CFTC Backs Prediction Markets as States Push for Restrictions

The U.S. Commodity Futures Trading Commission (CFTC) is moving to strengthen its authority over event-based trading platforms as legal and political pressure around the sector continues to grow.

This week, the agency issued a no-action letter easing certain compliance obligations for fully collateralized event contracts. At the same time, they are defending federal oversight powers in an ongoing court dispute involving Kalshi. Together, the moves suggest Washington is becoming more willing to accommodate CFTC regulated prediction markets even as some states attempt to restrict them.

CFTC eases compliance requirements

The no-action relief applies to swap data reporting and related record-keeping rules tied to certain event contracts. The agency said the temporary relief is intended to reduce operational burdens while regulators continue evaluating how these products should be supervised.

Industry participants viewed the decision as a positive signal for platforms offering contracts tied to elections, economic indicators, sports outcomes, and other real-world events. Companies operating in the sector have argued that existing derivatives reporting requirements were designed for traditional swaps markets rather than newer retail-focused event products.

The relief arrives while the CFTC continues reviewing broader rules for event contracts. That includes review of public comments submitted by firms such as Paradigm. Supporters argue that regulated event contracts improve market transparency and provide useful forecasting data. Critics, however, continue to question whether some products resemble online gambling more than financial hedging tools.

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Federal and state regulators move toward conflict

At the same time, the CFTC is escalating its defense of federal jurisdiction.

In a recent amicus brief tied to Kalshi’s dispute in Ohio, the agency argued that states cannot independently classify federally regulated event contracts as illegal gambling products. The filing reinforced the regulator’s position that exchanges and prediction markets approved under federal commodities law fall primarily under CFTC supervision.

That argument is becoming increasingly important as state lawmakers and gaming regulators attempt to limit access to event-trading platforms. Minnesota lawmakers have now passed a bill banning prediction markets, sending the measure to Gov. Tim Walz for signature and potentially setting up another legal challenge over regulatory authority.

The dispute reflects a broader policy question. Should event contracts be treated as financial instruments, sportsbooks, or a separate category entirely? State regulators and casino groups have warned that some contracts may bypass gambling regulations and licensing requirements already imposed on sports betting operators.

Sports contracts draw new scrutiny

Sports-related event contracts have become one of the fastest-growing areas of attention.

According to multiple reports, the CFTC is communicating with major U.S. sports leagues regarding insider-trading protections and market integrity standards. The discussions appear aimed at preventing misuse of nonpublic information connected to athletes, injuries, or game-related developments.

CFTC Chair Michael Selig has publicly argued that event contracts differ from conventional sportsbooks because they operate within federally regulated derivatives markets rather than state gaming systems. That distinction is central to the agency’s broader legal strategy.

Still, opposition remains strong. Some state officials argue that allowing federally regulated exchanges to offer sports-related contracts could weaken local gaming oversight and reduce tax revenue connected to licensed sportsbooks.

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Industry watches for clearer federal rules

The latest developments indicate that regulators are no longer treating event contracts as a niche market.

Instead, the sector is becoming part of a wider debate involving financial regulation, gambling policy, retail trading access, and federal preemption. Companies such as Kalshi and Polymarket are likely to remain at the center of that debate as lawmakers, regulators, and courts attempt to define the legal boundaries of the industry.

For now, the CFTC appears focused on building a framework that allows regulated event-trading activity to continue. Nevertheless, it strives to introduce stronger oversight mechanisms around reporting, market surveillance, and insider-trading safeguards. Whether states accept that approach remains uncertain, and additional lawsuits may determine how prediction markets evolve across the United States.