The Commodity Futures Trading Commission (CFTC) has released a proposal for new federal rules regarding prediction markets, outlining certain contracts that may not be approved under the new guidelines. The CFTC, which regulates prediction markets, has gained attention as these markets have increased in popularity. The 267-page notice of proposed rulemaking indicates that while no specific category of trade is banned, certain transactions may be deemed contrary to the public interest.
CFTC Chairman Michael Selig stated, "The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation." The proposal aims to provide a transparent framework for identifying contracts that require scrutiny while allowing legitimate markets to proceed.
Prediction markets allow users to buy shares in potential outcomes of events, such as elections or sports results. The CFTC oversees these markets, which include derivatives tied to prices. In 2020, the CFTC approved Kalshi, the first fully regulated financial exchange for event contracts, while Polymarket operates internationally.
The proposal highlights that contracts related to assassinations, wars, and terrorism are unlikely to be approved. For example, a contract on whether Iran initiates armed conflict in the Strait of Hormuz would be rejected, while contracts based on commercial shipping activity would be acceptable.
Regarding sports contracts, the CFTC does not seek to ban them but identifies those likely to be contrary to public interest, such as contracts related to player injuries and officiating outcomes. The CFTC expressed concerns that these contracts could create financial incentives that might encourage harm to athletes or influence officiating decisions.
Additionally, contracts on precollegiate sports events, including high school football, are also likely to be disapproved due to concerns about governance and insider trading. The proposed rules will undergo a 90-day public comment period for feedback from interested parties.