The Commodity Futures Trading Commission proposed new rules for burgeoning prediction markets that delineate what bets would be allowed under federal law. 

On Wednesday, the CFTC introduced a slate of new rules that would still allow overall support for sports betting, despite opposition from state regulators. However, bets on terrorism, assassinations and war would be more limited. 

Prediction markets, such as Kalshi and Polymarket, allow people to place bets on real-world events, from tariff rates to which couple will win on Love Island USA. Those marketplaces gained significant traction in the 2024 elections and are now worth tens of billions of dollars each. 

"The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation," said CFTC Chair Michael Selig 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."

Insider trading has become a concern in prediction markets. In April, the Justice Department arrested an active-duty U.S. Army soldier for using confidential information to place bets on the prediction market Polymarket ahead of former Venezuelan President Nicolás Maduro’s capture earlier this year. The DOJ and the CFTC are also reportedly investigating former Rep. George Santos after Kalshi found suspicious trades tied to his attendance at Trump's February State of the Union address. 

Lawmakers have introduced several bipartisan bills to restrict trades by people with access to non-public trading to prevent insider trading. Still, these bills have not yet been passed into law. 

Prediction markets have also said they have introduced safeguards. This week, Kalshi rolled out mandatory employment verification for traders in sensitive markets, among other measures to combat insider trading and market manipulation on the platform. Polymarket has likewise implemented safeguards designed to deter insider trading and preserve market integrity.

New rules

The new rule takes a different approach than in years past. Under the Biden administration, the CFTC voted to propose rules restricting event contracts tied to gaming, war, terrorism, and assassination because they could be "contrary to the public interest." That rulemaking was scrapped earlier this year. 

In the new 267-page proposed rule, the CFTC seeks to discern between what could be considered terrorism-related bets, citing an example where betting on whether the "Islamic State conducts an armed attack causing more than ten civilian deaths in Baghdad during June 2026 involves terrorism." However, a bet on whether the Transportation Security Administration implements better screening at certain airports would not involve terrorism, according to the proposed rule. 

As for sports betting, the CFTC said that those contracts are not likely to "raise public interest concerns." 

"The Commission observes that prediction markets have successfully listed for trading a wide variety of event contracts based on sports activities," the agency said in its proposed rule. "The Commission preliminarily finds that certain characteristics of event contracts involving sports activities would reduce the basis for finding that the event contracts are contrary to the public interest."

Selig's stance

CFTC Chair Selig, whom President Donald Trump tapped to lead the agency, has taken an aggressive approach in asserting the federal agency's jurisdiction over prediction markets, including challenging states in court. States have pushed back, saying that the platforms are violating local gaming and gambling laws, particularly those related to sports betting.

Trump has backed Selig, calling the issue "critically important" for the CFTC to have exclusive jurisdiction over prediction markets. Trump's son, Donald Trump Jr., has invested in Polymarket through the venture capital firm 1789 Capital and is also a strategic advisor to Kalshi.

In March, the CFTC released guidance outlining how exchanges should approach listing prediction market contracts, including emphasizing that exchanges designated as contract markets act as the front-line regulators responsible for ensuring listed contracts are "not readily susceptible to manipulation" or abusive trading practices. 

In a post on X on Wednesday, Selig indicated that more rules are coming. "Rest assured, this will not be the last prediction market rulemaking as the agency continues to balance market integrity with responsible innovation."