TLDR
- The CFTC has submitted a formal proposal to the White House to regulate prediction markets as financial derivatives, not gambling products.
- Platforms like Kalshi and Polymarket have faced growing scrutiny, including a Google employee charged with insider trading on Polymarket.
- Kalshi suspended and fined three political candidates who traded on their own election outcomes.
- Several U.S. states including New York, Minnesota, and Illinois argue prediction markets are gambling and should fall under state gaming laws.
- The Trump administration has backed the federal approach, framing prediction markets as a financial innovation issue.
The CFTC has submitted a formal proposal to regulate prediction markets as financial derivatives. The move could reshape how platforms like Kalshi and Polymarket operate across the United States.
What the CFTC Is Proposing
The agency submitted its proposal on event contracts to the White House Office of Management and Budget, starting a formal rulemaking process. The full proposal has not been released publicly.
CFTC Chairman Michael Selig said in January that the commission planned to create specific rules for prediction markets. This came after the agency backed away from an earlier proposal that would have restricted political and sports event contracts.
In April, Enforcement Director David Miller argued publicly that insider trading laws apply to prediction markets. His position is that event contracts should be treated as swaps under federal law, not gaming products.
If prediction markets are formally classified as derivatives venues, they would inherit the compliance rules that apply to traditional financial exchanges. That means know-your-customer rules, trade surveillance systems, broker oversight, and recordkeeping requirements.
Enforcement Actions Are Already Happening
Even without final rules in place, enforcement is moving forward.
The CFTC charged a Google employee with using confidential company information to place trades on Polymarket tied to corporate developments. Congressional investigators also requested KYC and trade surveillance records from both Kalshi and Polymarket.
Kalshi took its own enforcement step by suspending and fining three U.S. political candidates who allegedly traded on their own election outcomes. The company framed this as evidence that regulated prediction markets can meet the same integrity standards as traditional finance.
Prediction markets have long faced criticism that they invite manipulation. Traders can sometimes hold direct knowledge about political campaigns, corporate activity, or events they are wagering on.
States Are Pushing Back
The federal push is running into resistance from several states.
Minnesota, New York, Illinois, Arizona, and Connecticut have all argued that prediction markets are gambling operations subject to state betting laws. Some state officials warn that a federally protected prediction market industry could bypass large portions of the state gaming framework.
States have a financial stake in this debate. Sports betting and gaming taxes have become revenue sources for many state governments. A federally protected prediction market industry operating outside those frameworks would represent a direct revenue threat.
The CFTC and state regulators are working from different legal starting points. The CFTC focuses on the structure of the contract being traded. State regulators focus on the activity itself — people wagering money on uncertain future outcomes.
This conflict has not been resolved in court.
The Trump administration has backed the federal position. The president described prediction markets as a major emerging industry and warned that fragmented state restrictions could damage U.S. competitiveness in digital finance.
Prediction markets have expanded well beyond elections. Contracts now cover inflation data, Federal Reserve decisions, corporate events, wars, weather, and sports championships. The upcoming rulemaking process could be the first step toward deciding, at a federal level, exactly what these products are.
