CFTC to set ‘rules of the road’ for prediction markets, Chair Selig says

The U.S. Commodity Futures Trading Commission released new guidance Thursday outlining how exchanges should approach listing prediction market contracts, as Chairman Mike Selig said regulators are working to establish clearer rules for the fast-growing sector.

In an advisory issued by the agency’s Division of Market Oversight, staff reminded exchanges that list event-based derivatives, often referred to as prediction-market contracts, that they must comply with existing requirements under the Commodity Exchange Act and CFTC regulations.

Prediction markets allow traders to buy and sell contracts tied to the outcome of real-world events. Some of the most popular examples of these include wagers on elections, economic data releases, and sporting events.

As the sector has grown, it has also drawn regulatory scrutiny. Some state gaming regulators argue that certain sports-related event contracts amount to unlicensed gambling, while the CFTC maintains that properly structured contracts fall under the federal derivatives framework.

The guidance also emphasized that exchanges designated as contract markets act as the front-line regulators responsible for ensuring listed contracts are “not readily susceptible to manipulation” or abusive trading practices.

Manipulation risks

While the advisory applies broadly to event-based derivatives, regulators highlighted certain categories of contracts that could present heightened manipulation risks. For example, contracts tied to individual player injuries, unsportsmanlike conduct, or other narrowly defined sports outcomes could create incentives for participants to influence results, according to the guidance.

The concerns echo several recent controversies involving alleged insider trading and ethical debates surrounding certain prediction market contracts.

Last month, onchain analytics firm Bubblemaps flagged a cluster of newly funded wallets that collectively earned roughly $1 million betting on a Polymarket contract tied to a potential U.S. strike on Iran shortly before airstrikes were launched.

Separately, Kalshi faced backlash over a contract titled “Ali Khamenei out as Supreme Leader?” after the Iranian leader was killed in U.S.-Israeli strikes. Critics argued the market functioned as a proxy death market, though the platform said its settlement rules were designed to prevent traders from profiting directly from a death event.

Lawmakers have also raised ethical concerns about contracts tied to violent events. This week, Democratic lawmakers introduced legislation dubbed the “Death Bets Act” that would ban prediction market contracts tied to death, war, or assassination.

CFTC Selig to set ‘rules of the road’

Speaking on CNBC’s Squawk Box before the guidance was published on Thursday, Selig confirmed that the agency is aiming to establish clearer regulatory “rules of the road” as prediction markets continue to expand.

“It’s really important that we don’t have manipulation and insider trading and all sorts of abuse in our derivatives markets,” Selig said.

He added that exchanges listing event-contract derivatives serve as the “first line of defense” in determining whether products meet the CFTC’s standards before allowing them to trade.

The guidance also comes as U.S. regulators signal closer coordination on emerging financial technologies. On Wednesday, the CFTC and the Securities and Exchange Commission signed a memorandum of understanding to collaborate on crypto policy and broader market oversight, saying the agreement aims to support lawful innovation while maintaining market integrity.

Rapid growth

The regulatory push comes as prediction markets have expanded rapidly over the past year.

Platforms including Kalshi and Polymarket are each exploring fundraising rounds at valuations near $20 billion, roughly double their most recent valuations, according to The Wall Street Journal.

Trading activity on the platforms has surged as well. Combined monthly trading volume on Kalshi and Polymarket reached roughly $18.6 billion in February, marking a sixth consecutive monthly all-time high, according to The Block’s data dashboard.

Early March activity suggests the trend may continue. Combined trading volume has already surpassed $8 billion this month, with more than half the month remaining.

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