Federal regulators introduced initial proposed rules for governing prediction markets on Wednesday.
The Commodity Futures Trading Commission (CFTC), designated as the primary federal regulator, aims to create a framework to assess whether contracts violate public interest or legal standards.
These evaluations focus on contracts tied to terrorism, assassinations, war, or other activities deemed illegal under state or federal law under the Commodity Exchange Act. The CFTC explicitly avoided blanket bans on specific categories, such as sports or elections.
The proposed rules emphasize how the CFTC will assess contracts involving terrorism, war, or assassinations—areas that self-regulated exchanges have previously excluded.
The regulation acknowledges ambiguity in gaming-related contracts, a contentious area. It outlines prohibited sports-related contracts, such as those involving injury, officiating-only scenarios, or pre-collegiate events.
CFTC Chairman Michael Selig, appointed by President Trump, stated the proposal balances market integrity with innovation. “The CFTC will protect the integrity of our regulated markets without stifling responsible innovation,” Selig said. “This framework allows us to scrutinize contracts as directed by Congress while enabling legitimate markets to operate.”
The rule outlines a three-step process: determining if a contract relates to a real event, checking if it falls under prohibited categories in the Commodity Exchange Act, and conducting a public interest analysis.
Prediction markets have surged in popularity, prompting regulatory efforts to address risks. States have contested platforms over sports-related offerings, arguing they constitute betting under state jurisdiction. The CFTC, however, asserts all contracts are swaps, placing regulatory authority with itself.
Bipartisan congressional members have raised concerns about insider trading risks, though no formal legislation has been proposed.
The rule specifically prohibits certain gaming contracts, defining gaming as recreational or entertainment activities governed by rules with measurable outcomes. By this definition, election-related contracts are excluded from gaming, as they lack recreational or entertainment purposes.