CFTC Lays Out First Prediction Market Rules With Hard Bans

The U.S. Commodity Futures Trading Commission has published its first formal prediction market rules. The proposal sets a clear process for deciding which contracts to allow and which to block. The CFTC now has a structured approach where one previously did not exist. Platforms like Kalshi and Polymarket have operated in legal grey territory for years. This proposal is the first real attempt to change that.

What the CFTC’s New Prediction Market Rules Say

The core of the proposal is a three-step test. First, the CFTC asks whether the underlying event is real. Second, it checks whether the event falls under a prohibited category in the Commodity Exchange Act. Those categories include terrorism, assassination, war, gaming, and illegal conduct. Third, it runs a public interest analysis to decide if a ban is warranted.

Contracts tied to terrorism, war, and assassinations are off the table entirely. Those bans are firm and do not reach the public interest stage. Gaming is the trickier category. The prediction market rules the CFTC outlined define gaming as activity engaged in for recreation or entertainment, governed by rules, with outcomes depending on luck, skill, or athletic ability. Election contracts and awards sit outside that definition. The proposal treats them as contests, not gambling.

Sports Contracts Get a Conditional Green Light

Sports prediction contracts avoid a blanket ban under the new CFTC rules. The agency says contracts settled on aggregate sports outcomes can proceed, provided they rely on objective data and benefit from integrity infrastructure. But the proposal sets firm limits around specific higher-risk designs.

Contracts that hinge on pure chance are out. So are contracts covering injuries, officiating decisions, discrete individual actions, pre-collegiate events, and altercations. The reasoning is straightforward. Aggregate outcomes like final scores are structured and verifiable. A contract built around a single penalty call or a player injury is harder to control and easier to exploit.

That distinction carries real weight. Sports markets drive most of the activity on major prediction platforms. A blanket ban would have gutted the sector. A conditional allowance, with firm limits around the riskiest contract types, gives the industry room to operate while addressing the concerns states and tribal gaming groups have raised.

Strong Pushback From the Gaming Industry

Not everyone is satisfied with the prediction market rules the CFTC put forward. The American Gaming Association has been among the loudest critics. Its president described the proposal as an attempt to redefine sports betting. He also called it a direct challenge to the bipartisan coalition of attorneys general who argue these platforms operate outside state law.

States and Native American tribes have consistently framed prediction markets as backdoor sportsbooks. Their argument is that these products function exactly like sports betting but sidestep state oversight by operating under federal commodity law. This proposal does not resolve that tension. Critics say the rules hand prediction platforms a clearer national path while bypassing the frameworks states and tribes have spent years building.

Industry Groups Welcome the Framework

Industry coalitions have responded positively to the prediction market rules the CFTC proposed. The Coalition of Prediction Markets praised the agency’s commitment to consumer protection. Polymarket said the proposal clarifies regulatory responsibility and supports innovation without abandoning oversight.

The CFTC takes the position that most sports contracts and election wagers do not run contrary to the public interest. The agency treats these markets as financial swaps rather than gambling products. Its federal authority over derivatives gives it jurisdiction regardless of what state regulators say.

45 Days to Have a Say

The proposal is now open for a 45-day public comment period. During an earlier notice of proposed rulemaking, the CFTC received roughly 3,500 submissions but fewer than 10% included detailed feedback. The agency will weigh public input before moving toward a final version.

Legal challenges to the final rules look likely. Former CFTC general counsel Robert Schwartz has noted that the current regulatory situation is problematic regardless of where one stands on event contracts. Whatever survives the comment period will face scrutiny in court.

The prediction market rules the CFTC has put forward do not end the legal battles between platforms, states, and tribal gaming groups. But they give the sector its first real regulatory anchor, and courts will have something concrete to work with when the next challenge arrives.