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The US Commodity Futures Trading Commission is requesting public input on how event-based contracts, commonly associated with prediction markets, should be regulated, signaling that the agency is actively shaping its approach to the rapidly growing sector.
In a newly released advance notice of proposed rulemaking, the CFTC is inviting market participants, industry stakeholders and the general public to weigh in on the risks, structure and appropriate regulatory treatment of these contracts. The move comes as prediction markets expand quickly, drawing both institutional interest and political scrutiny.
Key regulatory questions: Defining event contracts
At its core, the request aims to define how event contracts fit within existing derivatives laws.
Event contracts allow users to trade on whether specific real-world outcomes will occur. These can include economic indicators, political developments and other measurable events. While they function similarly to financial derivatives, they also resemble wagering products in certain contexts.
The CFTC is looking for feedback on several issues, including:
- Whether these contracts serve a legitimate economic or hedging purpose.
- What types of events should be allowed or restricted.
- How market integrity and manipulation risks should be handled.
- Whether current rules are sufficient or need to be updated.
By opening the process to public comment through April 30, 2026, the agency is signaling that it has not fully settled on a long-term regulatory framework for prediction markets.
The 2026 surge: Market growth vs. legal scrutiny
The timing of the request is critical. Prediction markets have seen a surge in attention over the past year, driven by increased trading volume—with some markets exceeding $500 million—and new platform launches.
However, the industry faces a fractured legal landscape. While the CFTC has recently moved to defend its “exclusive jurisdiction” over these markets, several states, including Nevada and Arizona, have launched legal challenges or criminal complaints against platforms like Kalshi, alleging they operate as unlicensed gambling enterprises.
Some platforms operate under CFTC oversight as regulated exchanges. Others operate in less clearly defined frameworks, particularly those using blockchain infrastructure or operating outside the United States.
Financial innovation vs. gambling: The jurisdictional clash
One of the biggest questions is how event contracts should be classified. Supporters argue they are legitimate financial instruments that aggregate information and produce real-time probability estimates. In some cases, businesses use these contracts to hedge against specific risks.
Critics, however, argue many prediction markets resemble gambling. This distinction is vital because it determines which regulators have authority: federal oversight under the CFTC or state gaming laws.
How stakeholders can influence CFTC policy
The CFTC’s request gives industry participants a chance to influence future rules. Companies can provide feedback on their operations and the challenges they face, while critics and policymakers may argue for stricter oversight or the prohibition of certain contracts, such as those involving “sensitive events” like elections or sports injuries.
The result could be a more clearly defined regulatory framework or a more restrictive one, depending on the outcome of the 45-day comment period. Regardless, the request is a clear sign that prediction markets are no longer operating under the radar.
