Prediction markets get first U.S. rule proposal as CFTC pursues contract reviews

The Commodity Futures Trading Commission opened a proposed rule for public comment that sets an approach to determine contracts in the "public interest."

What to know:

• The U.S. Commodity Futures Trading Commission has issued its first notice of proposed rulemaking on prediction markets, suggesting a system by which it can review whether contracts are in the public interest.
• The CFTC is seeking to carve a clear regulatory position to back the ongoing growth of the industry, which has drawn increased attention for its popular sports and political betting.

The U.S. Commodity Futures Trading Commission proposed its first prediction markets regulation on Wednesday, pitching an approach to how it can make widespread evaluations of whether contracts trip the federal standard for what's off-limits.

The agency that regulates U.S. derivatives has been a defender of prediction markets such as those run by Kalshi, Polymarket and Crypto.com, with Chairman Mike Selig making them a top legal and regulatory priority for the CFTC. He's been promising a new, tailored regulatory regime for the industry, and the new proposal addresses part of what may be multiple rules pursued by the regulator.

“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” Selig said in a statement. “This proposal gives the commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”

Federal law holds that contracts involving war, terrorism, assassination, illegal activity and gaming can be deemed outside of the public interest and not allowed. In practice and in its recent embrace of data-sharing agreements with professional sports leagues, the CFTC has embraced the massively growing field of sports betting as an apparent public interest.

The platforms on which event contracts are traded are regulated exchanges under the CFTC, and the agency has said that exchanges are the first line of defence in determining whether contracts are legal and markets aren't manipulated or abused.

The proposal weighs a 90-day review process on public-interest determinations for individual contracts.

President Donald Trump has recently expressed support for the track Selig has been on, saying in a social-media post that "Other Countries are after this new form of Financial Market, and we want to remain at the top."

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