The U.S. government is officially reversing its previous position of banning certain activities by prediction market firms such as Kalshi and Polymarket, with Commodity Futures Trading Commission Chairman Mike Selig deciding on Wednesday to withdraw a proposed rule on event-driven contracts starting in 2024 and abandon an earlier opinion that he said had caused confusion in the industry.
In 2024, the derivatives regulator proposed a rule that would have banned contracts based on the outcome of political events, legally equating them with illicit contracts on war, terrorism and assassinations and calling them “contrary to the public interest.” This rule never reached its final stage until President Donald Trump returned to the White House and appointed new CFTC leadership. The CFTC had authorized the launch of prediction markets based on political events after losing a court battle over Kalshi’s planned offering that same year.
Recently confirmed agency Chairman Selig has now set sail on this matter as well as a minor advisory issued in September on certain contract markets.
“The contracting proposal for 2024 events reflected the previous administration’s efforts at merit regulation, with an outright ban on political contracting ahead of the 2024 presidential election,” Selig said in a statement. “The Commission is withdrawing this proposal and will propose new regulations based on a rational and consistent interpretation of the Commodity Exchange Act that promotes responsible innovation in our derivatives markets, consistent with Congressional intent.”
Selig’s action is not surprising, following closely on his remarks last week that said this was coming. He said he had “directed CFTC staff to move forward with drafting event contract regulations.”
The Trump administration’s embrace of prediction markets has paved the way for increased interest from companies looking to get into the sector, like Coinbase, or tangentially pursuing similar products from Cboe.
Selig’s opinion withdrawn in September was intended to warn platforms of litigation concerns, he said, but it had “inadvertently created confusion and uncertainty for our market participants.”
The CFTC is expected to become a central voice in digital asset oversight, in which prediction markets have common interests. Selig is working on a number of new initiatives and Congress is negotiating his crypto market structure bill which, among other points, aims to establish the CFTC as the legitimate watchdog of crypto spot markets that do not involve securities.
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