The U.S. Commodity Futures Trading Commission issued a proposed rule on June 10 that would change how event contracts are reviewed. According to the CFTC announcement, the proposal would amend Regulation 40.11 and add Appendix F. The new appendix would be used to evaluate whether event contracts listed in prediction markets involve terrorism, assassination, war or unlawful activity, and whether those contracts are contrary to the public interest. In practical terms, the agency is trying to build a framework for deciding which real-world events can be financialized and which should remain outside tradable markets.
The proposal does not create a single complete list of prohibited markets. Instead, it sets up a contract-by-contract review process. Under the framework described in the filing, the CFTC would first assess whether a proposed event contract falls within sensitive categories identified under the Commodity Exchange Act, including terrorism, assassination, war, and conduct that violates federal or state law. If a contract falls into one of those categories, the agency would then examine whether allowing it to trade would violate the public interest.
This approach shows that the CFTC is not rejecting prediction markets as a category. Rather, it is trying to distinguish between contracts that forecast the effects of risk and contracts that effectively forecast the occurrence of harm. The first type can still have informational value. The second type is more likely to collide with public interest limits. For a sector that has expanded quickly, the proposal turns an unclear gray area into a more formal review process.
Prediction market platforms such as Kalshi and Polymarket have spent the past several years turning real-world events into tradable contracts. Presidential elections, macroeconomic data, sports events, entertainment programs and geopolitical developments have all been packaged into yes-or-no markets when their outcomes can be verified. As the number and variety of markets have increased, so have the regulatory questions. Who should be allowed to trade? Which markets are vulnerable to manipulation? If someone already knows the outcome, or can influence the outcome, can that market still be treated as fair?
Sports prediction markets are one of the main areas drawing attention, but the proposal does not treat them as categorically prohibited. The CFTC’s current signal is relatively positive for contracts based on the overall results of sporting events. The agency’s preliminary view is that markets based on scores, point spreads, wins and losses, advancement results, team or player aggregate statistics, and season performance can provide price discovery and meaningful information.
At the same time, the proposal does not clear all sports-related markets. The CFTC also emphasizes that more granular markets, especially those that can be influenced by a small number of people, may not satisfy public interest standards. Examples include markets on whether a player is injured, whether a fight occurs during a game, whether a referee makes a specific call, the outcome of events involving minors, and any market that could encourage cheating or harm to athletes. These categories would face closer scrutiny under the proposed approach.
The deeper regulatory issue is not only sports. Insider trading and manipulation risk are central to this round of rulemaking. Prediction markets differ from traditional financial markets because many event outcomes are not generated naturally outside the market. They can be determined by a person, an institution or a small group. If those people are allowed to trade, the market is no longer simply aggregating views about the future. It can become a venue for monetizing non-public information before the public learns the result.
Recent cases have already raised these concerns. Prediction markets have seen multiple suspected insider trading incidents, including U.S. military personnel allegedly using information connected to Venezuela-related actions, a former U.S. member of Congress predicting that he would not attend Donald Trump’s State of the Union address, and a Google engineer using internal company tools to view data related to the most searched people in 2025. These examples expose the core vulnerability of prediction markets: some traders are not better at forecasting; they are closer to the answer.
That problem can directly damage market credibility. A prediction market is often described as an information aggregation tool, but when participants have privileged access to the result, the market can turn into an insider arbitrage mechanism. The CFTC proposal therefore tries to define more clearly where the market’s information value ends and where unfair access, manipulation or public interest harm begins.
The proposal does not end the broader legal dispute. Several U.S. state regulators still oppose the CFTC’s position on sports-related prediction events. They argue that these markets are essentially sports betting and that platforms should not be able to bypass state gambling regulatory systems. Bill Miller, the head of the American Gaming Association, also criticized the proposal, saying that the CFTC is redefining sports betting.
Behind this disagreement is a power struggle between federal regulation and state gambling oversight. If sports prediction events are treated as financial derivatives under CFTC supervision, platforms can use a federal framework to offer trading services to a broader user base. If those same events are treated as sports betting, platforms must deal with state-by-state licensing, taxation and consumer protection requirements. Even if the CFTC finalizes the rule, the legal conflict will not disappear. It will focus more directly on whether prediction markets regulated by the CFTC can bypass state gambling rules and offer nationwide sports prediction trading.
The agency’s stance in the proposal is clear: prediction markets will not be dismissed outright, but their gray zones are being redrawn. Contracts with objective settlement standards, informational value and controllable manipulation risk can receive clearer compliance space. Markets that are easy for a small group to influence, that encourage harm, or that rely on non-public information will become regulatory priorities. For the sector, the next stage is not simply greater freedom. It is a move toward institutionalized rules, where platform growth depends increasingly on proving fairness, transparent settlement and controllable risk.