Prediction markets get first U.S. rule proposal as CFTC pursues contract reviews

The U.S. Commodity Futures Trading Commission proposed its first prediction markets regulation on Wednesday, pitching an approach to how it can make widespread evaluations of whether contracts trip the federal standard for what’s off-limits.

The agency that regulates U.S. derivatives has been a defender of prediction markets such as those run by Kalshi, Polymarket and Crypto.com, with Chairman Mike Selig making them a top legal and regulatory priority for the CFTC. He’s been promising a new, tailored regulatory regime for the industry, and the new proposal addresses part of what may be multiple rules pursued by the regulator.

“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” Selig said in a statement. “This proposal gives the commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”

Federal law holds that contracts involving war, terrorism, assassination, illegal activity and gaming can be deemed outside of the public interest and not allowed. In practice and in its recent embrace of data-sharing agreements with professional sports leagues, the CFTC has welcomed the massively growing field of sports betting as an apparent public interest, and the new proposal continues that.

The platforms on which event contracts are traded are regulated exchanges under the CFTC, and the agency has said that exchanges are the first line of defense in determining whether contracts are legal and markets aren’t manipulated or abused.

The proposal, which will be open to public comments before it can be revised and finalized, weighs a 90-day review process on public-interest determinations for individual contracts.

The agency would follow a three-part test before banning contracts. First, the contracts have to be based on something occurring, then they’d have to involve one of the categories that could place them outside the public interest, and finally the commission would have to formally decide that the contracts are outside the public interest.

The proposal offered an example of what wouldn’t trigger the war or terrorism categories:

“An event contract that settles on whether a specified volume of crude oil transits the Strait of Hormuz during a specified period does not involve war or terrorism, even though the amount of oil flows through the Strait could change based on military conditions, because the settlement determining occurrence is a measurement of commercial shipping activity rather than an occurrence within a war or terrorism activity,” it said.

As for what goes into deciding something is contrary to the interest of the U.S. public, the CFTC is leaning into weighing a series of factors rather than devising a simple test.

“A multi-factor approach enables the commission to weigh different dimensions of
potential harm or public benefit — including the event contract’s hedging or price-basing utility or potential to encourage illicit behavior — while also accommodating novel event contract designs and market developments and supporting innovation,” according to the proposal.

The proposal, which would be set to go into effect within 60 days of completion, makes a case for protecting the increasingly popular sports betting, now a routine fixture of television advertising.

“The extent to which event contracts settle based on the overall outcome of a sporting event — including final scores, point differentials, win-loss results, tournament advancement, individual or team statistical performance or season long performance metrics — would be factors against a finding that the event contracts are contrary to the public interest,” the CFTC indicated. “The commission preliminarily believes that these categories of sports event contract markets may serve price discovery functions and provide meaningful information.”

The agency suggests it might be more likely to find something is outside the public interest “where the event contracts lack the potential to inform any economic,
commercial or financial decisions.”

President Donald Trump has recently expressed support for the track Selig has been on, saying in a social-media post that “Other Countries are after this new form of Financial Market, and we want to remain at the top.”

While important rulemakings such as the first tailored regulations of the modern prediction markets are decisions of the five-member commission, the CFTC is currently short four members. The White House has left it a lone-chairman operation without further nominations, contrary to the laws underpinning the agency that contemplate three commissioners from the majority party and two from the minority. This is the first time the agency has been in this situation, and legal observers have suggested its policy work could be challenged at some stage.

Bringing the commission to full strength has been a demand of Democratic senators as the U.S. Senate negotiates the crypto market structure bill, the Digital Asset Market Clarity Act.

UPDATE (June 10, 2026, 14:35 UTC): Adds details from the CFTC proposal.