U.S. CFTC Signals Imminent Rulemaking on Prediction Markets

On January 29, 2026, SEC Chairman Paul Atkins and Commodity Futures Trading Commission (CFTC) Chairman Michael Selig held a rare joint “Project Crypto” summit. Project Crypto is the agencies’ joint effort to modernize the regulatory framework for cryptoassets.

Near the end of his remarks, CFTC Chairman Selig announced his plans to “support the responsible development of event contract markets,” laying out a four-part regulatory agenda.¹ Chairman Selig’s remarks signal a new regulatory environment in the short term and a hotly contested regulatory and legal environment in the long term, with important implications for prediction markets, regulators, and market participants.

The key takeaways below distill the most significant themes emerging from Chairman Selig’s remarks and his evolving agenda.

Key Takeaways

• The CFTC has shifted its view toward permitting political and sports-related event contracts, withdrawing a prior proposed rule that would have prohibited such contracts.
• At the same time, the CFTC is preparing new rulemaking on event contracts, one that is likely to draw industry participation and judicial scrutiny.
• Litigation risk is not diminishing — only changing shape, as federal courts, state gaming regulators, and market participants test the boundaries between derivatives regulation and gambling law.
• Until the Supreme Court draws the line between event contracts and betting or wagering, prediction markets will operate in a dual regulatory reality — federally legitimized under the CFTC but resisted at the state level in multiple states. And this unsettled question — which has caused most of the pending litigation — will likely demonstrate the seismic shift in administrative law from Chevron to Loper Bright.

The Slow, Then Fast, Development of Prediction Markets

Event contracts have a long and, for the most part, sleepy history. Dating back at least to the 19th century, event contracts present binary yes/no propositions on the outcome of certain future events, such as the closing price of oil, the amount of rainfall during the growing season, or the last freezing day of the year.

Beginning in the 1980s, academic institutions began offering election prediction markets as an alternative form of polling. The Iowa Electronic Markets, launched in 1988 as a small-scale research exchange at the University of Iowa, exemplified the field’s limited early profile with its low stakes and restricted participation. The University of Victoria (New Zealand), likewise in 2014, launched PredictIt, which also offered election prediction markets in the United States, again under rules that restricted its commercial upside.

In recent years, however, platforms such as Kalshi and Polymarket have surged in popularity and visibility, each now handling billions of dollars in monthly trading volume. Although event contracts span a wide variety of subject matters, two have surged in popularity and controversy: (a) political event contracts and (b) sports event contracts. Political event contracts allow individuals to speculate on the outcome of a political event (e.g., who will win an election). Sports event contracts, on the other hand, allow trading on the outcome of a sporting event (e.g., who will win the Super Bowl).

Event contracts operate within the CFTC’s core derivatives framework. These contracts must be listed and traded on CFTC-registered designated contract markets (DCMs) and cleared through a derivative clearing organization (DCO). As a result, event contracts traded on DCMs are subject to the full panoply of CFTC-market integrity rules and may not be readily susceptible to market manipulation (e.g., wash trading, spoofing, etc.).²

Despite operating within this federally regulated framework, event contracts — particularly those tied to sports outcomes — have become the focus of increasing legal controversy. Much of the litigation on sports-related contracts centers on their perceived similarity to traditional gambling. Indeed, both state and federal courts are currently addressing disputes over whether these sports-related contracts — offered by prediction markets — constitute unlawful sports betting under state gambling laws. That question remains unsettled and may be destined for the Supreme Court.

Against this backdrop of legal uncertainty and active litigation, the CFTC has set a new regulatory agenda for prediction markets.

The CFTC’s New Agenda for Prediction Markets

1. Withdrawal of Prior Actions

Chairman Selig directed CFTC staff to withdraw the 2024 proposed rule that would have prohibited political and sports-related event contracts.³ Days later, the CFTC formally announced the withdrawal in a staff letter, explaining that developments in the event contracts market since the rule’s proposal had rendered it unnecessary.⁴

In addition, Chairman Selig directed CFTC staff to withdraw a 2025 staff advisory regarding sports-related event contracts. In that advisory, the CFTC cautioned that “state regulatory actions and pending and potential litigation, including enforcement actions, should be accounted for with appropriate contingency planning,” effectively taking a let-the-courts-decide position on whether sports-related event contracts fall within the CFTC’s exclusive jurisdiction.⁵ By directing staff to withdraw that advisory, however, Chairman Selig signaled a willingness to litigate the position that event contracts — including sports-related ones — belong exclusively within the CFTC’s jurisdiction.

2. New Rulemaking on Event Contracts

During his nomination hearing, Chairman Selig stated that given the complexity of distinguishing between gaming and sports-related event contracts, that determination is best left to the courts — and that the CFTC would follow the law as determined by judicial decisions. But instead of deferring to the courts, Chairman Selig directed CFTC staff to begin drafting a new event contract rule with the goal of establishing clear, workable standards and replacing what he described as a framework that has proven difficult to apply. Chairman Selig’s new agenda comes as the rapid growth of prediction markets shifts from traditional commercial hedgers to retail participants — raising questions about whether a regulatory framework built for institutional commodity markets adequately addresses retail-facing risks.

3. Reassessment of Pending Litigation

Building on its more aggressive jurisdictional posture, the CFTC will reassess its participation in matters currently pending before federal district and circuit courts, particularly where jurisdictional questions are at issue. Jurisdictional issues in pending litigation stem from disputes over whether contracts offered by prediction markets constitute unlawful sports betting under state gambling laws. Although that question remains unsettled,⁶ Chairman Selig made clear that the CFTC will defend its jurisdiction in ongoing litigation over commodity derivatives.

4. Joint SEC–CFTC Interpretation

Chairman Selig also directed staff to work with the SEC to develop a joint interpretation of Title VII definitions to clarify the boundaries among commodity options, security options, swaps, and security-based swaps. This coordinated effort aims to reduce regulatory uncertainty and avoid innovation’s falling into a “no man’s land” between the two agencies.

Predicting the Legal Landscape of Prediction Markets in Light of the CFTC’s New Agenda

It is impossible to anticipate when these steps will begin or be completed, much less how these developments will affect or be affected by the various prediction market lawsuits that may be destined for resolution by the Supreme Court. However, a few things seem certain.

First, prediction markets that bet on regulatory acceptance of sports-related and political event contracts appear to have been vindicated. Such DCMs as Kalshi and Polymarket may list for trading new contracts by self-certifying with the CFTC that the new contract complies with the Commodity Exchange Act (CEA). Although the CFTC previously declined to take an official position on the permissibility of such self-certifications,⁷ Chairman Selig’s new agenda suggests that the CFTC is now prepared to do so. That shift comes at a consequential moment: Even before the inauguration, prediction markets had begun offering contracts that increasingly tested the limits of CFTC Rule 40.11’s prohibition on gaming event contracts. And while it remains unsettled whether that regulation prohibits such contracts, it is now settled that the CFTC will not devote its limited resources to taking down sports prediction markets based solely on the subject matter of their contracts.

Second, litigation over prediction markets will continue — and perhaps intensify. Chairman Selig’s statements are likely to embolden both prediction markets to continue investing in the space and state gaming regulators to pursue regulatory action. And the anticipated rulemaking itself may draw legal challenges, regardless of its content.

Third, pending or forthcoming legal challenges will likely demonstrate the seismic shift in administrative law from Chevron to Loper Bright. The CEA’s use of the undefined term “gaming” is sufficiently broad to have granted regulators discretion to adopt broad or narrow definitions, creating the possibility that the CFTC’s interpretation could have vacillated wildly from administration to administration. Under Loper Bright, however, courts will now endeavor to identify the definition of “gaming” rather than the range of reasonable definitions.

Statutory Constraints on the New CFTC’s Agenda: Dodd-Frank as Gatekeeper

Although the CFTC signaled a more permissive approach to prediction markets, its discretion remains bounded by the CEA as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 5c(c)(5)(C) of the CEA expressly authorizes the Commission to prohibit event contracts that involve enumerated activities — such as “gaming” — or that are deemed contrary to the public interest.⁸ So even if the CFTC promulgates a new rule or amends Rule 40.11(a), it will still need to reckon with its statutory mandate under the CEA and comply with the definition of “excluded commodity” under the CEA.⁹ As a result, any new rulemaking or revision must operate within statutory constraints and will require the CFTC to interpret — not rewrite — the governing provisions of the CEA, a task that will now receive heightened judicial scrutiny in the post–Loper Bright era.

Looking Ahead

Chairman Selig’s remarks mark the most definitive signal yet that prediction markets have moved to the forefront of the CFTC’s regulatory agenda. The rulemaking to follow will draw close attention from market participants, investors, and regulators alike, and any final rule is expected to prompt further litigation. Firms offering, developing, or considering trading event contracts should prepare for increased engagement with the CFTC through comment letters, compliance planning, and strategic regulatory analysis.

Now, as the CFTC looks poised to grant enhanced regulatory legitimacy on sports event contracts and prediction markets more broadly, such a permissive signal has not eliminated state-level resistance, particularly where prediction markets are perceived to encroach on traditional gambling regulation. Days after Chairman Selig’s remarks, and just a few days before the Super Bowl, New York Attorney General Letitia James issued a pointed warning to New Yorkers: “Be careful about placing trades on prediction markets.”¹⁰ In doing so, she cautioned that such markets “do not have the same consumer protections as regulated platforms.”¹¹ In her view, prediction markets platforms such as Kalshi and Polymarket “are bets ‘masquerading’ as event contracts,” with the former regulated by state gaming and wagering laws while the latter by the CFTC.¹² This warning came on the heels of AG James’s office issuing a cease-and-desist order to Kalshi, alleging that the company’s sports event contracts violated New York’s gambling law.

In parallel, federal prosecutors have issued a warning. The United States Attorney for the Southern District of New York, Jay Clayton, recently stated that his office is actively evaluating how existing fraud statutes apply to prediction markets and expects prosecutions where participants exploit them.¹³ He emphasized that the prediction-market label does not insulate conduct from criminal liability, including conspiracies to manipulate underlying events.¹⁴

Finally, while the CFTC has adopted a new approach to prediction markets, the Commission’s evolving posture should not be understood as a wholesale retreat from enforcement. Even as regulatory focus centers on the permissibility of event contracts themselves, significant questions remain regarding insider trading and the misappropriation of material nonpublic information in prediction markets — especially when the conduct takes place outside the United States, by a non-U.S. citizen, on a non-U.S. platform such as Polymarket. Under CFTC guidance, an entity will generally be considered a “non-U.S. person” if it was formed outside the United States and its officers direct, control, and coordinate the firm’s activities from outside the United States.¹⁵ Although classification as a non-U.S. person has important regulatory ramifications for an entity, recent enforcement actions underscore that cross-border structuring alone is not a safe harbor; U.S. regulators may assert jurisdiction over and prosecute non-U.S. persons or entities if the trading activity has a connection to U.S. commerce.¹⁶

 

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¹ Michael S. Selig, The Next Phase of Project Crypto: Unleashing Innovation for the New Frontier of Finance, Remarks of Chairman Michael S. Selig at CFTC-SEC Event on Harmonization (Jan. 29, 2026), CFTC (speech), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaselig1.
² See 17 CFR § 38.200.
³ See Michael S. Selig, The Next Phase of Project Crypto: Unleashing Innovation for the New Frontier of Finance, Remarks of Chairman Michael S. Selig at CFTC-SEC Event on Harmonization (Jan. 29, 2026), CFTC (speech), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaselig1; see also 89 Fed. Reg. 48968 (June 10, 2024), https://www.federalregister.gov/documents/2024/06/10/2024-12125/event-contracts.
⁴ See U.S. Commodity Futures Trading Comm’n, CFTC Staff Advisory Letter – Withdrawal, No. 26-04 (Feb. 4, 2026). The CFTC was unable to finalize the 2024 proposed rule before the transition, and the proposal has now reached a predictable dead end. In remarks delivered at the Joint SEC-CFTC Harmonization Event, Chairman Selig announced that the Commission will not proceed with the 2024 proposal, signaling a recalibration of priorities in the prediction markets space. This shift appears to reflect concerns that the 2024 proposal (1) clashed head-on with constitutional principles; (2) adopted a broad definition of “gaming”; (3) categorically classified event contracts as contrary to the public interest, regardless of their specific terms and conditions; (4) relied on an antiquated “economic purpose test”; and (5) reflected a misunderstanding of the distinction between federal derivatives regulation and state gaming regulation.
⁵ See U.S. Commodity Futures Trading Comm’n, CFTC Staff Advisory Letter No. 25-36 (Sept. 30, 2025).
⁶ Several recent cases highlight the divergent approaches emerging in different jurisdictions.
⁷ See U.S. Commodity Futures Trading Comm’n, CFTC Staff Advisory Letter No. 25-36 (Sept. 30, 2025).
⁸ See 7 U.S.C. § 7a-2(c)(5)(A).
⁹ See 7 U.S.C. § 1a(19)(iv), 7a-2(c)(5)(A).
¹⁰ CNBC, New York Attorney General Warns Against Prediction Market Trades Ahead of Super Bowl (Feb. 2, 2026), https://www.cnbc.com/2026/02/02/new-york-ag-prediction-markets-super-bowl-warning.html.
¹¹ Id. CFTC-regulated markets have extensive customer protections, including segregation of customer funds and limitations on permitted depositories for such funds.
¹² Id.
¹³ Jessica Corso, SDNY Chief Says Office Has Eye on Prediction Markets, Law360 (Feb 6, 2026), https://www.law360.com/sports-and-betting/articles/2438607?nl_pk=66c6660d-02d0-4c8d-88b7-e422aeb64d17&utm_source=newsletter&utm_medium=email&utm_campaign=sports-and-betting&utm_content=2026-02-06&read_main=1&nlsidx=0&nlaidx=0.
¹⁴ Id.
¹⁵ “[P]rincipal place of business means the location from which the officers, partners, or managers of the legal person primarily direct, control, and coordinate the activities of the legal person.” Commodity Futures Trading Comm’n, CFTC Letter No. 25-14, Staff Interpretation Regarding Certain Cross-Border Definitions (May 21, 2025).
¹⁶ See Commodity Futures Trading Commission, CFTC Charges Commodity Pool Operators and Their Co-Chief Investment Officer with Deception and Manipulation in Connection with Swaps and Supervision Failures, CFTC Release No. 8640-22 (Dec. 15, 2022), https://www.cftc.gov/PressRoom/PressReleases/8640-22 (announcing charges against Neil Phillips, a resident of the United Kingdom, “with engaging in a deceptive and manipulative scheme to illegally trigger payouts on two large binary option contracts”); see also Commodity Futures Trading Commission, CFTC Charges Binance and Its Founder, Changpeng Zhao, with Willful Evasion of Federal Law and Operating an Illegal Digital Asset Derivatives Exchange, CFTC Release No. 8680-23 (March 27, 2023), https://www.cftc.gov/PressRoom/PressReleases/8680-23 (announcing “a civil enforcement action in the U.S. District Court for the Northern District of Illinois charging Changpeng Zhao and three entities that operate the Binance platform with numerous violations of the Commodity Exchange Act and CFTC regulations”); see also Commodity Futures Trading Commission, CFTC Issues Order Against Crypto Prime Brokerage Firm for Unlawfully Providing U.S. Customers Access to Digital Asset Derivatives Trading Platforms, CFTC Release No. 8909-24 (May 13, 2024), https://www.cftc.gov/PressRoom/PressReleases/8909-24 (describing the “filing and settling charges against Falcon Labs, Ltd., an entity organized under the laws of the Seychelles, for failing to register with the CFTC as a futures commission merchant”).