If there is a phrase to summarize Commodity Futures Trading Commission (CFTC) Chairman Mike Selig’s approach to prediction markets, it’s this: “flexible guardrails.”
At first, that doesn’t make sense: A guardrail that bends and flexes wouldn’t be the most reliable in keeping, let’s say, a runaway car from tumbling over the side of a cliff. But Chairman Selig has the utmost confidence that the CFTC’s “principle-based regulation” approach will ensure the integrity of these prediction markets and the security of their customers.
Selig laid it all out on the Feb. 12 episode of Bloomberg’s Odd Lots podcast. “We’re really at a pivotal moment,” Chairman Selig excitedly told hosts Joe Wiesenthal and Tracy Alloway. “Prediction markets, crypto, AI, all manner of new technologies and products that are impacting our markets.”
“The CFTC was really this kind of little-known regulator before the financial crisis, regulating futures markets,” he added. “And now, we see so much innovation [with things like] prediction markets and crypto. The agency is really at this unique moment where it has the opportunity to shape the future of these new and emerging markets.”
‘Flexible guardrails’ and ‘principle-based regulation’
Unsurprisingly, Selig doesn’t think the CFTC will “shape the future” of prediction markets with a firm hand.
Selig previously said he wants to “future-proof” the markets through rulemaking, not through regulation, which he sees as a way to stifle innovation.
Citing the recent debate over whether or not Cardi B performed during the Super Bowl LX Halftime Show, Selig said that platforms like Kalshi and Polymarket have their own “requirements for contracts” to determine how a contract resolves. He doesn’t see any need for the CFTC to step in and issue a judgment.
“We’re seeing some differences between Kalshi’s rulebook and Polymarket’s rulebook,” he said. “But, that’s the great thing about our markets — having the ability to build a business, to develop an exchange, with some flexible guardrails on top, that the [CFTC] oversees. But we don’t prescribe what exactly has to be in the rulebook. We have a principles-based system of regulation.”
Maintaining ‘integrity’ of the rules but no ‘merit’ regulation
Listening to Odd Lots, it’s evident Selig is well-versed in the U.S.’s financial history, which is something one would want in the chairman of a major financial commission. Selig brought up the CFTC’s origin in the 1930s with the passage of the Commodity Exchange Act, and how the commission initially covered products such as grain and pork bellies.
Selig views these modern prediction exchanges and crypto markets as the next step in financial evolution, and his CFTC is operating accordingly. While some people might be appalled at the idea of placing a wager on whether or not it’ll rain tomorrow, Selig sees it as a legitimate market.
“We don’t merit regulate,” he said. “We don’t tell people what they should be entering into contracts on. We create rules and regulations for those markets to ensure they are integrity, resilient, vibrant, and have guardrails and investor protections … We’re not telling people whether to trade pork bellies or Cardi B contracts or anything else.”
Sports markets are different from sports gambling, according to Selig
Recently, New York City independent news publication Pigeon Post discussed Kalshi and Polymarket’s NYC pop-ups, which gave out “free” groceries. The publication argued these publicity stunts were a way to gain favor with Mayor Zohran Mamdani, who wants to open city-run grocery stores.
Why do they want to buddy with Zohran? Mamdani carries a lot of political weight in New York, and the Pigeon Post inferred that Kalshi and Polymarket wanted to cozy up to him since New York Attorney General Letitia James warned that prediction market platforms might be considered “unregulated gambling.” This is a red flag, since gambling in New York is heavily regulated and heavily taxed. Polymarket and Kalshi don’t want either of those things.
However, on Odd Lots, Chairman Selig argued that prediction markets’ sports contracts aren’t gambling. Selig highlighted the structural differences, citing historical instances of markets that “had derivative instruments and contracts where you actually were in contract with another person.”
“And then now in our markets, we have a clearinghouse novating and standing in the middle of those contracts, but you have a buyer for every seller,” he said. “With the kind of ‘bookie model,’ that’s not the case. You’re betting against the house. And there’s a lot of different rules when you’re betting against the house.”
Selig pointed out that the bookie model has bettors “facing the odds of the bookie as opposed to [prediction markets], where the contracts go up and down in value based on actual market activity.”
When asked about concerns about sports event contracts effectively lowering the legal age to gamble (some states require users to be 21 to bet on a sports game, whereas you have to be 18 to trade a future), Selig said that the CFTC is not a “merit regulator.” Selig sees these not as gambling, but as “fiscal market activity.”
“These are not wagers, you’re not betting against the house,” he said. “We have significant overlay from a regulatory standpoint over these markets. And so we’re not gatekeeping particular categories of markets, elections, or sports by having different standards.”
Selig might have to make his case sooner rather than later, as several states pursue legal action asserting their authority over sports event contracts. In Massachusetts, for example, Polymarket recently filed a federal lawsuit seeking to avoid potential geoblocking, after a court ordered rival platform Kalshi to block users in the state.
Chairman says CFTC can handle its work
Currently, Chairman Selig is the only governor at the CFTC, a panel that normally has five members (picked by the president). While the panel usually splits 3-2, often in favor of whichever party is in the White House, there currently is zero resistance to Selig’s designs for the CFTC.
This is also emblematic of how the agency is operating. Recent reports of the CFTC losing key enforcement figures and a culture of “chaos, cutbacks and paranoia” have many left many doubting that the commission could do its job.
Selig assured listeners that the CFTC is more than capable of handling its workload. “We’re actually leveraging a lot of new technologies like AI to make sure we’re surveilling the markets,” he said, “and we’re reviewing things like insider trading and bringing cases where it makes sense.”
“We regulate a nearly 500 trillion notional market with the swaps market,” Selig said. “We have very stringent requirements and controls around our exchanges, and these contracts reflect that.”
“They go through a very stringent process of self-certification. They can’t be readily susceptible to manipulation. We surveil those markets. We’ve policed things like insider trading. And so it’s a much more robust scheme on top of these markets, much higher, stringent requirements.”
And for those thinking that the CFTC is asleep at the wheel?
“Rest assured, we’re on top of these markets,” he said. “These have the same sorts of investor protections that you would expect in the securities markets and in our futures markets.”
