The Commodity Futures Trading Commission (CFTC) revealed an advisory on Thursday as the authority aims to lay out a regulatory path forward for prediction markets.
They have published an Advanced Notice of Proposed Rulemaking (ANPRM), an early-stage regulatory document that asks the public for input before the agency drafts a formal rule proposal. According to the CFTC, public comments must be submitted within 45 days of the ANPRM publish date.
CFTC staff to receive guidance
The Division of Market Oversight within the CFTC will also be offering guidance to platforms providing event contracts.
The staff advisory struck a pro-innovation tone, describing prediction markets as a reliable source of information for media, sports leagues, financial institutions and the public.
It focused on sports-related contracts, urging exchanges to work with leagues and integrity units and warning of manipulation risks in contracts tied to a single individual’s actions. The advisory also reiterated existing anti-manipulation and insider trading rules, noting that misuse of confidential information violates CFTC regulations.
CFTC Chairman Michael S. Selig said: “Today’s action is an important step in the Commission’s continued effort to promote responsible innovation in our derivatives markets. This begins the process of new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act, while reassuring the American people that the CFTC will exercise its exclusive jurisdiction over prediction markets.”
Staff advisory highlights fight against manipulation
The focus on anti-manipulation measures was particularly notable, given recent incidents that have raised concerns about insider trading in prediction markets.
One high-profile case involved a video editor working for YouTube creator MrBeast, who was accused by the regulated platform Kalshi of trading on non-public information tied to upcoming content releases. The employee allegedly wagered about $4,000 on markets related to the creator’s videos and was later fined, banned from the platform for two years and reported to regulators.
Geopolitical markets have also drawn scrutiny. In recent trading tied to a potential U.S. military strike on Iran, blockchain analysts flagged accounts that placed large bets shortly before the attacks became public, with several traders reportedly earning more than $1 million from well-timed positions.
The unusual timing prompted allegations that individuals with advanced knowledge of military developments may have used prediction markets to profit from non-public information.
Those cases have caught the attention of lawmakers at a national level. Senators Jeff Merkley and Amy Klobuchar have launched a new legislative push aimed at preventing senior government officials from participating in prediction markets, citing concerns about potential insider trading.
The pair introduced the End Prediction Market Corruption Act, a bill that would bar the President, Vice President, members of Congress and other federal officials from trading event contracts. The proposal seeks to prevent officials from profiting from non-public information obtained through their government roles and ensure public servants act in the interest of voters rather than personal financial gain.
Head of major exchange operator calls for more oversight
The move comes at a time of increasing scrutiny on the sector. One senior voice, CME Group Chief Executive Terry Duffy, believes prediction markets need clearer regulatory boundaries. Speaking to Reuters, Duffy said the “lines have become blurred” between swaps used to hedge risk and products that are essentially bets.
The platforms have also clashed with state regulators, including in Massachusetts, where authorities argue certain event contracts violate gambling laws.
“The courts have gone both ways here… some in favor and some opposed to the prediction markets,” Duffy said. “The states are all over the map on this. I don’t see how it doesn’t go to the Supreme Court for a definition of what is a prediction market on sports, and if that is the same as gambling.”
Duffy also questioned the economic rationale behind some sports-based contracts. “If you would have said that the outcome of a game has an economic impact… you could actually make an economic cause for putting a swap on their contract,” he said. “But to say that a player is going to get four rebounds and not five… what’s the economic sense in that?”
As prediction markets continue to expand into new sectors, the CFTC’s latest actions signal that federal regulators intend to play a more active role in shaping the industry’s future.
The coming months will be critical as industry participants, lawmakers and the public weigh in on how these markets should operate under the Commodity Exchange Act. Their feedback will likely influence whether prediction markets evolve into a firmly regulated segment of the derivatives landscape or face tighter restrictions as policymakers attempt to draw clearer lines between financial instruments and gambling.
