Catenaa, Thursday, March 12, 2026- The Commodity Futures Trading Commission released new guidance Thursday outlining how exchanges should list and monitor prediction market contracts, as Chairman Mike Selig said regulators are working to establish clearer oversight for the fast-growing sector.
In an advisory issued by the agency’s Division of Market Oversight, the commission reminded exchanges that list event-based derivatives, often called prediction market contracts, that they must comply with the Commodity Exchange Act and existing CFTC regulations.
Prediction markets allow traders to buy and sell contracts tied to the outcome of real-world events, including elections, economic data releases, corporate developments and sporting events. Participants trade positions based on the probability of those outcomes occurring.
The CFTC said exchanges designated as contract markets act as the primary gatekeepers responsible for reviewing whether new contracts meet federal derivatives standards before they begin trading.
Regulators stressed that exchanges must confirm contracts are not susceptible to manipulation or abusive trading practices. The guidance warns that poorly designed contracts could expose markets to conflicts of interest or incentives to influence real-world outcomes.
Certain types of contracts may carry higher manipulation risks. The agency highlighted markets tied to individual athlete injuries, unsportsmanlike conduct or narrowly defined sports outcomes. Such contracts could create incentives for participants with insider knowledge or influence to affect results.
Regulatory scrutiny has intensified as prediction markets attract greater trading activity. Some state gaming regulators argue that certain sports-related contracts resemble unlicensed gambling products. Federal regulators maintain that properly structured contracts qualify as derivatives governed by federal commodities law.
Recent controversies have added urgency to the debate. Last month, blockchain analytics firm Bubblemaps identified a cluster of newly funded wallets that collectively earned roughly $1 million from bets tied to a potential US strike on Iran shortly before airstrikes were carried out.
Separately, the prediction market platform Kalshi faced criticism over a contract titled “Ali Khamenei out as Supreme Leader?” following the death of Iran’s leader during US-Israeli strikes. Critics argued the contract resembled a death-related wager. The platform said its settlement rules prevented traders from directly profiting from a death event.
Lawmakers are also raising ethical concerns. Several Democratic members of Congress introduced legislation known as the Death Bets Act that would prohibit prediction market contracts linked to death, war or assassination.
Speaking earlier Thursday on CNBC’s Squawk Box, Selig said regulators aim to establish clearer standards as the market expands.
He said exchanges listing event contracts serve as the first line of defense in preventing manipulation, insider trading and abusive activity before contracts reach public trading.
The regulatory update comes as US financial agencies increase cooperation on emerging financial technologies. On Wednesday, the CFTC and the US Securities and Exchange Commission signed a memorandum of understanding to coordinate oversight of crypto markets and related financial innovations.
Prediction market platforms have expanded rapidly over the past year. Trading volumes and investor interest have surged, driven in part by global political events and economic uncertainty.
Platforms including Polymarket and Kalshi are reportedly exploring fundraising rounds that could value the companies near $20 billion, roughly double their most recent valuations.
Trading activity has climbed sharply. Combined monthly trading volume on Kalshi and Polymarket reached about $18.6 billion in February, marking the sixth consecutive monthly record, according to data compiled by The Block.
Early March activity indicates the momentum may continue. Combined trading volume across the two platforms has already exceeded $8 billion with more than half the month remaining.
Regulators said clearer rules will help exchanges manage risks while supporting lawful market innovation as prediction markets expand into new financial products and broader user bases.
