News: CFTC Chair Says 'Time For Clear Rules' On Prediction Markets
Michael Selig issued a public statement on Thursday outlining how the agency will aid the growth of regulated prediction markets.
The chair of the Commodity Futures Trading Commission took the agency’s strongest stance yet on prediction markets on Thursday, making it clear the CFTC intends to help grow the industry.
CFTC Chair Michael Selig delivered a public statement as part of the cryptocurrency harmonization event in conjunction with the Securities and Exchange Commission. In that statement, he talked about prediction markets at length. A key excerpt:
It is time for clear rules and a clear understanding that the CFTC supports lawful innovation in these markets. Consistent with my commitment to fostering responsible innovation in crypto asset markets, I will continue to support the responsible development of event contract markets and the important role they play in the broader financial system.
Some other takeaways from the statement:
Selig withdrew a “2024 event contracts rule proposal that would prohibit political and sports-related event contracts.” That makes it pretty clear the CFTC supports sports event contracts, at least at the top level. That move isn’t terribly surprising, given the CFTC’s stance on this issue since the Trump administration came to power.
Selig also withdrew a 2025 staff advisory, “which cautioned registrants about offering access to sports-related event contracts due to ongoing litigation.”
I wrote about that advisory here. From that newsletter: “The advisory notes that companies involved in the prediction markets ecosystem should be prepared for having to deal with the possible ‘termination of sports-related event contract positions’ based on state litigation and regulatory actions. A number of states have issued cease-and-desist letters to Kalshi for allegedly offering sports betting without a license. Kalshi is actively engaged in litigation with three states.”
Selig directed staff to look into potentially getting involved in court cases about the legality of event contracts around the country. The CFTC has not filed amicus briefs in any of the federal cases involving Kalshi and other operators.
Here’s some analysis from Goodwin attorney Andrew Kim, who closely follows legal and regulatory issues around prediction markets:
“I think it’s great that Chair Selig wants to put out clear standards for prediction markets to follow. We are all better served by knowing the rules of the road.
But I don’t think the road to rulemaking will be an easy one, for at least a couple of reasons.
First, there will inevitably be disagreement on what the CFTC’s “clear standards” should be. Say the CFTC came out with a notice of proposed rulemaking tomorrow. Different parts of the industry may not like what’s being proposed and may air concerns about the proposed standards. If the CFTC sticks to its guns and wants its proposed rule to hold up, it’ll need to address those concerns in a meaningful way — and all that takes time.
Second, prediction market opponents and industry participants unhappy with the eventual final rule may challenge the rule under the Administrative Procedure Act. We’re talking years of litigation on top of the years it’ll take to put out the rule.
All that said, I think this is a step in the right direction. But putting forward clear standards is easier said than done.”
Here is the full prediction markets segment of Selig’s public statement:
Last, but certainly not least, I would be remiss if I did not address prediction markets, or event contracts as we refer to them at the CFTC.
These markets are not new. They have operated within the CFTC’s regulatory perimeter for more than two decades. But, despite their history, many view them as novel or unsettled. That uncertainty has not served our markets well, nor has it served the public interest.
It is time for clear rules and a clear understanding that the CFTC supports lawful innovation in these markets. Consistent with my commitment to fostering responsible innovation in crypto asset markets, I will continue to support the responsible development of event contract markets and the important role they play in the broader financial system. Here’s how we will be moving forward.
First, I have directed CFTC staff to withdraw the 2024 event contracts rule proposal that would prohibit political and sports-related event contracts and the 2025 staff advisory, which cautioned registrants about offering access to sports-related event contracts due to ongoing litigation. While the advisory was issued at the staff level with the intent of bringing awareness to the litigation, it has instead contributed to uncertainty in our markets.
Second, looking ahead, and in the spirit of markets that trade on expectations, I have directed CFTC staff to move forward with drafting an event contracts rulemaking. For too long, the CFTC’s existing framework has proven difficult to apply and has failed our market participants. That is something I intend to fix by establishing clear standards for event contracts that provide certainty to market participants.
Third, I have directed CFTC staff to reassess the Commission’s participation in matters currently pending before the federal district and circuit courts. Where jurisdictional questions are at issue, the Commission has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives.
Finally, I have directed CFTC staff to work with our counterparts at the SEC to develop a joint interpretation on Title VII definitions. This effort would draw clearer lines between certain commodity and security options, CFTC-regulated swaps, and SEC-regulated security-based swaps. Clear, coordinated guidance will allow firms to scale products responsibly and reduce the number of innovations that fall into what Chairman Atkins has aptly described as “the no man’s land” between our two agencies.