CFTC Seeks Public Input on Future of Prediction Markets in the U.S.
In a significant move that could reshape a burgeoning corner of finance, the U.S. Commodity Futures Trading Commission (CFTC) has formally initiated a rulemaking process for prediction markets. The regulator published an Advanced Notice of Proposed Rulemaking (ANPR) in late 2023, soliciting public comment on whether to amend existing regulations or craft new ones specifically for event contracts traded on these platforms.
This action follows the CFTC’s reaffirmation of its exclusive jurisdiction over prediction markets earlier in the year. The notice is not a proposed rule itself, but a critical first step to gather information and perspectives before the agency drafts any formal regulations. The public comment period, once the notice is published in the Federal Register, will last 45 days, with submissions accepted through the CFTC’s Public Comments Portal.
What Are Prediction Markets and Why Is the CFTC Focused on Them?
Prediction markets are platforms where participants trade contracts whose payouts depend on the outcome of a specific future event—such as an election result, a company’s earnings, or a geopolitical development. The market price of a contract acts as a real-time aggregate forecast of that event’s likelihood, effectively functioning as a crowd-sourced prediction tool. Academic research, including studies of long-standing markets like the Iowa Electronic Markets, has shown they can be remarkably accurate in forecasting outcomes.
The CFTC’s interest has been piqued by dramatic growth in this sector. Since 2021, the agency has observed a “significant increase” in the number and diversity of event contracts listed. Furthermore, it has received multiple applications and expressions of interest from entities seeking to register as Designated Contract Markets (DCMs) that would primarily or exclusively operate prediction markets. This surge prompted the regulator to seek a clearer, more rational regulatory framework grounded in the Commodity Exchange Act (CEA).
Key Questions and Potential Regulatory Directions
The ANPR poses a series of questions to the public, market participants, and experts. The core issues under consideration include:
- Application of Core Principles: How should the CEA’s statutory core principles for DCMs—such as ensuring contracts are not susceptible to manipulation and protecting market participants—apply uniquely to prediction markets?
- Prohibited Contract Types: The notice specifically asks which types of event contracts might be “contrary to the public interest” and thus prohibited. This directly addresses a long-standing ambiguity. Historically, the CFTC has suggested that certain contracts, like those based on sports outcomes or “gaming” events, may fall outside its jurisdiction or be prohibited. The agency is now seeking concrete data and arguments to define this boundary clearly. For instance, is a contract on the Super Bowl winner inherently different from one on a Senate election outcome in terms of market integrity and public purpose?
- Cost-Benefit Analysis: Commenters are asked to assess the economic benefits of regulated prediction markets (e.g., price discovery, risk management for businesses) against potential costs and risks, such as manipulation, fraud, or the social implications of certain event contracts.
- Registration and Oversight: What specific requirements should be imposed on DCMs operating prediction markets to ensure compliance with the CEA?
Balancing Innovation with Protection: The Stakes
CFTC Chairman Michael S. Selig framed the notice as a pivotal step for “responsible innovation.” “This begins the process of new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act,” he stated, “while reassuring the American people that the CFTC will exercise its exclusive jurisdiction over prediction markets.”
The outcome of this rulemaking will determine the legal playing field for U.S.-based prediction markets. A permissive, well-defined framework could encourage the development of sophisticated, regulated platforms that provide valuable societal forecasting tools. A restrictive approach, particularly one that broadly bans certain categories of events, could stifle the industry domestically or push activity to less regulated offshore venues.
Stakeholders—from fintech startups and academic economists to legal experts and consumer advocates—now have a structured opportunity to influence this policy. The quality and depth of the public comments submitted over the next 45 days will be instrumental in shaping whether U.S. prediction markets evolve into a transparent, regulated component of the financial system or remain a fragmented, legally uncertain niche.
The CFTC’s ANPR document, which contains the full list of questions and background, is available here (PDF).
