The CFTC has pulled its 2024 proposal that aimed to ban sports and political prediction markets, saying it will not proceed with final rules on the issue. CFTC Chairman Michael S. Selig said the agency will instead initiate new rulemaking based on a sound interpretation of the Commodity Exchange Act.
Proposal Withdrawal and Advisory Repeal
The proposed rule, initially proposed in June 2024, aimed to ban a wide array of event contracts, including those related to wars, terrorism, and other outcomes deemed not in the public interest. The CFTC also withdrew a 2025 staff advisory regarding sports-related event contracts, which it believed had confused in the market.
As Chairman Selig stated, markets were left confused by the advisory, and he hopes the new rulemaking process will provide clearer guidance. The CFTC aims to set standards that will enable innovation and provide clarity for entities subject to CFTC regulation.
In this regard, “event contracts” is a term that defines financial contracts that allow traders to place bets on the outcome of future events, such as election results or sports, as governed by the federal government. The nature of platforms that offer event contracts includes those that offer futures or swap markets for real-world events.
Some prediction markets have faced challenges from the state government, which views event contracts as unlicensed gambling, thus creating a conflict of regulation between the federal and state governments. The withdrawal of the proposal may signal a shift towards aligning federal regulation with market realities.
New Rulemaking on the Horizon
Chairman Selig has directed the staff of the CFTC to initiate a new rule on event contracts that will reflect the new interpretation of the law by the agency. This new interpretation will help to provide a clearer set of guidelines for prediction markets, while at the same time reducing uncertainty for exchanges and intermediaries that list event contracts. Chairman Selig has also stated that the CFTC will reassess its role in current litigation related to the jurisdiction of event contracts.
The withdrawal of the proposed prohibition on sports and political prediction markets by the CFTC is a significant change in the policy of federal regulation of event contracts. The CFTC’s move to withdraw the proposed prohibition in favor of new rulemaking proposals is an attempt to ensure a balance between legal certainty and innovation. As the regulatory environment evolves, the future of prediction markets may be marked by a clean regulatory environment.
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