CFTC Proposes New Rules for Prediction Markets
The federal agency that oversees prediction markets formally proposed new rules that would set clearer boundaries around what types of contracts platforms like Kalshi and Polymarket can offer, including contracts related to sports, war, terrorism, and assassinations.
The US Commodity Futures Trading Commission proposed the framework on June 10, according to the Wall Street Journal.
In the same week, the CFTC's Enforcement Division issued a formal advisory warning about insider trading on those same platforms, citing two recent enforcement actions. These developments mark a significant shift in how Washington intends to regulate the fast-growing prediction market sector.
New CFTC Framework: What Would Be Prohibited?
Under the proposed rules, contracts tied to war, terrorism, and assassinations would likely be barred as contrary to the public interest. Sports-adjacent contracts, including bets on player injuries and so-called "first-pitch" gambling, would also come under scrutiny, though the framework suggests some could be permitted depending on their structure.
The proposal does not outright ban any specific contract categories. Instead, it outlines the factors regulators will use to review contracts on a case-by-case basis, preserving flexibility while providing the industry with more concrete guidance than it has had to date.
The proposal also targets contracts that appear highly susceptible to manipulation, particularly those in which a single individual could exert outsized influence over the outcome.
What it Means for Prediction Market Users
The practical effect for US users remains to be seen while the rules go through a public comment period, but the direction is clear: the CFTC intends to allow prediction markets to continue operating and expanding, while drawing lines around the most controversial contract types.
Kalshi already requires users to disclose their employers for certain trades. Polymarket, which re-entered the US market earlier this year, has been pushing toward institutional adoption alongside sports and political contracts.
The Broader Context: State Vs. Federal Jurisdiction
The CFTC's move comes after months of legal battles with individual states. Minnesota, Rhode Island, Washington State, and others have filed state lawsuits against Kalshi and Polymarket, arguing that their sports-event contracts constitute illegal gambling under state law. The CFTC has consistently countered that prediction markets are federally regulated derivatives under its exclusive jurisdiction.
President Donald Trump signaled support for that position last month, stating publicly that it was "critically important" the CFTC maintain exclusive authority over prediction markets.
The proposed rules now enter a formal comment period before any final action. Legal challenges from states are widely expected to continue regardless of what the final framework contains.
CFTC Issues Formal Insider Trading Advisory
The same week the CFTC proposed new rules for prediction markets, the agency's Enforcement Division issued formal notices to platforms and users regarding insider trading.
The CFTC issued a formal advisory in early June, citing two enforcement actions involving the misuse of nonpublic information on KalshiEX, the exchange that underpins Kalshi. The advisory signals that even as the CFTC fights to protect its exclusive jurisdiction over prediction markets from state regulators, it is simultaneously ramping up oversight of conduct on those platforms.
Two Cases That Triggered The Advisory
The first involved a political candidate who traded on Kalshi using knowledge of their own candidacy, a form of self-dealing that Kalshi had flagged and internally penalized. The second involved a YouTube editor who traded on information about unreleased content before it was published, profiting from the predictable audience reaction.
Both cases follow a broader pattern of insider trading scrutiny that has intensified in 2026. Earlier in the year, federal prosecutors charged a Google software engineer known as "AlphaRaccoon" with using an internal tool to place $2.75 million in bets on Polymarket, netting approximately $1.2 million in profits.
The CFTC filed a parallel civil case. A US Army Special Operations soldier was also charged with using classified military intelligence to turn $33,000 in Polymarket bets into $409,000 during a military operation.
What The Advisory Means For Platforms
The advisory is directed at market participants, but its practical effect is felt most acutely by the platforms themselves.
Kalshi has flagged suspicious trades to regulators: It has reported over 400 suspicious transactions since the start of 2026, and has suspended multiple traders and political candidates.
The CFTC's advisory is, in part, an endorsement of that compliance posture while making clear that the agency expects it to continue.
For the broader sector, the message is that being federally regulated means being federally scrutinized. The argument prediction markets have made for years—that blockchain-based trading is transparent and traceable—is now being tested in real enforcement actions, and the results are cutting both ways: the transparency is real, but so is the enforcement exposure.
More Policy Changes Coming for Congress?
Campaign staffers routinely traded on prediction markets ahead of internal poll releases, according to a May 2026 NPR report. The CFTC and the Department of Justice have opened investigations into former congressman George Santos after trading on whether he would attend the State of the Union.
Congress has already passed a resolution banning lawmakers and staff from participating. The Senate is considering broader legislation, and the DOJ has signaled it is watching the space.
For now, the combination of the CFTC's proposed rules and its insider trading advisory paints a clearer picture of where the agency is heading: open markets with hard limits, and real consequences for those who test them.
