The litigation team defending Kalshi unpacked the Commodity Futures Trading Commission’s (CFTC) fresh guidance on prediction markets during a webinar this week.
The law firm Milbank hosted “The CFTC’s New Guidance on Prediction Markets: What You Need to Know” on Tuesday. The CFTC released a regulatory expectations advisory and an Advanced Notice of Proposed Rulemaking last week. The rulemaking process begins with a 45-day public comment period, ending April 30.
Milbank Partner Josh Sterling kicked off the event, highlighting the explosive growth of prediction markets, which have gone from $3 billion in trading volume in January 2025 to $27 billion in January 2026. Sterling said that growth has garnered notice from those looking to revitalize financial markets and infrastructure, but also the courts and state regulators.
Sterling was joined by fellow Milbank litigation partners Grant Mainland, Matt Laroche and John Williams in guiding attendees through the status of the prediction market industry and what the recent CFTC releases mean to operators in the space.
What the CFTC notice means
Laroche said at the high level, the CFTC advisory issued last week gives a clear indication the commission believes sports event contracts fall under its jurisdiction.
“We find that very helpful,” Laroche said. “The purpose of the advisory was to provide right up from that the CFTC is recognizing it is a unique financial asset class that is rapidly increasing and provides a reliable source of information for a variety of uses. It uses sports event contracts as something that qualifies as a swap. That’s front and center in the litigation with arguments that they don’t qualify. But the CFTC is using it as an example.”
The notice also reinforced reminders about anti-manipulation obligations and insider trading through the Commodities Exchange Act’s (CEA) 23 statutory Core Principles.
Laroche noted the Commodities Exchange Act already prohibits manipulative, deceptive and fraudulent activity through a number of existing laws. Sterling added the CFTC already employs “traditional tools of financial market discipline in sussing out wrongdoing.”
Both Laroche and Sterling said operators would be wise to make sure they are up to speed with the ever-changing landscape to minimize potential inappropriate activity.
Weighing in on rulemaking process and “public interest”
Williams said the notice of rulemaking is an “important statement that [the CFTC] is going to assert jurisdiction over these contracts,” even if it “in context does less than usual to articulate or forecast where the rule is going.”
The notice lays out a lot of questions about how prediction markets should fit into the existing regulatory framework and whether new rules are needed. That will be the discovery of the public comment period.
“It is a really broad list of questions for the market to weigh into,” Williams said. “There is an emphasis on asking for input on how event contracts can be helpful or have an effect for hedging, price risk, price discovery, and dissemination.
“Essentially, reminding that public interest may be manifested insofar as people actually purchase these contracts, but also in terms of the information that comes out of these markets can do for the rest of the public. It’s a good sign the commission is thinking about those things.”
Practical tips for prediction market operators
The attorneys listed a few ways for designated contract markets to stay ahead of the curve.
Those tips include:
- Evaluate existing contract listings and compliance programs to comply with the Core Principle obligations highlighted in the CFTC releases
- Establish relationships and information sharing agreements with sports leagues and governing bodies
- Assess existing or planned contracts in terms of manipulation risks
- Comment during the rulemaking process
- Monitor blockchain developments
Peek inside Milbank’s court thinkings
Mainland gave a quick overview of the more than 20 court cases in progress related to prediction markets. The law firm did not address questions related to the court cases during the seminar. That includes a new criminal suit filed Tuesday against Kalshi by Arizona Attorney General Kris Mayes.
Mainland said Milbank believes the legal question is simple: Does the CEA preempt state law when applied to transactions on designated contract markets?
“We think the answer is as simple as the question,” he said. “The CFTC has exclusive regulatory jurisdiction. There is a long history of state efforts to regulate derivative markets as gambling.” He continued:
“Congress stepped into that early in the 20th century, maintained a concurrent jurisdiction. That changed when Congress created the CFTC to give exclusive jurisdiction over those markets.”
He also noted earlier this spring, the CFTC came out “strongly in defense of its jurisdiction.” Mainland said there is a lot more set to happen in the courts.
“Where do we go from here? It’s anyone’s guess,” he said. “No one knows where the appeals process goes, and I won’t hazard a guess.”
