CFTC sees mixed responses to prediction market rulemaking

The CFTC received more than 1,500 responses to its prediction market rulemaking proposal, with respondents divided on how it should police the platforms.

The US Commodity Futures Trading Commission received more than 1,500 responses to a proposed rule tied to prediction markets, with some backing the regulator while others called for a tougher crackdown on the platforms.

The CFTC’s request for public comments on a rule it proposed in March that would allow it to amend or issue new regulations for event contracts on prediction markets ended on Thursday, drawing responses from prediction markets, crypto firms and consumer advocacy groups.

Kalshi co-founder and chief operating officer Luana Lopes Lara backed the CFTC in a letter on Thursday, saying its existing regulations were “well-designed and effective,” urging it to give guidance to ensure “that the universe of event contracts can continue to be listed, traded, and overseen by the Commission.”

The CFTC’s proposed rule comes as it looks to cement its authority over prediction markets, which have faced legal challenges from multiple US states that accuse the platforms of offering unlicensed sports gambling.

Kalshi, Polymarket and Coinbase are among the companies that have been sued over their sports prediction market offerings and have argued they are under the CFTC’s sole authority, a position the regulator has backed by suing at least five state governments that took legal action against prediction markets.

Polymarket US CEO Justin Hertzberg applauded CFTC Chair Mike Selig in his letter for “asserting the CFTC’s longstanding exclusive jurisdiction over prediction markets,” adding the company believes the regulator “should continue to exercise its exclusive jurisdiction over prediction markets.”

Mike Selig, pictured on a podcast in March, has threatened to sue any state that takes action against prediction markets. Source: YouTube

Venture capital firm Andreessen Horowitz also supported the CFTC, arguing in its letter that “state actions to regulate or ban prediction markets impose a serious barrier to impartial access,” a key rule for CFTC-regulated firms.

Meanwhile, gambling regulators in Tennessee, Missouri and Pennsylvania, among others, blasted the CFTC over its defense of sports event contracts, urging the regulator to drop its support.

Pennsylvania Gaming Control Board Executive Director Kevin O’Toole said the CFTC was allowing prediction markets “to masquerade as unregulated sportsbooks,” while Tennessee Sports Wagering Council Executive Director Mary Beth Thomas said the council disputes “that sports event contracts offered on prediction markets fall within the jurisdiction of the CFTC at all.”

Related: Polymarket pushes for broader US relaunch with CFTC talks: Report

Missouri Gaming Commission executive director Michael Leara said that Congress “did not intend futures markets to encompass gambling activities,” and urged the CFTC to “properly reserve jurisdiction over sports event contracts for the states.” 

Prediction markets have also come under scrutiny from some federal lawmakers, who are concerned about the platforms’ offering markets tied to geopolitical events and their possible use by those with insider knowledge after well-timed bets on the Iran war.

Dennis Kelleher, the CEO and co-founder of the consumer advocacy group Better Markets, and 12 other consumer groups, told the CFTC in a joint letter that it should “prohibit event contracts that involve elections or geopolitical events,” arguing such contracts could influence government actions.

Kalshi and Polymarket said last week, after the US Senate passed a ban on its members and staff using prediction markets, that they have cracked down on insider trading and ban or prohibit some users, such as politicians, from using their platforms.

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