Federal regulators on Wednesday unveiled a sweeping proposal to establish new rules for the rapidly growing prediction markets industry as legal battles continue over whether the platforms constitute federally regulated financial markets or state-regulated gambling.
The Commodity Futures Trading Commission, which oversees U.S. derivatives markets, released a 267-page notice of proposed rulemaking outlining what types of event contracts would be permitted under federal law. The proposal comes as prediction market platforms such as Kalshi and Polymarket face scrutiny from state regulators, lawmakers, and gambling authorities over the real-world events on which users can place wagers.
According to the CFTC, trading volume across federally regulated prediction markets surpassed $25 billion in 2025, reflecting an increase in both the popularity of event contracts and the range of events available for trading.
“The Commission has recently observed a significant increase in the number of event contracts listed for trading on prediction markets, as well as in the diversity of events underlying such contracts,” the agency said in the proposal.
The CFTC argues event contracts fall within the framework established by the Commodity Exchange Act, which recognizes derivatives markets as serving the public interest by helping participants manage risk and discover prices.
Sports-related event contracts would generally be permitted under the proposed rules. The commission said markets could be offered on outcomes such as final scores, point differentials, win-loss records, tournament advancement, and individual or team performance statistics over the course of a game or season.
However, the proposal would prohibit so-called micro-event contracts tied to specific plays or moments during a game. Examples include wagers on a single baseball pitch, a single hockey shot, or a particular foul in a basketball game.
The rules would also bar contracts involving player injuries, physical altercations during games, officiating decisions, and precollegiate sporting events such as high school athletics. Casino-style games based entirely on chance, including roulette, would remain prohibited. The commission indicated, however, that some competitions involving both skill and chance, such as poker tournaments, could qualify for trading under certain circumstances.
The proposal would also ban contracts tied to terrorism, assassinations, or war. The agency said such markets “can present significant national security risks and therefore raise public interest concerns.”
“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” CFTC Chairman Michael Selig said in a statement. “This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”
The proposal arrives amid an escalating dispute over whether prediction markets are financial products regulated by the federal government or a form of gambling subject to state law. Critics, including state officials, argue contracts offered on platforms such as Kalshi and Polymarket function as sports betting or event wagering under a different name.
Among the most vocal opponents has been Gov. Spencer Cox (R-UT), whose state maintains a ban on gambling.
“The issue before us is straightforward,” Cox said earlier this year. “Prediction markets are gambling — pure and simple.”
Cox vowed to challenge federal efforts to preempt state authority over gambling regulation in February.
“Let me be clear, I will use every resource within my disposal as governor of the sovereign state of Utah, and under the Constitution of the United States to beat [the CFTC] in court,” he said.
Separately, the CFTC has challenged actions taken by several states seeking to restrict prediction market operations, including cease and desist orders, lawsuits, criminal enforcement actions, and legislative efforts aimed at banning the platforms. The agency has also intervened in related cases in Ohio, Massachusetts, and Nevada.
PREDICTION MARKET LAWSUITS SET STAGE FOR MAJOR COURT BATTLES
Prediction markets have also faced criticism over allegations that traders may be exploiting nonpublic information to profit from event contracts. Recently, a federal investigation was opened into former New York Republican Rep. George Santos, who was accused of using insider political information to place trades on prediction markets.
One of the most high-profile cases involves accusations that a U.S. special operations soldier allegedly used classified information to place wagers on Polymarket related to the operation that led to the capture of former Venezuelan dictator Nicolas Maduro. Court filings allege the trader earned more than $400,000 from a series of bets placed in the days before the raid. The case will go to trial later this year.
