The Commodity Futures Trading Commission (CFTC) on Wednesday unveiled a sweeping proposal to establish new rules for the rapidly growing prediction markets industry. The 267-page notice of proposed rulemaking outlines what types of event contracts would be permitted under federal law, as legal battles continue over whether these platforms constitute federally regulated financial markets or state-regulated gambling.
Core Facts & Immediate Action
The CFTC proposal comes amid scrutiny from state regulators, lawmakers, and gambling authorities over the real-world events on which users can place wagers. Trading volume across federally regulated prediction markets surpassed $25 billion in 2025, reflecting increased popularity and diversity of events. The CFTC argues that event contracts fall within the framework of the Commodity Exchange Act, which recognizes derivatives markets as serving the public interest by helping participants manage risk and discover prices.
Deeper Dive & Context
Permitted and Prohibited Contracts
The proposed rules would generally permit sports-related event contracts, including final scores, point differentials, win-loss records, and individual or team performance statistics. However, the proposal prohibits so-called micro-event contracts tied to specific plays or moments during a game, such as a single baseball pitch or a particular foul in basketball. Contracts involving player injuries or physical altercations are also barred.
Market Integrity and Public Interest
The CFTC aims to develop a framework to determine if contracts are contrary to the public interest or illegal, particularly those related to terrorism, assassinations, war, or gaming. The agency acknowledged that the rules proposed are preliminary and noted that further rulemaking may follow. The proposal will now face a 45-day public comment period.
Industry Response and Use Cases
Fast-moving startups like Kalshi and Polymarket are actively catering to Wall Street customers, pitching their platforms as tools for hedging risks. Kalshi recently crossed $1 billion in notional volume for its crypto derivatives product, while Polymarket completed its first block trade aimed at hedging exposure to GPU compute. The New York Knicks and a Manhattan sports bar used Kalshi to hedge risks related to an NBA Finals game, demonstrating the practical applications of prediction markets.
Regulatory Balance
CFTC Chairman Michael Selig emphasized the need to balance market integrity with responsible innovation. The proposed rule establishes a process to determine how contracts will be prohibited, focusing on ensuring that prediction markets operate within legal boundaries while fostering innovation.