CFTC Withdraws Proposal to Ban Sports Prediction Markets

The US Commodity Futures Trading Commission moved to reverse a Biden-era rule proposal that would have barred sports, politics and war-related prediction markets, signaling a recalibration under the agency’s current leadership. CFTC Chair Mike Selig announced on Wednesday that the agency is withdrawing the 2024 notice of proposed rulemaking that sought to ban event contracts tied to public-interest events, and that the commission does not plan to issue final rules on that proposal. Instead, the CFTC intends to pursue a new rulemaking anchored in a rational interpretation of the Commodity Exchange Act, aiming to balance investor protections with responsible innovation in derivatives markets. This shift comes as prediction-market platforms—widely used for forecasting events—navigate a patchwork of state enforcement actions and ongoing regulatory debates over how they should be treated within the U.S. financial framework. The move also echoes broader regulatory conversations about how digital-asset markets and related products should be supervised.

Key takeaways

• The CFTC formally withdrew the 2024 notice of proposed rulemaking that would have banned sports, political and other event contracts, labeling them as contrary to the public interest.
• Chair Mike Selig stated the agency will pursue a new rulemaking grounded in the Commodity Exchange Act to foster responsible innovation in derivatives markets aligned with congressional intent.
• The withdrawal signals a pivot away from a broader ban towards a more measured, standards-based approach to event contracts and related platforms.
• Prediction-market operators like Polymarket and Kalshi have faced state-level enforcement actions, with platforms arguing they are regulated by the CFTC and not unlicensed gambling.
• The agency also pulled a September staff letter that warned regulated entities to prepare for litigation and to maintain robust risk management in facilitating sports-related event contracts.

Sentiment: Neutral

Market context: The development arrives amid intensifying regulatory scrutiny of crypto-related products and event-driven contracts, while regulators explore a coordinated approach to oversight across asset classes. The shift follows a broader debate about how prediction markets fit within the U.S. securities and commodities frameworks and reflects ongoing conversations about how innovation can coexist with investor protection in a evolving market landscape.

Why it matters

The decision to withdraw the proposed prohibition on event contracts signals a more deliberate, regulator-led path forward for a sector that earned rapid traction in the crypto and fintech space. By signaling a move toward a rulemaking grounded in the Commodity Exchange Act, the commission acknowledges the complexity of product design, consumer risk, and market dynamics in prediction markets. For developers and operators, this could translate into a clearer, more predictable regulatory runway—albeit one that may still constrain certain product features or market access in the future.

Prediction-market platforms have been at the center of a legal and political struggle. Polymarket and Kalshi pressed ahead with contracts tied to a wide range of events, including sports outcomes, election results, and other timely topics. States such as Nevada have pursued enforcement actions, arguing that such contracts amount to unlicensed gambling, while platforms contend they are regulated under the CFTC. The tension highlights a broader policy question: should prediction markets be treated primarily as financial derivatives subject to federal oversight, or as a separate class of information markets with distinct rules? The withdrawal of the rulemaking proposal pushes regulators to develop a more nuanced framework that could determine whether such markets persist, mature, or evolve in structure and scope.

Moreover, the withdrawal of the September staff letter—issued amid a period of uncertainty and ahead of a potential government slowdown—suggests a period of recalibration in how the CFTC communicates expectations to market participants. The letter warned that firms should prepare for litigation and emphasize contingency planning, disclosures, and risk-management policies. While the agency framed the advisory as a reminder of litigation considerations, Selig noted it had unintentionally created confusion. The unfurling of a dedicated event-contract rulemaking implies a more deliberate approach to both enforcement and guidance as the market evolves.

The agency’s action aligns with broader regulatory shifts described in related reporting about coordination among U.S. market regulators on crypto oversight and a continuing reassessment of how innovation fits within established statutory authority. As the crypto ecosystem expands to include more complex financial instruments and cross-border activity, policymakers are weighing how to maintain investor protections without stifling beneficial market developments. The CFTC’s pivot—away from an outright ban toward a structured rulemaking—reflects a central tension in the regulatory landscape: balancing the allure of predictive- and event-based markets with the need for clarity, compliance, and consumer safeguards.

For stakeholders, the immediate implication is a clearer signal that the federal framework may offer a path for legitimate, regulated event markets to operate under defined standards. That does not guarantee-permanent permission for every product, but it increases the likelihood of formal guidance and a transparent process for evaluating individual contracts, platforms, and business models. The reshaped trajectory could influence funding, market participation, and strategic development for firms that have built significant user bases around event-focused trading, including those exploring tokenized and cross-chain versions of prediction markets.

In the broader context, the withdrawal reinforces the notion that the regulatory environment remains dynamic. While some participants seek quicker, broader access to innovative products, the evolving stance of U.S. regulators underscores the importance of compliance-readiness, robust risk controls, and an ability to adapt to changing rules. As the CFTC moves toward a new framework, market participants will be watching for forthcoming rulemaking notices, public-comment windows, and how state and federal authorities coordinate their enforcement and supervisory actions in this rapidly changing space.

What to watch next

• A formal rulemaking notice on event contracts under the Commodity Exchange Act, outlining permissible structures and registration requirements.
• Public-comment period and industry feedback shaping the final framework for prediction markets.
• Regulatory updates or clarifications regarding specific platforms (e.g., Polymarket, Kalshi) and their compliance posture with federal law.
• Any new guidance or reporting requirements from the CFTC related to sports and political event contracts.

Sources & verification

• CFTC press release: Withdrawal of 2024 notice of proposed rulemaking (9179-26).
• Chair Mike Selig’s public remarks and official communications (X post).
• Related reporting on the CFTC chair transition and policy discussions.
• State actions and platform responses regarding sports event contracts (e.g., Nevada actions; Coinbase/Crypto.com references in coverage).

Regulatory recalibration reshapes prediction markets

The renewal of this policy path begins with a recognition that the original 2024 proposal—seen by supporters as a bold move to curb what some labeled speculative gambling—did not reflect a holistic view of how event-driven contracts function within modern markets. By withdrawing the proposal, the commission opens space for a more measured, evidence-based approach to rulemaking. The new process will be anchored in the Commodity Exchange Act and guided by congressional intent to enable responsible innovation in derivatives markets, while preserving critical investor protections.

As stated in the agency’s communications, the commission intends to frame future rules through a rational interpretation of the existing statute, rather than relying on broad prohibitions. That nuance matters: it signals a potential for future, carefully scoped products that could be offered under a clear regulatory license regime, with defined risk disclosures, dispute-resolution mechanisms, and capital requirements. For participants who rely on prediction markets for price discovery, hedging, or information gathering, clearer federal guidance could improve certainty and reduce litigation risk, even as particular contract designs and market access criteria are vetted by regulators.

The ongoing dialogue between federal regulators, state authorities, and market participants underscores a broader theme in the cryptocurrency and derivatives space: innovation is not inherently at odds with oversight, but it requires a governance framework that is adaptive, transparent, and aligned with statutory authority. The CFTC’s decision to pivot away from an outright ban toward a formal rulemaking process reflects this balance-seeking impulse. It also positions the agency to address a spectrum of market models—from traditional exchange-based contracts to novel, tokenized formats—within a single, coherent regulatory architecture.

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