U.S. regulator declares do-over on prediction markets, throwing out Biden era 'frolic'

The U.S. government is formally reversing its previous stance on banning certain activities at prediction market firms such as Kalshi and Polymarket, with U.S. Commodity Futures Trading Commission Chairman Mike Selig moving Wednesday to withdraw a proposed event-contracts rule from 2024 and scrapping an earlier advisory he said confused the industry.

In 2024, the derivatives regulator proposed a rule that would have banned contracts based on the outcome of political events, legally equating them with illicit contracts on war, terrorism and assassination and calling them "contrary to the public interest." That rule never advanced to a final stage before President Donald Trump returned to the White House and appointed new CFTC leadership. The CFTC had allowed prediction markets based on political events to launch after losing a court fight over Kalshi's intended offering that same year.

The recently confirmed chairman of the agency, Selig, has now cleared the decks of that and a minor advisory issued in September on certain contract markets.

“The 2024 event contracts proposal reflected the prior administration’s frolic into merit regulation with an outright prohibition on political contracts ahead of the 2024 presidential election," Selig said in a statement. "The Commission is withdrawing that proposal and will advance a new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act that promotes responsible innovation in our derivatives markets in line with Congressional intent.”

Selig's action is unsurprising, following closely on the heels of his remarks last week that signaled it was coming. He said he'd "directed CFTC staff to move forward with drafting an event contracts rulemaking."

The Trump administration's embrace of the prediction markets has paved the way for increased interest from companies seeking to throw their hat into the sector, such as Coinbase, or the tangential pursuit of similar products from Cboe.

The September advisory Selig pulled back had been meant to caution platforms about litigation concerns, he said, but it had "inadvertently created confusion and uncertainty for our market participants."

The CFTC is expected to become a central voice in digital assets oversight, in which the prediction markets have had an overlapping interest. Selig is working on a number of new initiatives, and the Congress is negotiating its crypto market structure bill that — among many other points — is meant to establish the CFTC as the rightful watchdog of crypto spot markets that don't involve securities.

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