The Commodity Futures Trading Commission (CFTC) — the federal body charged with regulating prediction markets — is pumping out rule changes and proposals at an extraordinary rate.
Changes in policy were suggested for eight items since the start of summer, according to a list of proposals published by regulations.gov. That means the Commission is working about twice as quickly as it did during the rest of President Donald Trump’s second stint in the White House.
CFTC making rapid changes
Among many reasons for the surge in the CFTC’s activity is the lack of internal conflict and discourse. The five-seat Commission only has one active chairman, Michael S.Selig, meaning that decisions are streamlined and confirmed more easily than they were during previous administrations.
Proposed rule changes deal with a variety of topics. A June 12 proposal would limit the scope of prediction markets to those serving the public interest, thereby eliminating markets that deal with death, acts of terror, and games of random chance, among others.
Additional proposals deal with data reporting, perpetual contracts, expanded definitions of “swaps,” and cross-managing of securities and derivatives.
The explosive growth of the prediction market industry, led by operators Kalshi, Polymarket, and Robinhood, has required regulators to stay on their toes. Selig’s exclusive authority over the CFTC has allowed it to act accordingly.
“The speed in which the rules are coming out, and just the pace of it, is something I don’t think we’ve ever seen before,” said Elizabeth Lan Davis, an attorney at Davis Wright Tremaine LLP and former CFTC attorney. “Every week there’s now two or three more rules proposed or a request for comment.”
Relatedly, the CFTC is also engaging in legal squabbles with state regulators at its highest rate since prediction markets began sweeping America. It has pending lawsuits in Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin, and has filed amicus briefs in the U.S. Court of Appeals for the Sixth and Ninth Circuits and the Supreme Judicial Court of Massachusetts.
Important changes
One of the CFTC’s most significant proposed rule changes would deal with the classification of “pure luck” games.
“[This is a] significant indicator that the commission is committed to taking decisive action on prediction markets,” said Pamela Geraghty, senior director at Patomak Global Partners LLC and a former CFTC deputy director. “The short amount of time between the advance notice of proposed rulemaking and the notice of proposed rulemaking suggests it’s likely we’ll see a final rule before the end of the year on this topic.”
Distinguishing games of luck is also required in the gambling industry. Federal and state laws handle games of chance and games of skill entirely differently, with legal sports betting being the leading example of a game of skill that is available in most states.
Beyond that, the CFTC’s fervent interest in rulemaking is representative of modern times. State officials have become increasingly emboldened in their anti-prediction market stance, approving measures such as taxation, limits on sports event contracts, and even an outright ban.
The CFTC, as previously noted, has been willing to defend its platforms in court. But the increasing skepticism from officials, combined with the national surge in activity in prediction markets, has necessitated a clearer set of rules that eliminates many existing gray areas.
“One of the main drivers with respect to prediction market rulemaking is trying to get in place, as quickly as they can, that regulatory framework to undermine” the states’ argument, Davis said.
The Trade Handle Prediction Markets Take
The Trump-appointed Selig’s sole chairmanship at the CFTC means that decisions are easier to come by but can also be further politicized. The rapid release of new rule changes is unlikely to relent as prediction markets continue to take off, and disagreements continue to arise. Selig and the CFTC seem increasingly committed to freeing prediction operators of state regulators, but a possible escalation to the U.S. Supreme Court remains a possibility.