CFTC Proposes New Rules for Prediction Markets, Redefining Which Events Can Be Listed and Who Can Participate

Original by Odaily Planet Daily (@OdailyChina)

Author: Asher (@Asher_0210)

The prediction market is facing a clearer regulatory framework.

On June 10, the U.S. Commodity Futures Trading Commission issued a proposed rule aimed at adjusting the review process for event contracts. According to the CFTC announcement, the proposal would amend Regulation 40.11 and add a new Appendix F, designed to evaluate whether event contracts in prediction markets involve terrorism, assassination, war, or illegal activities, and whether such contracts violate the public interest. Through this proposed rule, the CFTC seeks to establish a judgment framework—determining which events can be financialized and which should be barred from the market.

For the rapidly expanding prediction market, this proposed rule from the CFTC could mark a critical turning point.

In recent years, the two leading prediction platforms, Kalshi and Polymarket, have steadily turned real-world events into tradable contracts. From presidential elections, macroeconomic data, and sporting events to entertainment shows and geopolitical incidents, virtually any verifiable outcome has the potential to be packaged into a “Yes” or “No” trading market.

However, as their scale has grown, problems have also begun to surface. Who is allowed to participate in trading? Which markets are susceptible to manipulation? If someone knows the outcome in advance, or can even influence it, can prediction markets still be considered fair?

The CFTC’s latest move is precisely an attempt to answer these questions.

Not a One-Size-Fits-All Approach, but a Contract-by-Contract Review

The CFTC’s release was not a simple statement but a 267-page proposed rule document titled Prediction Markets; Public Interest Determinations. By nature, this is a rulemaking proposal currently in the public comment phase, not yet a finalized regulation. In this document, the CFTC seeks to further clarify which event contracts may be deemed contrary to the public interest and thus prohibited from being listed for trading or cleared on CFTC-registered entities.

In terms of design, the CFTC does not directly provide a complete list of prohibitions but instead opts for a contract-by-contract review. According to the document, the proposal aims to establish a structured framework for determining whether an event contract involves sensitive categories enumerated in the Commodity Exchange Act, including terrorism, assassination, war, and violations of federal or state law. If a contract falls into these categories, the CFTC would further assess whether it violates the public interest.

Therefore, prediction markets will not be automatically banned simply by touching on sensitive events. The regulatory focus is on what the event predicts and whether that prediction could induce manipulation, harm, or illegal activity. For example, a market that directly predicts whether a terrorist attack will occur in a specific location would likely come under intense scrutiny or be banned. However, a market tracking crude oil shipping volumes through the Strait of Hormuz over a specific period, even if that data can be influenced by military tensions, essentially measures commercial shipping activity rather than directly predicting war or terrorism.

The CFTC is not simply dismissing prediction markets; it is attempting to distinguish between “predicting risk impact” and “predicting the occurrence of harm.” The former may still offer informational value, while the latter more easily crosses the line of public interest.

Sports Prediction Events May Be Preserved with Clearer Boundaries

Perhaps the most pressing concern for the public is whether sports prediction markets will be entirely banned. Based on the current proposal, the signals from the CFTC are leaning positive—most prediction events centered on the overall outcomes of sporting competitions may still have a clear path to compliance. The CFTC preliminarily believes that sports prediction events based on game scores, point spreads, win/loss results, advancement outcomes, overall team or player statistics, and season performance may serve a price discovery function and provide meaningful information.

Major sporting events like the World Cup, NBA, NFL, and MLB naturally attract high attention, generate high-frequency trading, and offer clear settlement conditions, making them the primary source of trading volume for prediction markets. If the relevant rules are finalized and confirm that markets for sports wins/losses, advancements, and scores have a compliant scope, sports prediction events will remain the main battleground for platforms vying for users and liquidity.

However, this does not mean all sports-related markets will be greenlit. The CFTC also emphasizes that certain more granular markets, which are more susceptible to influence by a small number of individuals, may not serve the public interest. For example, markets concerning player injuries, whether a fight will break out during a game, whether a referee will make a specific call, the outcomes of minor sporting events, and any market that could encourage cheating or harm to athletes could face stricter scrutiny.

The Real Target Is “Those Who Know the Answer”

Beyond the sports market itself, insider trading and manipulation risks are the core issues this round of regulation aims to address. Unlike traditional financial markets, the outcomes of many events in prediction markets are not naturally determined by external market forces. Instead, they can be decided by a single individual, an institution, or a small group. Once these parties engage in trading, the market ceases to be about “predicting the future” and can become a means of “cashing in on inside information.”

Recently, similar problems have surfaced multiple times, with several suspected cases of insider trading emerging in prediction markets. These include allegations that U.S. military personnel used information related to an operation in Venezuela, a former U.S. congressman predicting he “would not attend Trump’s State of the Union address,” and a Google engineer using internal company tools to view data on the most searched person of 2025.

These incidents expose a core risk of prediction markets: some traders are not necessarily better at making judgments but are simply closer to the answer. This directly undermines market credibility, transforming prediction markets from information aggregation tools into vehicles for insider arbitrage.

A Clearer Regulatory Framework Does Not Mean the End of Controversy

However, the CFTC’s proposal does not signify an end to the controversy surrounding prediction markets. Currently, multiple U.S. state regulators oppose the CFTC’s stance on sports prediction events, arguing that such events are essentially sports betting and that platforms should not circumvent state gambling regulatory systems. American Gaming Association President Bill Miller also criticized the CFTC’s proposal for redefining sports betting.

Underlying this is a power struggle between federal regulation and state gambling oversight. If sports prediction events are classified as financial derivatives under CFTC jurisdiction, platforms could potentially offer trading services to a broader audience through a federal framework. Conversely, if classified as sports betting, they would face a complex web of state requirements regarding licensing, taxation, and consumer protection.

Therefore, even if the relevant rules are finalized, legal disputes over prediction markets will not disappear. Instead, they will further converge on a single question: Can CFTC-regulated prediction markets bypass state-level gambling oversight to offer nationwide sports prediction trading?

Prediction Markets Are Becoming More Like Financial Markets

Returning to the proposal itself, the CFTC’s stance is already quite clear. Prediction markets will not be simply dismissed, but their gray areas are being redrawn.

Prediction events with objective settlement standards, the ability to provide informational value, and relatively controllable manipulation risks may still have a clearer path to compliance. Conversely, markets easily influenced by a few, that could induce harm, or involve non-public information, will become regulatory priorities.

This also implies that the next phase for prediction markets will be less about freedom and more about institutionalization.

Before this, the expansion of prediction markets relied heavily on trending topics, traffic, and market volume. Going forward, a platform’s ability to grow will increasingly depend on its capacity to demonstrate market fairness, settlement transparency, and controllable risk. The CFTC’s current proposal may not be a brake for prediction markets; rather, it acts as a dividing line—marking the industry’s transition from gray-area expansion toward rules-based competition that more closely resembles financial markets.