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

Original: Odaily (@OdailyChina)

Author: Asher (@Asher_0210)

The prediction market is facing a clearer regulatory framework.

On June 10, the **U.S. Commodity Futures Trading Commission (CFTC) issued a proposed rule to adjust the review process for event contracts.** According to the CFTC announcement, the proposal would amend Regulation 40.11 and add a new Appendix F 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 **is attempting to establish a judgment framework—determining which events can be financialized and which should be kept out of the market.**

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

In recent years, the two major prediction market platforms, Kalshi and Polymarket, have continuously turned real-world events into tradable contracts. From presidential elections and macroeconomic data to sports events, entertainment shows, and geopolitical events—almost anything with a 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 can participate in trading? Which markets are susceptible to manipulation? If someone knows the outcome in advance, or can even influence it, can the prediction market still be considered a fair market?**

The CFTC's latest intervention aims to answer these very questions.

No Blanket Ban, But Contract-by-Contract Review

The CFTC's release is not a simple statement but a 267-page proposed rule document titled "Prediction Markets; Public Interest Determinations." By its nature, it is a rulemaking proposal currently in the public comment period and not yet an enforceable final rule. In this document, the CFTC seeks to further clarify which event contracts may be deemed to violate the public interest and thus cannot be listed for trading or accepted for clearing on CFTC-registered entities.

From a design perspective, the CFTC does not directly list a complete set of prohibited items but opts for a contract-by-contract review process. According to the document, **this proposal aims to establish a structured framework to determine whether an event contract involves the sensitive categories listed in the Commodity Exchange Act**, including terrorism, assassination, war, and acts that violate federal or state law. If these categories are involved, the CFTC will further assess whether the contract violates the public interest.

Therefore, prediction markets are not automatically banned simply for touching upon sensitive events. **The regulatory focus is on what the event actually predicts and whether it might induce manipulation, harm, or illegal activity.** For example, a market directly predicting whether a terrorist attack will occur in a specific location would likely face intense scrutiny or a ban. However, a market tracking the volume of crude oil transported through the Strait of Hormuz over a certain period, even if influenced by military situations, essentially measures commercial shipping activity rather than directly predicting war or terrorist acts.

The CFTC is not simply dismissing prediction markets; it is trying to differentiate between "predicting risk impact" and "predicting the occurrence of harm." The former may still hold informational value, while the latter is more likely to cross the line of public interest.

Sports Prediction Events Likely to Be Preserved with Clearer Boundaries

Perhaps the most pressing question for the public is whether sports prediction markets will be completely banned. Based on the current proposal, the CFTC's signals are relatively positive—most prediction events centered on the overall outcome of sports competitions are likely to retain clearer compliance space. The CFTC preliminarily believes that **sports prediction events designed around game scores, point spreads, win/loss results, advancement outcomes, overall team or player statistics, and season performance may have price discovery functions and provide meaningful information.**

Major sports events like the World Cup, NBA, NFL, and MLB naturally attract high attention, generate high trading volumes, and offer clear settlement conditions, making them a primary source of volume for prediction platforms. If the final rules confirm that markets for sports wins, losses, advancements, and scores have compliant space, sports prediction events will remain the main battleground for platforms competing for users and liquidity.

However, this does not mean all sports-related markets will be greenlit. The CFTC also emphasizes that **certain narrower markets, which are more susceptible to influence by a few individuals, may not serve the public interest.** These could include markets on whether a player gets injured, whether a fight breaks out during a game, whether a referee makes a specific call, the outcome of youth sports events, and any market that might encourage cheating or harm to athletes. These would likely face stricter review.

The Real Target: "Those Who Know the Answer"

More than the sports market itself, **insider trading and manipulation risks are the core issues this round of regulation aims to address.** Unlike traditional financial markets, many event outcomes in prediction markets are not naturally generated from outside the market but can be determined by a person, an institution, or a small, specific group. Once these individuals participate in trading, the market ceases to be just "predicting the future" and can become a tool for "cashing in on insider information in advance."

Recently, similar problems have surfaced multiple times. The prediction market has seen several suspected cases of insider trading, including U.S. military personnel allegedly using information related to actions in Venezuela, a former U.S. congressman predicting "he would not attend President 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 the core risk of prediction markets: some traders are not necessarily better at judgment, but are simply closer to the answer. This directly undermines market credibility, transforming prediction markets from information aggregation tools into insider arbitrage instruments.

A Clearer Regulatory Framework Doesn't Mean the End of Controversy

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

Behind this lies a power struggle between federal regulation and state gaming oversight. If sports prediction events are deemed financial derivatives under CFTC jurisdiction, platforms could offer trading services to a broader user base through the federal framework. But if they are classified as sports betting, they must navigate the complex licensing, taxation, and consumer protection requirements of each state.

Therefore, even after the final rules are established, legal disputes over prediction markets will not disappear. Instead, they will converge on one core question: **Can CFTC-regulated prediction markets bypass state-level gaming regulation and provide nationwide sports prediction trading?**

Prediction Markets are Becoming More Like Financial Markets

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

Prediction events with objective settlement criteria, the ability to provide informational value, and relatively controllable manipulation risks are likely to retain clearer compliance space. Conversely, markets that are easily influenced by a few, induce harm, or involve non-public information will become regulatory priorities.

This also means the next phase for prediction markets will be characterized less by freedom and more by institutionalization.

Previously, the expansion of prediction markets relied heavily on hot topics, traffic, and the sheer number of markets. Going forward, a platform's ability to grow will increasingly depend on its capacity to demonstrate fairness, settlement transparency, and risk control. The CFTC's proposal may not be a brake for prediction markets, but rather acts as a dividing line—the industry is moving from gray-area expansion toward rule-based competition, more akin to financial markets.