CFTC’s Selig Endorses Prediction Markets, Regulatory Path Unclear
CFTC Chairman Michael S. Selig announced plans on January 29, 2026, to withdraw a 2024 proposed rule prohibiting certain event contracts and replace it with clear regulations for prediction markets.[1][2] His remarks signal agency support for these markets while highlighting ongoing jurisdictional battles and upcoming rulemakings that leave the full path forward uncertain.[3][4]
Selig’s agenda emerged from his first public speech as chairman, where he outlined priorities for cryptocurrency and prediction markets, now called event contracts by the CFTC.[1] He stressed regulatory clarity and inter-agency coordination, including a new partnership with the SEC on “Project Crypto” to define oversight of crypto assets.[1][2] For prediction markets, Selig committed to supporting “responsible development” through a four-part plan, amid rapid industry growth driven by platforms like Kalshi and Polymarket.[2][5]
Key elements of Selig’s position include:
- Withdrawal of the 2024 rule that would have banned certain event contracts, to be replaced by new rules tailored to the industry.[1][2]
- Formal steps via an Advanced Notice of Proposed Rulemaking issued March 12, 2026, seeking public input on margin trading, prohibited contracts, and insider trading restrictions.[3]
- Defense of CFTC’s exclusive jurisdiction, reaffirmed in a February 17, 2026, amicus brief to the Ninth Circuit Court blocking state interference.[4]
- Recognition of doubled DCM registration applications over the past year, mostly from prediction market operators.[3]
- Pushback against nearly 50 state lawsuits alleging these contracts constitute gambling.[5]
- Emphasis on market integrity through CFTC oversight, National Futures Association rules, and surveillance.[6]
Regulatory Shift in Focus
The CFTC’s moves mark a pivot from prior restrictions. The 2024 proposal had targeted event contracts on topics like politics and sports, but Selig’s approach vindicates platforms that self-certified contracts under the Commodity Exchange Act.[2] Platforms can now list new contracts more readily, provided they meet CEA standards.[2] Still, the ANPRM raises open questions on core mechanics: Should margin be allowed? What events merit prohibition on public interest grounds? How to handle traders with material non-public information?[3]
Selig framed prediction markets as tools for hedging event-driven risks, portfolio management, and information aggregation.[4][5] CFTC-registered exchanges like Kalshi, Polymarket, Coinbase, and Crypto.com serve tens of millions of users, shifting from institutional hedgers to retail participants.[2][5] This evolution prompts scrutiny of whether frameworks built for commodity derivatives suit retail risks.[2]
Industry participants face preparation needs. Paul Weiss advised reviewing compliance programs, especially on material non-public information use.[1] Sidley urged comment letters and strategic analysis ahead of rulemaking.[2] Crowell noted the ANPRM opens formal public input, with Chair Selig calling it a step toward “responsible innovation.”[3]
Jurisdictional Battles Escalate
A core uncertainty lies in turf wars. On February 17, 2026, the CFTC filed an amicus brief in North American Derivatives Exchange v. Nevada Gaming Control Board, asserting exclusive jurisdiction over commodity derivatives, including prediction markets.[4] Selig criticized state lawsuits as a “power grab” ignoring precedent, warning of destabilizing effects.[4]
In a Wall Street Journal op-ed that day, Selig detailed nearly 50 active cases challenging CFTC-registered exchanges.[5] States claim event contracts are gambling, but the CFTC views them as regulated derivatives.[5][6] Courts and Congress have long affirmed CFTC authority, with no room for state overlays.[4]
This defense coincides with heightened DOJ scrutiny on prediction market fraud, prompting compliance reviews.[1] The agency will litigate to protect its remit, per Selig.[4]
Crypto Overlap and Project Crypto
Prediction markets intersect with crypto, as platforms like Polymarket operate on blockchains. Selig’s “Project Crypto” with SEC Chair Paul Atkins aims to draw “bright jurisdictional lines” for tokens.[1][2] A joint summit on January 29 underscored unified oversight.[2] This addresses confusion over SEC or CFTC primacy, vital for crypto-based event contracts.[1]
CFTC resources explain regulated markets’ protections: stringent applications, examinations, surveillance, and intermediary rules via the National Futures Association.[6] Unregulated alternatives lack these safeguards.[6]
Industry Growth and Implications
DCM applications doubling reflects surging interest, mostly in prediction markets.[3] Platforms self-certify contracts, but rulemaking could reshape listings.[2] Final rules may spark litigation, drawing regulator and investor focus.[2]
Firms should engage via comments and bolster compliance.[1][2] Prediction markets aid hypothesis testing on outcomes, from elections to weather.[5]
Risks persist. State challenges could limit access despite CFTC backing.[5] Rulemaking timelines remain undefined, with ANPRM questions unresolved.[3] Public interest prohibitions or insider bars could narrow offerings.[3]
Selig’s support elevates prediction markets, but state resistance and rulemaking details will test CFTC resolve.
[1] https://www.paulweiss.com/insights/client-memos/cftc-chairman-outlines-regulatory-agenda-for-prediction-markets-and-cryptocurrency-and-sdny-signals-focus-on-prediction-markets-fraud[2] https://www.sidley.com/en/insights/newsupdates/2026/02/us-cftc-signals-imminent-rulemaking-on-prediction-markets
[3] https://www.crowell.com/en/insights/client-alerts/cftc-takes-additional-steps-toward-prediction-market-regulation-what-you-need-to-know
[4] https://www.cftc.gov/PressRoom/PressReleases/9183-26
[5] https://www.cftc.gov/PressRoom/SpeechesTestimony/seligstatement021726
[6] https://www.cftc.gov/LearnandProtect/PredictionMarkets
