Original | Odaily Planet Daily (@OdailyChina)

Author | Asher (@Asher_ 0210)

The prediction market is welcoming a clearer set of regulations.

On June 10, the U.S. Commodity Futures Trading Commission (CFTC) released a proposed rule aiming to adjust the review method for event contracts. According to the CFTC announcement, the proposal will amend Regulation 40.11 and add Appendix F to assess whether event contracts within the prediction market involve terrorism, assassinations, wars, or illegal activities, and whether related contracts violate the public interest. Through this proposed rule, the CFTC attempts to establish a judgment framework—which events can be financialized and which events should be kept out of the market.

For the rapidly expanding prediction market, the proposed rule released by the CFTC may be a pivotal turning point.

In recent years, prediction giants Kalshi and Polymarket have continuously turned real-world events into tradable contracts, from presidential elections, macro data, and sports events to entertainment programs and geopolitical events. Almost everything with verifiable outcomes has a chance to be packaged into a "yes" or "no" trading market.

However, as the scale has expanded, problems have begun to emerge. Who can participate in trading? Which markets are susceptible to manipulation? If someone knows the outcome in advance and can even influence the result, can the prediction market still be considered a fair market?

The CFTC's intervention is precisely intended to answer these questions.

Not a one-size-fits-all, but case-by-case review

The CFTC's release is not a simple statement but rather a 267-page proposed rule document titled "Prediction Markets; Public Interest Determinations." From the nature of the document, it is a rulemaking proposal currently in the public comment phase and not an official rule that has taken effect. In this document, the CFTC attempts to clarify further which event contracts may be considered violations of public interest, and therefore may not be listed for trading or cleared on CFTC-registered entities.

In terms of rule design, the CFTC has not provided a complete list of prohibitions but has chosen to review on a contract-by-contract basis. According to the document, the proposal seeks to establish a structured framework for determining whether an event contract involves sensitive categories specified in the Commodity Exchange Act, including terrorism, assassinations, wars, and actions that violate federal or state laws. If these categories are involved, the CFTC will further assess whether that contract violates the public interest.

Therefore, prediction markets will not automatically be banned merely for touching on sensitive events. The regulatory focus is on what the event is actually predicting and whether that event could induce manipulation, harm, or illegal behavior. For example, a market that directly predicts whether a terrorist attack will occur in a certain location is likely to fall under focused scrutiny or even prohibition. However, a market that focuses on the oil transport volume during a certain period in the Strait of Hormuz, even though this data may be influenced by military situations, essentially still measures commercial shipping activity rather than directly predicting wars or terrorist acts.

The CFTC is not simply denying prediction markets; it is trying to distinguish between "predicting risk impact" and "predicting harm occurrence." The former may still hold informational value, while the latter is more likely to touch upon public interest boundaries.

Sports prediction events are likely to be retained, and boundaries are clearer

What the outside world is most concerned about is whether sports prediction markets will be completely banned. From the current proposal, the signals released by the CFTC seem positive—most prediction events surrounding the overall results of sports competitions may still have a clear compliance space. The CFTC preliminarily believes that sports prediction events designed based on match scores, point spreads, win-loss results, playoff results, overall data of teams or players, seasonal performance, etc., may have price discovery functions and provide meaningful information.

Events like the World Cup, NBA, NFL, and MLB naturally have high attention, high-frequency trading, and clear settlement conditions, making them a major source of trading volume in prediction markets. If related rules are finalized and confirm that markets regarding win-loss, playoff results, and scores hold compliance space, sports prediction events will remain a main battleground for platforms to compete for users and liquidity.

However, this does not mean that all sports-related markets will be allowed. The CFTC also emphasizes that some more fragmented markets, which can be more easily influenced by a few people, may not meet public interest criteria. For example, markets predicting whether a player is injured, whether a conflict occurs during the game, whether a referee makes a certain call, results of minor leagues, and any market that may encourage cheating or harm to athletes could face stricter scrutiny.

The real focus is on "those who know the answers"

Compared to the sports markets themselves, insider trading and manipulation risks are the real issues this round of regulation aims to address. Prediction markets differ from traditional financial markets in that many event outcomes are not naturally generated from outside the market but may be determined by a person, an institution, or a small group. Once these individuals participate in trading, the market is no longer merely "predicting the future" but may turn into "anticipating insider information."

Recently, similar issues have repeatedly surfaced. Several incidents in the prediction market have been suspected of insider trading, including U.S. military personnel accused of using information related to actions involving Venezuela, a former U.S. congressman predicting "he would not attend Trump's State of the Union address," and a Google engineer using company tools to check data on the most searched individuals for 2025.

The aforementioned events expose the core risk of the prediction market: some traders are not necessarily better at judgment but are simply closer to the answers. This directly undermines market credibility, turning prediction markets from an information aggregation tool into an insider arbitrage tool.

A clearer regulatory framework does not mean an end to the controversy

However, the CFTC's proposal does not mean that the controversy surrounding prediction markets has ended. Currently, regulatory bodies in multiple U.S. states still oppose the CFTC's stance on sports prediction events, believing these prediction events are essentially sports betting, and platforms should not circumvent state gambling regulatory systems. Bill Miller, head of the American Gaming Association, also criticized that the CFTC's proposal is redefining sports betting.

This reflects the power struggle between federal regulation and state gambling regulation. If sports prediction events are determined to be financial derivatives under CFTC regulation, then platforms may provide trading services to a broader user base through federal frameworks. However, if they are deemed sports betting, they must face the complex licensing, tax, and consumer protection requirements of each state.

Therefore, even if related rules are finally finalized, the legal disputes surrounding prediction markets will not disappear; instead, they will likely concentrate on one issue—whether prediction markets regulated by the CFTC can circumvent state-level gambling regulation and provide nationwide sports prediction trading.

Prediction markets are becoming more like financial markets

Returning to the proposal itself, the CFTC's stance is actually quite clear. Prediction markets will not be simply denied, but their gray areas are being redefined.

Events with objective settlement standards, capable of providing informational value, and with relatively controllable manipulation risks may still gain clearer compliance space; while those that are easily influenced by a few individuals, induce harm, or involve non-public information will become regulatory focuses.

This also means that the next phase for prediction markets is not one of greater freedom but of greater institutionalization.

Prior to this, the expansion of prediction markets relied more on hotspots, traffic, and the number of markets; after this, whether platforms can continue to grow will increasingly depend on their ability to prove market fairness, transparent settlement, and controllable risks. The CFTC’s proposal may not be a brake on prediction markets but rather a dividing line—the industry is starting to shift from gray expansion to a more rule-based competition closer to financial markets.

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