CFTC Launches Formal Rulemaking Process for Prediction Markets as Sports Contract Oversight Takes Centre Stage

The US Commodity Futures Trading Commission took two significant steps on 12 March to establish formal oversight of prediction markets, issuing binding staff guidance to registered exchanges and opening a public rulemaking process that will shape how event contracts are regulated across the country.

The Division of Market Oversight released CFTC Letter No. 26-08, a staff advisory titled the Prediction Markets Advisory, directed at designated contract markets that have listed event contracts in large numbers. The document sets out compliance expectations under the 23 statutory core principles that all registered exchanges are required to uphold. Core Principle 3 requires that exchanges only list contracts not readily susceptible to manipulation, while Core Principle 4 demands active market surveillance and the capacity to prevent price distortion.

Sports-related contracts received particular attention. The advisory recommends that exchanges proactively engage with sports leagues and governing bodies when developing terms, compliance programmes, and oversight systems for sports-related event contracts. The guidance also reminds participants that the commission retains the authority to investigate and bring civil enforcement actions for insider trading or the misappropriation of confidential information.

Alongside the advisory, the commission issued an advance notice of proposed rulemaking identified as RIN 3038-AF65. The document, published in the Federal Register, is the formal start of a comprehensive regulatory review and opens a 45-day comment window from 12 March. It asks the public and industry participants to weigh in on how core statutory principles should apply to prediction markets, whether certain contract categories should be prohibited entirely, and how dispute resolution mechanisms used in other derivatives markets might apply to event contract triggers.

The scale of the market growth framing the rulemaking is striking. Between 2006 and 2020, registered exchanges listed an average of five event contracts per year. That figure reached 131 in 2021 and approximately 1,600 certified contracts by 2025. The number of applications for exchange registration has more than doubled over the past year, with many applicants focused exclusively on prediction market products.

The regulatory shift is inseparable from the broader personnel change at the commission. Chairman Mike Selig, the sole sitting commissioner on what is intended as a five-person body, reversed a 2024 proposed ban on sports and political event contracts shortly after taking office. He has also filed court briefs asserting exclusive CFTC jurisdiction over sports event contracts, directly countering state regulators in Nevada, New Jersey, and Maryland who have sought to block platforms including Kalshi from operating in their jurisdictions. The CFTC has already included Kalshi, Polymarket, DraftKings, and FanDuel in its Innovation Advisory Committee, signalling clearly which players the agency views as the primary stakeholders in shaping the new framework.

Acting director of the Division of Market Oversight Frank N. Fisanich acknowledged the tension in the agency's position, noting that while the CFTC aims to encourage innovation, growth must occur within the existing federal oversight framework. Secretary of the commission Christopher Kirkpatrick stated the agency is seeking input on how core principles should apply specifically to these markets, framing the rulemaking as an open process rather than a predetermined conclusion. Opponents remain vocal. The advocacy group Better Markets filed an amicus brief on 10 March arguing that the CFTC's legal position on sports event contracts is without foundation, and continues to characterise prediction market platforms as casinos operating under regulatory cover.

The dual move on 12 March is deliberate sequencing. The staff advisory gives exchanges immediate, actionable guidance without waiting for the rulemaking process to conclude, which could take a year or more under administrative law. The ANPR opens the formal record the CFTC will need to defend any final rule in court. That matters because the jurisdictional dispute between federal commodities law and state gambling statutes is far from resolved, and Selig clearly anticipates litigation. Filing court briefs to assert exclusive CFTC jurisdiction before the rulemaking is even complete is an aggressive tactic, and it suggests the commission is trying to shape the legal landscape in parallel with the regulatory one.

For the iGaming and sports betting industry, the stakes are significant and not straightforwardly negative. Prediction market platforms have grown by offering products that closely resemble sports betting but are structured as financial instruments, available in all 50 states rather than the 39 that have legalised traditional sports wagering. Established sportsbook operators and state regulators argue this creates an unlevel playing field. The CFTC's rulemaking process is the arena where that argument will be formally tested, and the 45-day comment window is the first real opportunity for the licensed sports betting industry to put its position on the record with the federal regulator.

The growth numbers are the most important context for understanding why this is happening now. Going from five event contracts per year to 1,600 in under five years is not incremental growth, it is a market reordering. Kalshi's trading volume reportedly grew over 100 times to $21.3 billion, with sports markets accounting for roughly 87% of activity. At that scale, the absence of a clear federal framework is a systemic risk, not just a compliance gap. The rulemaking process, however long it takes, is the mechanism by which the US either integrates prediction markets into a coherent financial oversight structure or creates the conditions for a prolonged legal war between federal and state regulators that nobody in the industry benefits from.