Prediction markets receive customized U.S. direction from ex-adversary CFTC.

The agency that previously contested the events contracts platforms in court has now released a new policy position and is advocating for permanent regulations on oversight.

U.S. Commodity Futures Trading Commission Chairman Mike Selig initiated the agency’s efforts on prediction market regulations. (Jesse Hamilton/CoinDesk)

Key information:

• The U.S. Commodity Futures Trading Commission took two actions on Thursday to start formulating policy for prediction market oversight, including a staff-issued advisory to regulated entities and the release of a document that signals the commencement of a formal rulemaking process.
• The CFTC previously acted as a legal opponent to specific operations at the same firms it is now supporting under Chairman Mike Selig.

Prediction market companies like Polymarket and Kalshi have received a new set of directives for U.S. operations, as the Commodity Futures Trading Commission outlined preliminary guidance and a proposed permanent regulation on Thursday, describing it as “a reliable source of information for news organizations, sports leagues, financial entities, and the general public.”

Previously, the agency had been a legal opponent of prediction markets, cautioning that certain betting practices violated derivatives regulations and that the CFTC could not act as a global policy entity addressing fraud and manipulation in political markets worldwide. However, under Chairman Mike Selig, the CFTC has shifted its stance, moving away from its former legal battles to support these firms. It has now issued a non-binding advisory to prediction market companies recognized by the CFTC as “designated contract markets,” and initiated a binding rulemaking process.

“This initiates the process of new rulemaking rooted in a logical and consistent interpretation of the Commodity Exchange Act, while assuring the American public that the CFTC will maintain its exclusive jurisdiction over prediction markets,” Selig remarked regarding the regulatory process, which begins with what is referred to as an “advanced notice of proposed rulemaking.”

Selig, who operates as the sole authority at the regulator since he is the only member of what is intended to be a five-person commission, swiftly advanced the new policy initiative. He has also been vocal against state regulators claiming jurisdiction over sports betting, asserting that his agency is the chief regulator in that domain. Multiple states have filed lawsuits against prediction market providers, claiming they also fall under their jurisdiction, particularly for sports-related wagers, and Selig recently submitted a court brief arguing that the CFTC has exclusive jurisdiction.

The CFTC’s new advisory specifies how designated contract markets (DCMs)—including Kalshi, Coinbase, and Polymarket—should have trading products approved by the regulator, noting that these firms should only engage in “trading contracts that are not easily prone to manipulation.”

However, the rulemaking effort is significantly more intricate and may require months to implement. At this stage, the CFTC is soliciting public feedback on its approach. The subsequent step will involve a more detailed proposal, followed by a final regulation, each process being lengthy under administrative law.

The agency has established a 45-day comment period, which is relatively prompt, indicating an expedited timeline.

Prediction markets are platforms enabling users to buy and sell contracts that wager on typically binary outcomes, such as the results of sporting events or elections. Selig has contended that these processes should fall under the purview of the derivatives regulator, similar to futures contracts.

The initial rulemaking document emphasizes that companies participating in this sector have a legal obligation to monitor their activities for market manipulation, as illustrated by Kalshi’s recent announcement of penalties against certain customers.

The rulemaking document highlighted that “the number of applications for DCM registration has increased significantly over the past year, primarily from entities focused on establishing prediction markets.” At this point, the 32-page document presents a series of inquiries aimed at shaping the direction of the forthcoming concrete proposal.

Read More: Senate Democrats push prediction market limits, including banning bets on war, death