CFTC Launches Rulemaking Process for U.S. Prediction Markets

The U.S. Commodity Futures Trading Commission has launched a formal rulemaking process to establish federal regulations for prediction markets, marking one of the most significant policy steps yet for the fast-growing sector.

The regulator opened a public consultation seeking input on how event-based contracts should be governed, including safeguards against market manipulation and the types of contracts that should be permitted. The move follows rapid growth in trading tied to political, economic and geopolitical outcomes on platforms such as Kalshi and Polymarket.

Prediction markets allow users to trade contracts linked to the outcome of real-world events, with prices typically ranging from 0 to 100 cents and reflecting the implied probability of an outcome.

The CFTC said it will gather feedback for roughly six weeks before determining the framework for a potential rule proposal.

The consultation reflects mounting regulatory pressure as trading volumes and public participation in event contracts have surged since the 2024 U.S. presidential election, when prediction markets gained attention for providing real-time forecasts that in some cases proved more accurate than traditional polling.

Officials are examining whether certain contracts should be restricted or banned, particularly markets tied to sensitive topics such as terrorism, military conflicts or other violent events. Regulators are also seeking feedback on how to address the risk of insider information influencing trading outcomes.

Concerns about insider trading have become a central issue for the sector. Some regulators and lawmakers worry that participants with access to non-public government or corporate information could profit by trading ahead of major geopolitical or policy developments.

The CFTC has previously said it has “full authority” to police illegal trading practices in event-contract markets and has warned platforms to maintain surveillance systems and audit trails capable of detecting manipulation and fraud.

Regulatory tensions also extend beyond market conduct. State gaming regulators have increasingly challenged prediction platforms, arguing that certain contracts resemble sports betting or gambling rather than derivatives trading. Platforms and industry advocates counter that event contracts fall under federal commodities law and should be overseen nationally by the CFTC.

Major financial exchanges are closely watching the regulatory debate as they explore entering the market themselves. Nasdaq has sought approval from the U.S. Securities and Exchange Commission to list prediction-market-style options tied to stock indexes, while other exchange operators are experimenting with event-based derivatives products.