CFTC Reassesses Prediction Markets: A New Frontier for Regulation

The U.S. Commodity Futures Trading Commission (CFTC) is set to host an expert roundtable to reassess its regulatory stance on prediction markets. Acting Chairman Caroline Pham announced the event, which aims to establish a comprehensive regulatory framework for these markets while protecting retail customers from fraud.

Pham, who has previously opposed former Chairman Rostin Behnam's tough enforcement stance on prediction markets, acknowledged the difficulty in reversing the current regulatory path. She emphasized that years of anti-innovation policies have limited the CFTC's ability to transition to a common-sense regulation approach. The legal uncertainty surrounding the interpretation of event contracts further complicates the situation.

The roundtable will bring together market participants, legal experts, and industry stakeholders to discuss the legality of event contracts under the Commodity Exchange Act, consumer protection concerns, and potential regulatory changes. The event follows the CFTC's request for information on sports-related event contracts and is expected to gather valuable input from attendees.

Under the Biden administration, the CFTC has cracked down on event contracts and unregistered platforms. Pham acknowledged the need for a forward-looking approach that maintains oversight to protect consumers from fraud and abusive practices. She criticized the previous stance as a "sinkhole of legal uncertainty" that has hindered innovation in the prediction market sector.

Prediction markets, such as Kalshi and Polymarket, have faced regulatory obstacles in the past. Kalshi, a CFTC-regulated designated contract market, had its proposal for election-related contracts blocked in 2023. Polymarket, which operates on Ethereum, was fined $1.4 million in 2022 for offering unregistered swaps.

Pham sees prediction markets as a "new frontier" for harnessing market sentiment to gauge probabilities and enhance information accuracy in the digital age. The roundtable will take place at the CFTC's headquarters in Washington, D.C., with further details to be announced. Public comments and participation requests are due by February 21, the regulator said.