U.S. derivatives regulator releases draft rules for prediction markets: election betting receives "exemption," sports betting defined with clear boundaries
The US derivatives regulatory agency has formally proposed a regulatory framework for the prediction market industry, aiming to strike a balance between regulating market order and encouraging innovation.
The US Commodity Futures Trading Commission (CFTC) released a regulatory draft on Wednesday, setting acceptable standards for sports betting, while placing election and political betting under a more relaxed regulatory category. After publication, the draft will enter a 45-day public comment period, during which the regulators will decide on final implementation based on feedback.
The draft comes amid rapid expansion of the prediction market industry and ongoing regulatory controversies.
Platforms including Kalshi and Polymarket have attracted billions of dollars in global capital inflows, but at the same time, accusations of insider trading have been frequent, and multiple US state governments and Native American tribes have launched lawsuits demanding a halt to sports event contracts.
Election Betting "Exempted," Sports Betting Red Lines Defined
One of the core points of the draft is the differentiated classification of various types of prediction contracts.
The CFTC stated that sports events and games of chance fall under the "gambling" category; according to federal law, the agency has the right to initiate up to a 90-day review process for event contracts involving gambling, and can prevent such contracts from being listed on public exchanges if deemed "contrary to public interest."
Regarding sports betting, the draft tentatively concludes that prediction contracts based on sports scores, odds differentials, outcomes, or tournament rankings "can serve a price discovery function and provide valuable information," thus, broadly speaking, do not violate public interest. However, betting on player injuries, match fixing, children's sporting events, referee decisions, or forms of betting that may induce cheating are deemed likely contrary to public interest.
By comparison, election betting is classified far more leniently. The draft clearly states that election betting is a "competition" rather than "gambling," and thus not within the CFTC's list of activities eligible for a 90-day review. Election betting is an important source of ongoing revenue growth for the industry.
Industry Expands Rapidly Amid Frequent Insider Trading Controversy
The prediction market industry has recently attracted a wave of new entrants, including sports bookmakers and cryptocurrency companies, several of which have connections to the Trump family and its commercial interests. These platforms allow users to bet Yes/No-style on nearly any event outcome and have pooled billions of dollars from global bettors.
However, as the industry expands rapidly, insider trading allegations have emerged repeatedly. Recent cases include:
An American special forces soldier betting on the capture of Venezuelan leader Nicolas Maduro; former congressman George Santos allegedly betting on his attendance at Trump’s State of the Union speech; and an Italian Google software engineer accused of trading using insider information.
In response, CFTC, Kalshi, and Polymarket stated they have actively taken measures to prevent insider trading, emphasizing that all such cases were discovered and reported proactively by the platforms themselves.
Regulatory Backdrop: Lawsuits & Innovation Protection
The CFTC’s draft is also a direct response to external legal pressure. At present, multiple US state governments and Native American tribes have filed lawsuits against sports event contracts, arguing that such contracts constitute illegal gambling and demanding judicial intervention to stop them.
CFTC Chair Michael Selig stated that the proposed new regulation aims to protect market integrity without hindering "responsible innovation." The draft will be subject to a 45-day public consultation period, after which regulators will decide on the final version.
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