Prediction Markets Turn Everyday Events Into Assets, Raising CFTC Oversight and Legal Questions

Prediction markets use binary “event contracts” to trade on future outcomes, paying $1 per share if an event occurs and nothing if it does not. Prices are also viewed as implied probabilities. Anything from elections and sports to water breaks and handshakes during speeches can become a tradable event. Trading volume in one Polymarket market on the length of the State of the Union address has approached $1 million, highlighting both the information-aggregation potential of such markets and concerns that they amount to gambling.

The U.S. Commodity Futures Trading Commission launched an advance notice of proposed rulemaking on March 12, with the initial comment period closing April 30. On June 10, it separately proposed amending Regulation 40.11 to subject contracts involving sports, war, terrorism and other matters to case-by-case public-interest reviews lasting up to 90 days, with comments due July 27. The CFTC also sued a Google employee on May 27, alleging that the employee made about $1.2 million through insider trading.