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U.S. regulator announces a reset on prediction markets, invalidating Biden administration’s ‘frolic’ initiative.
The Commodity Futures Trading Commission’s challenging legal battle with events-contracts firms has concluded, and its new chairman is retracting previous policy initiatives.
CFTC Chairman Mike Selig (left) has retracted the former administration’s approach regarding prediction markets policy. (Jesse Hamilton/CoinDesk)
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Key points:
- The U.S. Commodity Futures Trading Commission has withdrawn a prior rule proposal that aimed to prohibit political events contracts in prediction markets.
- The agency is set to proceed with a new rulemaking anticipated to be more supportive of the sector, as President Donald Trump’s recently appointed CFTC chairman, Mike Selig, is advancing policies to adopt new technologies.
The U.S. government is officially reversing its earlier position on restricting certain activities at prediction market firms like Kalshi and Polymarket, with U.S. Commodity Futures Trading Commission Chairman Mike Selig taking steps on Wednesday to retract a proposed event-contracts rule from 2024 and eliminating a previous advisory that he stated caused confusion within the industry.
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In 2024, the derivatives regulator had proposed a rule that would have banned contracts based on the outcomes of political events, equating them legally with illegal contracts related to war, terrorism, and assassination, and labeling them as “against the public interest.” That rule did not progress to a final stage before President Donald Trump regained the White House and appointed new leadership at the CFTC. The CFTC had permitted the launch of prediction markets focused on political events following a legal battle concerning Kalshi’s intended offering that same year.
The newly confirmed chairman of the agency, Selig, has since removed this proposal as well as a minor advisory issued in September regarding specific contract markets.
“The 2024 event contracts proposal reflected the previous administration’s venture into merit regulation with a complete ban on political contracts ahead of the 2024 presidential election,” Selig stated. “The Commission is retracting that proposal and will pursue a new rulemaking based on a rational and coherent understanding of the Commodity Exchange Act that fosters responsible innovation in our derivatives markets in accordance with Congressional intent.”
Selig’s actions are predictable, following closely after his comments last week indicating that such changes were forthcoming. He mentioned he had “directed CFTC staff to move forward with drafting an event contracts rulemaking.”
The Trump administration’s acceptance of prediction markets has opened the door for greater interest from companies looking to enter the sector, such as Coinbase, or the related pursuit of similar products by Cboe.
The September advisory that Selig withdrew was intended to alert platforms about litigation concerns, he explained, but it had “unintentionally caused confusion and uncertainty for our market participants.”
The CFTC is anticipated to play a significant role in overseeing digital assets, in which prediction markets have a shared interest. Selig is developing several new initiatives, while Congress is negotiating its crypto market structure bill, which — among various other aspects — aims to establish the CFTC as the appropriate regulator for crypto spot markets that do not involve securities.
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