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Remember when the Commodity Futures Trading Commission (CFTC) first mentioned that it would draft new rules for prediction markets? Well, on Wednesday, the CFTC released its first formal proposed regulations.
The “why” to this move is no longer a secret to anyone who has a mobile phone.
For years, companies like Kalshi and Polymarket have maintained that they operate as financial exchanges rather than gambling platforms. State regulators, however, have consistently argued that sports event contracts function much like traditional sports betting products. The dispute has sparked legal battles, drawn political attention, and repeatedly landed both sides in court.
What is the CFTC Actually Proposing?
The proposed rules are not a complete restructure. It focuses on amendments to existing contract review procedures and creates new guidance for determining which markets should be allowed and which should be blocked.
The agency is also seeking feedback on how existing exchange regulations should apply to prediction market operators, including questions around market integrity, contract design, and oversight responsibilities.
The proposal runs hundreds of pages and covers everything from compliance standards to whether blockchain-based platforms may require separate regulatory treatment.
CFTC Chairman Michael Selig called the effort a balancing act between innovation and oversight.
“The Commission has continued to observe growth in the number and variety of event contracts listed for trading by CFTC-registered entities, including contracts referencing sporting events. In light of these developments, the proposal would establish a structured framework for evaluating whether such contracts involve an activity enumerated in Section 5c(c)(5)(C) of the Commodity Exchange Act —activity that involves terrorism, assassination, war, gaming, or conduct that is unlawful under federal or state law—and, if so, whether that contract is contrary to the public interest. The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation.
That statement pretty much sums up the agency’s current approach. It wants prediction markets to grow, but it also wants a handbook before things spiral into chaos.
Sports Markets Survive the Cut
Perhaps the biggest headline is what the proposal does not do.
It does not ban sports prediction markets. In fact, the proposed framework largely permits sports-related event contracts, which have become the lifeblood of the industry.
The CFTC is proposing restrictions on markets that are considered particularly vulnerable to manipulation. Contracts involving player injuries, officiating decisions, player ejections, specific pitch types in baseball, and high school sports events could all face prohibition under the new framework.
The reason: The more an outcome can be influenced by a small number of people, the greater the risk that someone could manipulate the result for financial gain.
Nobody wants a market where a referee’s whistle suddenly becomes a trading strategy.
Terrorism, Assassinations and Other Red Lines
The proposal also draws a line around contracts involving highly sensitive subjects.
The agency is looking to strengthen its ability to reject markets tied to terrorism, war, assassinations, unlawful activities, and other events that could be deemed contrary to the public interest. These categories have long been a source of controversy for prediction market operators and regulators alike.
The CFTC’s position appears to be that prediction markets can provide useful information and price discovery in many circumstances, but there are limits to what should become a tradable financial product.
Where Does this Leave Current Court Cases?
For companies like Kalshi and Polymarket, regulatory clarity is arguably more valuable than any single court victory.
Still, the new proposal does not immediately resolve those jurisdictional disputes.
In response, companies such as Kalshi have already started implementing employment verification systems, whistleblower tools, and market surveillance measures.
After all, prediction markets only work if participants believe everyone is playing with the same deck of cards.
What Happens Next?
The proposal has now gone into a 45-day public comment period. Industry experts, state regulators, gaming groups, sports leagues, academics, and consumers will all have the opportunity to weigh in before the rules are finalized.
The latest proposal follows an earlier rulemaking process launched by the agency in March, when it first sought public feedback on how prediction markets should be regulated.
That means the story is far from over.
