not intend to address those risks by attempting to eliminate prediction markets. It plans to defend its jurisdiction while writing rules for an industry it expects to remain part of the U.S. financial system.
“It’s not a question of whether innovations like blockchain, artificial intelligence, and prediction markets will transform our markets,” Selig said. “It’s a question of where this innovation will take place and who will write the rules.”
