CFTC Chair Michael Selig has proposed new federal rules for prediction markets, aiming to clarify regulatory authority and consumer protections as lawsuits and state challenges intensify
The Commodity Futures Trading Commission (CFTC) is moving to clarify its oversight of prediction markets as legal disputes with state regulators and tribal organizations escalate. Chair Michael Selig has proposed new federal rules intended to define the agency’s authority and strengthen consumer protections, responding to mounting challenges over the legality and regulation of event contracts in the U.S. market.
Proposed Federal Rules and Regulatory Authority
At the CFTC’s Innovation Advisory Committee meeting, Selig outlined a set of proposed amendments to existing rules governing prediction markets. The changes would address consumer protection, market design, and product governance, with a particular focus on clarifying which types of event contracts—such as those involving gaming, war, terrorism, or assassination—fall under federal jurisdiction. Selig emphasized that Congress granted the CFTC exclusive authority over Designated Contract Markets (DCMs) offering derivatives, but noted that several states are attempting to apply their own anti-gaming laws to federally regulated platforms.
State Challenges and Ongoing Litigation
The regulatory landscape for prediction markets has become increasingly contentious. More than 20 lawsuits are currently active between state gaming regulators, tribal organizations, and the CFTC over the legality of event contracts. A high-profile case involves New York Attorney General Letitia James, who filed suit against Kalshi, alleging the platform operates as an unlicensed gambling business and violates state age restrictions. New York is seeking $36 billion in penalties, arguing that Kalshi’s contracts allow 18-to-20-year-olds to participate, despite the state’s minimum gambling age of 21. A federal judge has so far sided with New York, ruling that the Commodity Exchange Act does not override state gambling law, but the CFTC has ordered Kalshi to continue operating in the state pending further legal review.
Industry and Political Response
Industry leaders and policy experts remain divided over the best regulatory approach. Kalshi’s co-founder has argued that a federal framework offers stronger consumer protections than a patchwork of state regulations. However, CME Group’s Terry Duffy questioned the CFTC’s approach to self-certification, noting that the agency has not opposed any of the 2,500 contracts self-certified since 2025. Meanwhile, some executives from prediction market and cryptocurrency firms were excluded from a recent White House innovation summit, reflecting growing political sensitivity around the issue. Critics, including Amanda Fischer of Better Markets, have raised concerns about the CFTC’s close coordination with firms involved in ongoing litigation, suggesting that the agency’s actions could blur the line between regulator and industry advocate.
What Comes Next for Prediction Markets
The CFTC’s proposed amendments to Rule 40.11 and other regulations are not yet final and remain subject to public comment and further legal scrutiny. The outcome of the New York litigation, as well as the broader debate over federal versus state authority, will likely shape the future of prediction markets in the U.S. The Senate is also considering the Digital Asset Market Clarity Act, which could impact the regulatory environment for event contracts and related products, but its prospects remain uncertain as it faces a high vote threshold and unresolved policy questions.
Prediction markets operate by allowing participants to buy and sell contracts based on the outcome of future events, such as elections or economic indicators. In the U.S., these markets are regulated as event contracts under the Commodity Exchange Act, with oversight from the CFTC for federally designated platforms. However, the distinction between federally regulated event contracts and state-regulated gambling remains a central legal and policy issue, especially as states seek to enforce their own gaming laws and age restrictions. The outcome of current legal disputes and regulatory proposals will determine how—and where—prediction markets can operate in the future.
