A group of Senate Democrats sent a strongly worded letter to the Commodity Futures Trading Commission (CFTC) on Thursday, demanding the agency issue rules that would prohibit event contracts on elections, wars, military actions, sports, and government actions — unless they serve a clear economic hedging purpose. The letter was filed on April 30, the last day of the CFTC's advance notice of proposed rulemaking comment period for prediction markets, escalating the political pressure on the regulator.
Five Contract Categories Face Potential Prohibition
Led by Senator Jeff Merkley (D-Ore.), the letter argues that prediction market platforms such as Kalshi and Polymarket are experiencing a “rapid erosion of integrity” amid recent controversies, and calls on the CFTC to use its statutory authority to prevent insider trading and ban several broad categories of event contracts. Lawmakers specifically warned that election-related contracts create financial incentives for political insiders to subvert voter intent, while sports-event contracts amount to gambling that encroaches on state regulatory authority.
According to a Congressional Research Service report published last month, sports contracts accounted for roughly 87% of the $39.7 billion in event-contract volume traded on Kalshi in the year ending February. On Polymarket, sports contracts made up 38% of the $36.2 billion traded over a comparable period. These figures underscore the dominance of sports contracts in the prediction market ecosystem and explain why regulators have zeroed in on this category.
Sharp Contrast With CFTC Chair Selig's Stance
The Democratic letter stands in stark contrast to the current regulatory posture under CFTC Chair Michael Selig. In an interview with Front Office Sports last week, Selig identified manipulation and insider trading as “the biggest issue” in prediction markets, but emphasized that exchanges should serve as the first line of defense as self-regulatory organizations with quasi-governmental authority. He said the CFTC could reject contracts and police fraud, but did not commit to a broad ban, only hinting that future restrictions on prop bets and parlays were possible after final rules were issued.
This latest congressional pressure follows a March 29 letter from a similar group of lawmakers urging the CFTC and the Office of Government Ethics to issue government-wide guidance against federal employee insider trading on prediction markets — citing trades on Polymarket linked to the U.S. military operation that captured Venezuelan leader Nicolás Maduro in January. U.S. Army Sergeant Gannon Ken Van Dyke has since been indicted in connection with those trades and pleaded not guilty earlier this week.
Multiple Legislative Proposals Target Prediction Markets
Several bills targeting prediction markets have been introduced this year. On March 26, Merkley, Senator Elizabeth Warren (D-Mass.), and Representative Jamie Raskin (D-Md.) introduced the STOP Corrupt Bets Act, which would prohibit federally regulated event contracts on elections, sports, government actions, and military moves. A separate bipartisan bill from Senators Adam Schiff (D-Calif.) and John Curtis (R-Utah) would block CFTC-registered platforms from offering sports-event contracts altogether.
Meanwhile, the CFTC has continued to assert exclusive federal jurisdiction over event contracts. It sued Arizona, Connecticut, and Illinois on April 2, followed by lawsuits against New York on April 24 and Wisconsin on April 28, alleging the states are encroaching on federal authority by trying to enforce gambling laws against CFTC-registered exchanges. The Third Circuit Court of Appeals on April 6 affirmed an injunction barring New Jersey from enforcing its gambling laws against Kalshi’s sports-event contracts. Arizona separately filed a 20-count criminal information against Kalshi’s CFTC-registered exchange — the most aggressive state-level action to date — which was temporarily stayed by the courts.
As the regulatory tug-of-war continues, the Democratic lawmakers' latest push may accelerate the CFTC's rulemaking process. Market participants should closely monitor whether the agency will adopt a sweeping ban and how the jurisdictional battle between federal and state authorities will unfold.