Prediction Markets’ Wild West Days May Be Over: CFTC Drafts Its First Major Framework

The US Commodity Futures Trading Commission (CFTC) has unveiled its first regulatory framework for prediction markets, releasing what it described as a proposed approach to governing the industry under American law. 

The plan, issued by the agency on Wednesday, would establish standards for certain types of wagering while leaving markets tied to elections and politics largely outside the category of activities that would trigger more intensive scrutiny.

The new proposal sets out how the agency would start determining whether a contract should be prohibited. Under the draft, the CFTC said it preliminarily views both sporting wagers and wagers involving games of chance and pure luck as falling under “gaming.” 

At the same time, it suggests that wagering on sports outcomes is likely not broadly contrary to the public interest, while staking money on gambling or games of pure luck likely would be. 

The framework further argues that prediction markets based on sports scores, price spreads, win-loss outcomes, tournament advancement, and similar data may serve a “price discovery” function and provide meaningful information.

Where the proposal draws sharper boundaries is with specific categories of sports-related betting. The CFTC indicated that wagering on player injury, fighting, children’s sports, officiating, or wagering structured in a way that could encourage cheating was unlikely to meet the public interest standard. 

The draft also addresses election-related contracts, noting that election wagers are “contests, not gaming,” and therefore fall outside the “enumerated activities” that would allow the CFTC to apply its 90-day review process to event contracts.

The agency’s proposal also focuses heavily on how it would evaluate whether a contract crosses too far into areas like terrorism, war, or assassinations—topics that, the draft notes, domestically regulated exchanges have largely avoided offering. 

In its announcement, the CFTC acknowledged that the rules released Wednesday are “thin,” and said additional rulemaking about prediction markets could be introduced in the future. After Wednesday’s release, the proposed rule will undergo a 45-day public comment period.

CFTC Chair Mike Selig emphasized the commission’s intent as it prepares for further steps in the rulemaking process. He said in a statement that the CFTC would protect the integrity of its regulated markets while still allowing “responsible innovation.

Selig added that the new prediction markets proposal provides a durable and transparent framework for identifying the contracts Congress directed the agency to scrutinize, while also letting legitimate markets continue. 

Beyond defining the types of wagering that may fall on different sides of the line, the proposal lays out a step-by-step process for prohibitions. The CFTC would first determine whether the contract is actually tied to an event happening. 

It would then evaluate whether the event fits within the categories defined in the Commodity Exchange Act, and finally conduct a public interest analysis to decide whether the prediction markets’ contract should be banned or allowed.

Featured image created with OpenArt; chart from TradingView.com