AI surveillance moves deeper into CFTC oversight
CFTC Chair Michael Selig told lawmakers that the agency has authorized staff-wide use of Microsoft 365 Copilot and is developing AI-driven surveillance systems to detect fraud, market manipulation, and insider trading. The effort covers digital asset markets, prediction platforms, and traditional commodity derivatives, signaling a broader technology push inside the regulator.
Selig said the agency is becoming more efficient even after a sharp reduction in headcount. According to his testimony, CFTC staffing fell from 708 full-time employees to about 543 since the end of fiscal 2024, a decline of more than 20%. That claim drew criticism from members of Congress, including Representative Angie Craig, who argued the agency cannot effectively police digital commodities and prediction markets with such limited staffing. Selig is also currently the only sitting commissioner, with four seats vacant.
Polymarket trading patterns spark insider trading concerns
A major topic at the hearing was suspicious trading linked to sensitive geopolitical events on platforms such as Polymarket and Kalshi. Lawmakers cited reports that six newly created Polymarket accounts earned roughly $1.2 million by betting that the United States would strike Iran shortly before military action took place. The accounts were reportedly funded out within 24 hours after the strikes, raising fresh concerns about possible insider trading.
Selig repeated that the CFTC has a zero-tolerance approach to insider trading, but he declined to say whether any specific trades are under investigation, arguing that public comment could compromise ongoing enforcement work. He added that the agency’s enforcement division is strengthening its ranks under David Miller, a former CIA official and former prosecutor from the Southern District of New York.
CLARITY legislation framed as essential for crypto markets
On digital assets, Selig strongly endorsed the bipartisan CLARITY Act, describing it as necessary to end years of regulatory uncertainty that have pushed builders and innovators offshore. He told lawmakers that durable market structure rules cannot rest on agency interpretation alone and require congressional action.
He also said the CFTC and SEC have signed a joint interpretation clarifying which crypto assets should be treated as securities and which should be treated as commodities. In addition, the two agencies have entered into a cooperative arrangement on oversight, information sharing, and rulemaking. Selig noted that the CFTC has already issued guidance on the capital treatment of payment stablecoins, tokenized collateral, and compliance expectations for U.S. software developers building on blockchain infrastructure, but argued that legislation is the only way to make those protections durable.
Prediction markets and offshore-style crypto derivatives remain in focus
Selig said the CFTC issued an advance notice of proposed rulemaking in March 2025 to gather public input on how event contracts should be regulated. He stressed that the agency has not approved contracts tied to war, terrorism, or assassination on regulated venues, while stopping short of prejudging the final outcome of the rulemaking process.
Lawmakers also raised concerns about decentralized exchanges such as Hyperliquid, where crude oil perpetual contracts can trade without segregated funds, market surveillance, or U.S. oversight. Representative Austin Scott warned that such venues may process as many as 200,000 orders per second and could influence domestic fuel prices. Selig responded that the CFTC is monitoring these foreign or decentralized markets and wants to bring that activity back within a regulated U.S. framework.