The Commodity Futures Trading Commission (CFTC) proposed a new set of rules that determine the validity of various prediction markets and emphasize the removal of ones against the public interest.
The CFTC’s objective with its new expansive rule set is to provide licensed prediction platforms with a roadmap of what is and isn’t permissible. Any uncertainty regarding the validity of sports event contracts would be scrubbed, while regulators would target markets easily subjected to manipulation.
The new proposal
All licensed prediction platforms in America are responsible for meeting and adhering to the CFTC’s regulatory standards — so much so that local legal battles have been created from state gaming officials’ outrage at prediction operators’ persistent dedication to meeting federal, not local, guidelines.
The CFTC’s new rule set proposal entered a review at the White House Office of Management and Budget on the week ending on May 28. Among its central themes is a near-total allowance of sports betting contracts, which have proven to be the most controversial because of their resemblance to sports betting odds.
The new rules would also aim to eliminate easily manipulable prediction markets, where one or a few individuals hold substantial power in how contracts from within the market settle.
An example of that — which was not explicitly stated by the CFTC — would be the situation involving former Rep. George Santos.
An NPR report claimed that Santos was under investigation by the Department of Justice (DOJ) for allegedly purchasing contracts that said he would not attend President Donald Trump’s State of the Union address in February. Santos claimed he would attend in a social media post the day before the event, but he ultimately did not show up.
Newsweek later reported that a DOJ spokesperson said that Santos was not actually under investigation.
Sports in, manipulation out
The CFTC is in charge of setting the boundaries and providing enforcement action against prediction operators.
If approved, the new rules would further outline allowable prediction markets, although they wouldn’t result in outright bans of certain contracts.
The allowance of sports event contracts falls in line with the CFTC’s direction under President Trump, who appointed the agency’s only active chair, Michael S. Selig. Trump recently championed prediction markets, claiming in a Truth Social post that it was "critically important” for the CFTC to have “exclusive authority” over their regulation.
Permitting sports event contracts also gives prediction outlets a clear reference point for legal debates with state gaming regulators. These local officials have often argued that prediction markets are just unlicensed gaming outfits, while the operators have repeatedly reinforced the idea that federal law supersedes state law.
The Trade Handle Prediction Markets Take
Prediction markets have quickly become a nationwide fad, taking hold in states without legal sports betting, and offering a new form of financial interaction with the world of sports and other industries for residents of non-legal sports betting states.
Targeting markets that are easily subjected to manipulation should help reduce the headline-worthy scandals that have contributed to the controversial nature of prediction markets. For example, a U.S. soldier won more than $400,000 at Polymarket by predicting the capture of former Venezuelan President Nicolás Maduro, an operation in which they were involved.
Defining sports contracts as definitively allowable also lessens states’ “gray area” arguments. That presents a new challenge for Minnesota, which recently became the first state to ban prediction operators, and Illinois, which just approved a new budget plan that would tax operators as if they were state-licensed entities.