The CFTC chairman emphasizes the agency is not a "merit regulator." Its role is to ensure market integrity and investor protection through rulebooks and oversight, not to make moral judgments on the underlying contracts being traded, whether they are on pork bellies or political outcomes.
The CFTC and SEC leadership advocate for remaining separate agencies due to their distinct missions: risk management versus capital formation. They argue the key to resolving jurisdictional issues is better coordination, not consolidation, and plan to implement a new memorandum of understanding to harmonize rules and share data.
The market is seeing a rise in vertically integrated models where one company owns the exchange, broker, and clearinghouse. This, along with direct-to-consumer models, creates inconsistencies with traditional, separated structures. The CFTC recognizes the need to create holistic rules to prevent regulatory arbitrage between these new models.
Some prediction markets operate under older "no-action letters" that let them bypass traditional brokers (FCMs). This creates a regulatory gap, as stringent marketing and advertising rules that apply to FCMs do not cover these direct-to-exchange platforms, leading to inconsistent standards for consumer-facing communication.
Legally, a prediction market is not gambling because it operates like an exchange where users trade contracts with each other via a clearinghouse. This differs structurally from gambling, where a user bets against "the house," which sets the odds and offers no secondary market liquidity to offset positions.
The CFTC views informational advantages in prediction markets, like knowing about a secret Super Bowl ad, as a form of insider trading. The agency confirms it has legal authority under its anti-fraud rule, similar to the SEC's, to surveil markets and prosecute such cases, extending the doctrine beyond traditional corporate securities.
The CFTC can regulate prediction markets on diverse events because the legal definition of "commodity" is incredibly broad. The Commodity Exchange Act covers virtually everything in commerce except for a few specific carve-outs like onions and box office receipts, granting the agency expansive jurisdiction over non-traditional markets.
By framing sports wagers as financial derivatives, prediction markets fall under federal CFTC jurisdiction. This allows them to operate with a lower age limit for trading (often 18) than state-level gambling laws (often 21), creating a de facto national standard that can circumvent local policy choices.
The debate over whether Cardi B's brief Super Bowl appearance counted as a "performance" highlights a key regulatory challenge for prediction markets: resolving subjective outcomes. Different platforms like Polymarket and Calshi reached opposing conclusions, demonstrating the critical need for clear, pre-defined settlement criteria in their rulebooks.