The US Commodity Futures Trading Commission (CFTC) will soon propose changes to the rules governing how prediction market exchanges operate and list contracts, Chair Michael Selig said on 20 Aug, offering the clearest indication yet of how the regulator plans to shape the federal framework for event contracts.
Prediction markets allow traders to buy and sell contracts tied to the outcome of future events,including elections and sports, with contract prices generally reflecting the probability of an event occurring. Kalshi, a federally regulated US exchange, and Polymarket, a blockchain-based platform, are among the sector's largest venues. Kalshi alone recorded $27bn of trading volume during the 2026 FIFA World Cup.
The changes would mark a broader attempt to adapt rules built around traditional derivatives exchanges to prediction markets, which have rapidly expanded the range of event contracts available to US traders. They also show the agency is moving at full speed to assert the CFTC's authority over the new, fast-growing sector despite a wave of legal disputes over whether the products fall exclusively under federal derivatives law or can also be regulated by states.
What Parts 38 and 40 actually govern
The amendments would target Parts 38 and 40 of CFTC regulations, which respectively set operating standards for designated contract markets (DCMs), such as Kalshi, and govern how those exchanges bring new products to market.
Part 38 includes the core principles DCMs must meet on areas including market surveillance, prevention of manipulation and enforcement of trading rules. Part 40 governs how exchanges submit new contracts to the CFTC, including through self-certification, which can allow a product to begin trading without affirmative Commission approval.
"I expect the Commission will soon propose a series of amendments to Parts 38 and 40 of the CFTC's regulations to modernize the core principles and listing rules governing DCMs that list event contracts," he said.
Selig announced the plans during the inaugural meeting of the regulator's Innovation Advisory Committee in Washington, a group of industry executives and experts tasked with advising the CFTC on emerging financial technologies and markets. Selig also told the meeting the CFTC would write its own crypto market rules if the Clarity Act stalls.
Self-certification route faces a legal test
Part 40 has become particularly important as exchanges push into new types of derivatives. It allows DCMs to submit products for Commission approval or, under certain circumstances, self-certify that contracts comply with federal commodities law and list them without affirmative approval.
That framework is already being tested. CME Group, the largest US futures exchange, is suing the CFTC over its treatment of perpetual futures, challenging the agency's approval of Kalshi's Bitcoin perpetual and its decision allowing customers of Coinbase, the largest US crypto exchange, access to offshore perpetual futures. CME argues that the products should be regulated as swaps rather than futures.
Kalshi on 18 Aug took the slower voluntary approval route for a proposed perpetual futures contract tied to a US large-cap stock index rather than self-certifying it, potentially insulating the product from part of CME's legal challenge. The amendments would potentially define how DCMs list such products.
States push back against federal authority
Selig used the event to frame the state-level fights as a direct challenge to federal derivatives regulation, saying "many states seek to nullify federal law and apply state anti-gaming law to DCMs." He said the CFTC would defend its jurisdiction in courts. "We'll not only defend our jurisdiction, we'll also exercise it by establishing clear rules of the road for these markets."
The dispute has spread across the US, with states seeking to apply gambling laws to sports and other event contracts and the CFTC responding with its own litigation to defend what it says is exclusive federal jurisdiction. The agency has sued states including Arizona, Connecticut, Illinois, New York, Wisconsin, New Mexico and Kentucky, while intervening in other state disputes. Courts have reached differing conclusions on whether federal commodities law pre-empts state gambling restrictions.
Selig argued that prediction markets should be treated within the federal derivatives framework rather than according to the subject of the contract, saying that the CFTC's statute expressly covers "events, contingencies, or incidents that take place which are beyond the control of the contracting parties."
