Should the increasingly popular predictions market space be regulated by states or the federal government?
The Commodity Futures Trading Commission (CFTC) is making the case that the authority to oversee these companies lie with it, CNBC reported Tuesday (Feb. 17).
The report came as the regulator filed an amicus brief in federal court defending its right to enforce prediction markets rather than individual states.
One day earlier, the network added, new CFTC Chairman Michael Selig wrote a Wall Street Journal op-ed contending that the agency has always had authority over the industry. With nearly 50 active legal cases against prediction markets, the CFTC would be stepping in to prevent state encroachment, Selig added.
“The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products,” he wrote.
As CNBC noted, this move is happening as prediction markets such as Kalshi and Polymarket are dealing with legal challenges in multiple states over event contracts. These platforms let customers bet on the outcomes of professional sports, as well as events related to entertainment, politics and pop culture.
In his first public comments as CFTC head last month, Selig said he was prepared to develop new, clear rules to govern prediction markets and reconsider the agency’s rules on involvement in federal and circuit court cases.
“Where jurisdictional questions are at issue, the Commission has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives,” he said then.
PYMNTS wrote about the rise of prediction markets last month, as global financial institutions like Goldman Sachs began eyeing involvement, and regulators took a closer look at insider trading within the industry.
“At its core, the argument underpinning the scalability of prediction markets is a bet on information as an economic primitive,” that report said.
All the same, prediction markets can fail in unpredictable ways, particularly with the growth of the number of questions expanding faster than the system’s ability to address them.
“Straightforward markets can be settled automatically, but edge cases like ambiguous outcomes, contested facts, or politically sensitive events can require judgment,” that report said. “The result is a ceiling on complexity. Markets work best when the answer is obvious and uncontested. But those questions involving interpretation, causality or partial outcomes are becoming the hardest issues to resolve.”
