The Commodity Futures Trading Commission is preparing another round of prediction market rules covering consumer protections, product governance and market design, Chairman Michael Selig said Thursday, as some of the biggest names in derivatives and prediction markets debated how far the rapidly expanding contracts should be allowed to go.
“I expect the Commission will soon propose a series of amendments to Parts 38 and 40 of the CFTC’s regulations to modernize the core principles and listing rules governing DCMs that list event contracts and institute consumer protection requirements,” Selig said during the inaugural meeting of the CFTC’s newly reconstituted Innovation Advisory Committee (IAC).
Selig said the forthcoming amendments would establish “clear expectations for product governance, market design, and incentive programs.” The forthcoming rules would add to two prediction market rulemakings the CFTC already has underway, including its proposed overhaul of Rule 40.11 governing CFTC review of certain event contracts and a separate proposal addressing event-contract data reporting.
The IAC’s roughly three-and-a-half-hour meeting was divided into separate sessions on crypto, artificial intelligence and prediction markets. Participants generally backed clearer federal rules and efforts to keep emerging markets in the U.S., but the prediction market session exposed sharper divisions over self-certification, manipulation risks and whether certain contracts should ever be listed.
Selig casts state fights as test of federal authority
Selig used his opening remarks to cast the growing number of state challenges to prediction markets as a broader fight over the CFTC’s authority, rather than simply a dispute over whether sports contracts resemble state-regulated betting.
“States now seek to nullify federal law by applying their anti-gaming laws to DCMs,” Selig said, adding that the CFTC would continue to “defend our exclusive jurisdiction in court.”
He drew a parallel to earlier efforts to apply anti-gaming and bucket-shop laws to futures markets before federal derivatives regulation became firmly established. Today’s disputes, he argued, similarly threaten a nationwide market structure by subjecting federally regulated exchanges to conflicting state rules.
That position had broad support around the table. But it also sharpened the question that dominated the prediction market session: if the CFTC is going to be the primary regulator, how far should it go in deciding which contracts are too easily manipulated, too harmful or otherwise unsuitable to list?
CME’s Duffy says some contracts threaten market credibility
CME Group Chairman and CEO Terry Duffy delivered the sharpest criticism of the prediction market boom, arguing that some more recently self-certified contracts violate Core Principle 3, which requires DCMs to list only contracts that are not readily susceptible to manipulation.
“We’re not a bunch of carnival barkers at a circus,” Duffy said. “We are running the most envied markets in the world in the United States of America.”
Duffy cited markets tied to political events, individual behavior and sports as examples of contracts that can create obvious manipulation risks. He also argued that the CFTC risks applying different standards to newer prediction market exchanges and incumbent derivatives venues, warning that bad products could damage confidence in the broader market.
Kalshi co-founder Luana Lopes Lara pushed back, arguing that manipulation risk is hardly unique to prediction markets and that regulation exists in part to detect and address those problems. She asked Duffy whether CME had ever experienced manipulation issues of its own.
Duffy responded by touting the size of CME’s compliance operation, saying his regulatory department was larger than Kalshi’s entire company. Lopes Lara shot back, “Maybe you should learn a bit about efficiency then.”
“Maybe you should learn about credible markets,” Duffy replied.
Industry supporters also call for limits
Duffy was hardly alone in arguing that some event contracts should face a higher bar. Coinbase CEO Brian Armstrong, while strongly supporting prediction markets and the CFTC’s jurisdiction over them, proposed a three-part test for novel contracts centered on public harm, whether a market has a direct causal link to that harm and how susceptible it is to manipulation.
Armstrong said the default should generally be to allow new markets unless regulators can identify a specific harm, cautioning that an overly broad standard could sweep in products with real public value. Even contracts controlled by a single person, he argued, may be worth allowing if their informational value outweighs the manipulation risk.
Don Wilson, founder of Chicago trading firm DRW, agreed with that general approach but said some contracts already listed clearly fall below the line. He pointed to Kalshi’s market on whether former congressman George Santos would attend the State of the Union, which became the subject of a CFTC enforcement case after the agency found Santos manipulated the market while trading on the outcome himself.
“There are clearly some markets that just don’t meet that bar that have been listed,” Wilson said, adding that the Santos contract “never should have been listed in the first place.”
Robinhood CEO Vlad Tenev struck a similar note on mention markets, in which traders take positions on whether a person will say a particular word or phrase during a speech or other public appearance. While saying they can be “very fun,” he warned that some are “very prone to manipulation,” particularly when a speaker or people around them can directly influence whether a word or phrase is said.
Consumer protections emerge as common ground
Despite disagreements over which contracts should be allowed, participants found more common ground on the need for consistent retail protections. Lopes Lara argued that a federal framework could provide stronger and more uniform safeguards than a patchwork of state rules, including standards around advertising and customers who have shown signs of problematic trading.
Tenev focused on differences between customers who trade directly with a designated contract market (DCM) and those who access one through a futures commission merchant (FCM), an intermediary that carries customer accounts and routes their orders to the exchange. He said the two routes can come with different know-your-customer requirements, including whether a customer’s employer information is collected, creating what he described as an unnecessary regulatory disparity.
Jason Robins, CEO of DraftKings, which offers event contract trading through DraftKings Predictions, agreed. “The rules for customers going directly to DCM versus those going through an FCM should be identical,” he said.
Matt King, CEO of Fanatics Betting & Gaming, which offers prediction markets through Fanatics Markets, urged the CFTC to establish minimum responsible trading standards across the industry, warning that while most customers will use prediction markets without problems, a smaller group could suffer significant financial harm. FanDuel President Christian Genetski, whose company offers event contracts through FanDuel Predicts, similarly said building consumer trust should be a priority, with clear rules covering market integrity, advertising and customer protection.
Coplan calls prediction markets experimental, points to surveillance push
The generational divide between the established derivatives industry and prediction market newcomers provided some of the lighter moments of the session. Cboe Global Markets CEO Craig Donohue recalled an earlier meeting with Polymarket founder and CEO Shayne Coplan, when he was greeted with “What up?” followed by, “Oh, you’re the OG.” Donohue joked that he later had to ask younger colleagues what “OG” meant.
When Coplan got his turn, he acknowledged that prediction markets are “most definitely in an experimental phase” and said problems around the edges should be addressed without “throwing the baby out with the bathwater.”
Coplan pointed to the insider-trading case surrounding the operation to capture Venezuelan President Nicolás Maduro, in which a U.S. soldier involved in the mission was charged with using classified information to profit from several Polymarket contracts. He at first appeared to start to describe the episode as “fucked up” before switching to calling it and other such cases “problems,” drawing light chuckles in the room.
Coplan said Polymarket worked with regulators and law enforcement after those problems emerged and added that the company employs a former FBI staffer and has built proprietary on-chain surveillance tools.
Coplan defends Polymarket global exchange, credits rival Kalshi
Coplan also pushed back on criticism of Polymarket’s crypto-based global platform that operates separately from its CFTC-regulated U.S. exchange. Critics have often described trading there as anonymous because the real-world identities behind wallet addresses are not necessarily known, even though the trades themselves are publicly visible on-chain. Reuters reported earlier Thursday that researchers had identified more than 150 wallets that may have traded on U.S. military secrets. Coplan did not address that report directly, but rejected the broader characterization of the platform as anonymous.
“It’s not anonymous. It’s all public. It’s all on chain,” Coplan said, calling it “the least anonymous financial market of all time” and arguing that the public transaction history can be used to detect anomalous trading.
Perhaps more surprising was Coplan’s praise for Kalshi, Polymarket’s chief U.S. rival. The two companies have frequently been portrayed as fierce competitors with no shortage of bad blood.
“I give a lot of … gratitude for a lot of people who’ve paved the way,” Coplan said, giving “a lot of credit to Kalshi for going and fighting the battle” in the U.S., referring broadly to Kalshi’s legal battles with states over its event contracts. “A lot of us have been beneficiaries for that. A large portion of us in here.”
Crypto and AI discussions echo prediction market questions
The prediction market debate capped a meeting in which the lines between the CFTC’s emerging areas of focus frequently blurred. Tenev, Armstrong, Wilson and Coplan were among those who spoke in both the crypto and prediction market sessions, with discussions repeatedly returning to the same questions of federal jurisdiction, regulatory speed and how newer products fit into existing market structures.
Crypto executives broadly urged the CFTC and SEC to keep moving on rulemaking even as Congress considers the CLARITY Act. Selig said the CFTC is already exploring a framework that could allow crypto exchanges to operate as a new type of DCM, dubbed a “crypto asset market,” if legislation stalls. The AI discussion, meanwhile, touched on the growing use of artificial intelligence in trading and risk management as well as the CFTC’s push to develop markets for AI compute, following a request for comment issued earlier this week.
The tone shifted noticeably over the course of the meeting. Selig’s opening remarks and much of the crypto discussion included sharp criticism of the Biden-era regulatory approach and former SEC Chair Gary Gensler, with many speakers praising Selig’s more open and collaborative approach. The prediction market session, despite the occasional flare-up, stayed largely focused on jurisdiction, market integrity and retail safeguards.
Keeping the next generation of markets onshore
Across all three sessions, one theme was consistent. The CFTC and many industry participants repeatedly argued that emerging markets should be built and traded in the United States rather than pushed offshore. Crypto executives repeatedly described products, companies and trading activity that migrated overseas amid regulatory uncertainty. Prediction market participants also returned to the risk of pushing activity out of the country, with Kalshi’s Lopes Lara describing how overseas competitors gained ground while Kalshi struggled to launch products in the U.S.
“Without clear rules of the road, builders, visionaries, and entrepreneurs always leave for brighter shores,” Selig said in his opening remarks.
The larger question coming out of Thursday’s meeting was not simply whether crypto, AI-driven markets and prediction markets belong in the U.S. financial system. It was how the CFTC can protect customers and market integrity while giving companies enough room to innovate and keep those markets in the United States.
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