CFTC Issues Prediction-Market Guidance and Formally Opens Rulemaking

Prediction markets let traders buy event contracts tied to outcomes in politics, sports and other fields. U.S.-regulated venues operate as designated contract markets under the Commodity Futures Trading Commission, which requires fair access, transparent rules and surveillance against abuse. Market-maker and volume incentives can deepen liquidity and price discovery, but poorly designed rewards can push participants to trade merely to hit targets, creating risks of wash trading, pre-arranged deals and distorted prices.

On Aug. 12, 2026, the CFTC’s Division of Market Oversight issued Advisory 26-23 after seeing more event-contract incentive filings that were procedurally or substantively deficient. It set no uniform dollar cap but told DCMs to disclose program duration, products, eligibility, obligations and compensation under Regulations 40.5 and 40.6. Self-certified programs face a 10-business-day review, while exchanges were asked to review earlier filings and submit relevant revisions by Sept. 14, 2026.

Prediction markets let traders take positions on outcomes ranging from sports contests to elections. Their rapid expansion has put the Commodity Futures Trading Commission at the center of a jurisdictional fight over whether event contracts are federally regulated derivatives or gambling subject to state oversight. For CFTC-regulated designated contract markets, self-certification can speed listings, but exchanges must still show that each product complies with the Commodity Exchange Act, settlement rules and core principles.

The CFTC’s Division of Market Oversight issued its latest advisory on July 24, warning platforms including Kalshi, Coinbase, Polymarket and Crypto.com against broad, template-style filings that combine many contract permutations. Each proposed variation must include its terms, underlying commodity, settlement methodology, data sources and compliance analysis under Regulation 40.2, the agency said. The notice was the regulator’s second warning in several months, following guidance on March 12, though closely related contracts may still be certified as a class.

Prediction markets allow traders to buy and sell event contracts tied to outcomes such as elections and sporting contests. The U.S. Commodity Futures Trading Commission, citing the Commodity Exchange Act, treats them as derivatives under its exclusive jurisdiction. The dispute centers on states continuing to pursue platforms such as Polymarket and Crypto.com under gambling laws, with federal preemption determining whether operators face uniform nationwide rules or a patchwork of state regulations.

On May 26, 2026, Donald Trump said on Truth Social that preserving the CFTC's exclusive jurisdiction over prediction markets was critical. The same day, a new CFTC rule was submitted to the White House Office of Management and Budget for review. On June 10, the CFTC released a proposal to amend Rule 40.11 and establish a 90-day review process for contracts involving war, terrorist attacks, assassinations and gambling. The proposal is a regulatory rule, and no financial amount was disclosed.

Event contracts allow traders to wager on outcomes such as elections and economic data releases. Because some may be deemed “swaps” under U.S. law, designated contract markets and derivatives clearing organizations are subject to reporting and recordkeeping obligations. The CFTC’s move to establish a uniform exemption standard should help reduce compliance costs and legal uncertainty for prediction markets.

On May 13, 2026, the CFTC’s Division of Market Oversight and Division of Clearing and Risk issued No-Action Letter 26-14, easing swap-data reporting and recordkeeping requirements for fully collateralized binary and variable-payout event contracts. The relief covers 19 operators, including Polymarket, Kalshi and Gemini Titan, and involves no fines or subsidies.

Prediction markets allow users to trade event contracts tied to outcomes such as elections and sporting events. The central dispute is whether these products are derivatives governed by the Commodity Exchange Act or wagers that states may regulate under gambling laws. The U.S. Commodity Futures Trading Commission argues that event contracts traded on designated contract markets fall under its exclusive federal jurisdiction. The ruling will affect whether platforms can operate across states under a single set of rules.

The Wisconsin Department of Justice sued five companies—Kalshi, Polymarket, Crypto.com, Robinhood and Coinbase—on April 23, 2026, accusing them of illegally offering sports betting. On April 28, the CFTC, together with the U.S. Department of Justice, filed suit in federal court in Wisconsin's Eastern District. It was the agency's fifth similar lawsuit against a state government. The complaint seeks a declaration that state gambling laws do not apply and a permanent injunction barring state enforcement, but requests no damages.

Prediction markets use “event contracts” that allow users to trade on outcomes including sports and elections. The Commodity Futures Trading Commission argues that contracts traded on a CFTC-registered designated contract market fall under the exclusive federal jurisdiction of the Commodity Exchange Act. New York considers them gambling. The dispute will determine whether states may also use gaming laws to restrict nationwide platforms, with at least eight markets and more than 3,000 contracts at stake.

On April 21, 2026, the New York Attorney General’s Office sued Coinbase and Gemini, alleging that they operated without state licenses and allowed users aged 18 to 20 to participate, below the state’s minimum age of 21. No fixed damages were disclosed; the state also seeks disgorgement of illegal profits and treble penalties. On April 24, the CFTC sued in the U.S. District Court for the Southern District of New York, seeking a declaration of federal preemption and an order barring state enforcement. Together with its April 2 lawsuit against Arizona and two other states, the action expands the dispute to four states.

Prediction markets allow users to trade on the outcomes of political, sporting and other events, with trading volumes reaching billions of dollars. The U.S. Commodity Futures Trading Commission argues that event contracts traded on designated contract markets are “swaps” governed by the Commodity Exchange Act, preempting separate state regulation under gambling laws. The dispute will determine whether platforms such as Kalshi and Polymarket can operate nationwide.

Represented by the U.S. Department of Justice, the CFTC filed separate lawsuits against Illinois, Arizona and Connecticut on April 2, 2026. Since April 1, 2025, the Illinois Gaming Board had issued cease-and-desist orders to three CFTC-registered markets: KalshiEx, Crypto.com and Polymarket. The federal government is asking the courts to affirm the CFTC’s exclusive jurisdiction and permanently bar state enforcement, without seeking monetary damages.

Prediction markets allow users to trade contracts tied to the outcomes of events such as elections and sporting contests. The U.S. Commodity Futures Trading Commission views them as derivatives, while state gambling regulators argue that they may oversee the markets under state law. The jurisdictional dispute will determine whether platforms such as Kalshi and Polymarket can operate nationwide under a single federal framework.

On April 6, 2026, CFTC Chair Mike Selig told the Vanderbilt University Digital Assets Summit that states lack the authority to regulate prediction-market providers and that the CFTC has exclusive jurisdiction over commodity derivatives markets. The CFTC has also taken legal action against Arizona, Illinois and Connecticut. The related report was published on April 12.