CFTC Unveils Prediction Market Regulations Impacting Kalshi, Polymarket, and Coinbase

TLDR

• On Thursday, the CFTC released a staff advisory and launched formal rulemaking procedures for prediction market regulation
• Chair Mike Selig, currently the CFTC’s only commissioner, asserts the agency holds exclusive regulatory authority over prediction markets
• Companies including Kalshi, Polymarket, and Coinbase received preliminary operational framework for conducting business in the United States
• A federal judge in Ohio recently denied Kalshi’s attempt to prevent Ohio gaming regulators from taking action, challenging the exclusive federal jurisdiction claim
• Following Federal Register publication, the public comment period will remain open for 45 days

The Commodity Futures Trading Commission has advanced its regulatory approach to prediction markets through two significant actions: publishing operational guidance and initiating a comprehensive rulemaking procedure that may fundamentally alter the sector.

On Thursday, CFTC Chair Mike Selig unveiled these initiatives. Characterizing prediction markets as “one of the most exciting innovations in financial markets,” he acknowledged the agency’s prolonged absence in establishing regulatory clarity.

The agency published a staff advisory that categorizes event contracts on prediction platforms as a distinct financial asset category. Additionally, an Advanced Notice of Proposed Rulemaking was filed with the Federal Register, initiating a 45-day period for public input.

Prediction markets operate as platforms enabling users to trade contracts based on binary event outcomes — such as election results or sporting event winners. Among the platforms operating as CFTC-designated contract markets are Kalshi, Polymarket, and Coinbase.

The advisory provides these companies with a framework for obtaining regulatory approval for their trading products. It emphasizes that platforms should exclusively list contracts that are “not readily susceptible to manipulation.”

Regarding sports-based contracts particularly, the guidance directs platforms to coordinate with appropriate sports governing organizations when establishing contract terms, compliance frameworks, and market surveillance protocols.

Federal and State Regulators Battle Over Regulatory Control

This rulemaking initiative unfolds amid ongoing litigation between the CFTC and state regulatory agencies. Several states have initiated legal proceedings against prediction market operators, contending these platforms operate under state gambling statutes — especially for sports wagering.

Selig has vigorously contested this position, maintaining the CFTC possesses exclusive federal oversight over these trading venues. He has declared his intention to legally challenge any state attempting to exercise regulatory control over prediction market operations.

Nevertheless, an Ohio district court judge recently rejected Kalshi’s motion for preliminary relief against Ohio gaming regulators. The court determined that Kalshi failed to demonstrate federal law would definitively preempt Ohio’s sports betting regulations.

On Thursday, CME Group CEO Terry Duffy suggested the contradictory judicial rulings might ultimately reach the nation’s highest court. “I don’t see how it doesn’t go to the Supreme Court for a definition of what is a prediction market on sports,” he stated.

Selig Operates the CFTC Single-Handedly

Selig presently serves as the CFTC’s sole commissioner. While the commission typically consists of five members, positions have remained unfilled since former acting chair Caroline Pham departed in December.

Since only a majority quorum is required for rule adoption, Selig possesses unilateral authority to approve the final prediction markets regulation independently. As of Thursday, President Trump had not announced nominees for the vacant commission positions.

The rulemaking proposal spans 32 pages and presents numerous questions designed to shape the final regulatory framework. Applications for designated contract market registration have increased by more than 100 percent over the previous year, primarily from organizations concentrating on prediction market services.