Outgoing commissioner Kristin Johnson had some choice words about how the Commodity Futures Trading Commission has handled prediction markets on her way out the door.
Johnson offered a farewell address on Wednesday, something that’s common for commissioners upon their departure. Johnson took issue with how the commission is handling the nascent prediction market industry, saying we “have too few guardrails and too little visibility into the prediction market landscape.”
In her address, Johnson also:
Lamented the lack of rule-making around election contracts.
Advocated for rulemaking for prediction markets given their rapid expansion into sports and other markets.
Expressed concern about how companies are gaming the CFTC’s system to offer prediction markets.
On the second point, the idea that the CFTC would promulgate rules either under current leadership or under a new chairman seems far-fetched at this point.
It’s the first time that anyone at the CFTC has publicly talked at length about prediction markets this year. And it’s certainly the first time anyone at the CFTC has said anything negative about the rise of prediction markets.
Johnson’s departure leaves Acting Chair Caroline Pham as the lone commissioner. Pham has said she would leave that role once Brian Quintenz is confirmed, although the status of his nomination has been up in the air this summer.
Here are Johnson’s full remarks, and you can read all of her remarks about prediction markets below:
In my final months at the Commission, we also witnessed a surge in new applicants and registered market participants in prediction markets. These prediction market contracts enable retail investors to take a position on everything from U.S. elections to whether Michigan would take New Mexico in the season opener in Ann Arbor last weekend (as an alumna of the law school, I will admit that I am glad to see that Michigan did secure that win).
I am disappointed that during my time at the Commission we were not able to successfully advance a final rule that addressed the introduction of political event contracts. Activity in markets in most recent months underscores my concerns and the concerns of others about prediction markets.
As of today, we have too few guardrails and too little visibility into the prediction market landscape. Because the target audience for these contracts is retail customers and some market participants seem to be marching down a path to offer leveraged, margined prediction market contracts to retail investors, there is an urgent need for the Commission to express in a clear voice our expectations related to these contracts.
A bi-partisan group of members of Congress indicated that they agreed that the CFTC should not be required to police election contracts and expressed concerns about betting on the outcome of democratic elections. There are also a number of legal questions surrounding these contracts that the Commission should use the rulemaking process with embedded notice and comment period obligations to create effective regulation to address.
Finally, the “rent or buy” my license in derivatives markets is booming as prediction markets promise to eclipse crypto markets in volumes of retail customers’ cash captured. The Commission has recently witnessed a number of newly created and legacy firms seeking licenses to offer event contracts. In a number of instances, these businesses approach the Commission seeking licenses to offer traditional products, only to quickly shift once a license is in hand and seek to self-certify prediction market contracts. In other contexts, firms that have received a license quickly auction their newly minted license to others.
Prediction markets roundup
I am going to include the exchange below only to show you how much venom there is between Kalshi and Polymarket. These two companies really don’t like each other. I AM NOT MAKING ANY REPRESENTATIONS ABOUT THE TRUTH OF THESE TWEETS/COMMENTS/ACCUSATIONS, THEY ARE FOR ILLUSTRATIVE PURPOSES ONLY.
Two federally regulated platforms flinging poo at each other on social media. What a time to be alive. Kalshi vs. Polymarket will not be boring.
Some Kalshi employee happenings:
Kalshi’s head of operations is leaving. It’s an interesting time for that news, as Kalshi might be headed toward one of the biggest days in its history (outside of the November elections) on the first Sunday of the NFL season.
Kalshi is hiring a bunch of roles, although none of them seem to be dedicated to sports, which is going to be 90% or more of Kalshi’s business moving forward.
I was thinking about applying to be the social media shitposter, that’s one of my passions.
You mentioned the 90% of Kalshi's trading volume is coming from sports; do you think the focus on other events contracts is to allow them to say, "How can we be a glorified sportsbook if the majority of our markets are for non-sporting events?" I'm not well-versed on the business side, but it seems a plausible argument they'd make when trying to avoid the state-by-state licensure hurdles.