Michael Selig, the newly appointed Chairman of the Commodity Futures Trading Commission (CFTC), passionately advocated for prediction markets and sports event contracts during a joint "harmonization" event with Securities and Exchange Commission (SEC) Chairman Paul Atkins at CFTC headquarters in Washington, D.C. on Thursday.
In a comprehensive address that touched on the future of financial markets in the United States, Selig emphasized the necessity for innovation and regulatory reform, primarily focusing on cryptocurrency, which has emerged as a key issue during President Trump’s administration. Before wrapping up his nearly 20-minute speech, Selig made clear the CFTC's commitment to promoting prediction markets moving forward.
"It’s time for clear rules and clear understanding that the CFTC supports lawful innovation in these markets," Selig remarked. "Consistent with my commitment to fostering responsible innovation in crypto asset markets, I will continue to support the responsible development of event contract markets and the important role they play in the broader financial system."
Prediction markets offering sports event contracts have been contentious within the gaming industry, attracting criticism from both digital and traditional stakeholders. These markets face ongoing lawsuits from states, gaming regulators, and tribal entities across the country. Previous administrations had curbed the growth of event contracts relating to politics and sports, which Selig and others have labeled as "regulation by enforcement."
Selig outlined four actions pertaining to prediction markets, beginning with the reversal of prior guidance on the matter. He has directed the withdrawal of both a proposed rule set to ban political and sports-related event contracts starting in 2024 and an internal advisory note about prediction markets issued last September.
"While the advisory was issued at the staff level with the intent of bringing clarity and awareness to the litigation, it’s instead contributed to uncertainty in our markets," Selig commented.
During his Senate confirmation hearing last year, Selig largely sidestepped the subject of prediction markets, indicating it was an issue for the courts. However, his remarks on Thursday conveyed unequivocal support for these markets. "These markets are not new; they’ve operated within the CFTC’s regulatory parameters for more than two decades. But despite their history, many view them as novel or unsettled, and that uncertainty has not served our markets well, nor has it served the public interest," he stated.
The next course of action will involve starting the drafting of new rules specifically for event contracts. Selig expressed that the existing CFTC framework "has proven difficult to apply and has failed our market participants."
The path forward, he emphasized, is to establish "clear standards for event contracts that provide certainty" to involved parties. Notably, CFTC regulations currently prohibit contracts involving "gaming," although prediction markets have successfully argued in court that their event contracts qualify as legitimate financial products.
Selig also instructed staff to "reassess the commission’s participation in matters currently pending before the federal, district, and circuit courts," reinforcing the federal jurisdiction arguments made by companies like Kalshi. "When jurisdictional questions are at issue, the commission has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives," he affirmed.
In his concluding remarks about prediction markets, Selig underscored the importance of collaboration and efficiency with the SEC, stating that these efforts will help "draw clear lines between certain commodity and security options." The call for coordination between the two agencies has gained traction, supported by an event last year featuring the CEOs of market platforms Kalshi and Polymarket.
The SEC appears to be shifting some of its financial oversight obligations to the CFTC, which has historically been smaller. New financial products like crypto and prediction markets do not comfortably fall under the SEC's jurisdiction, leading to the CFTC becoming the preferred regulatory body.
Before the event commenced Thursday, the Senate Committee on Agriculture, Nutrition, and Forestry progressed the Digital Commodity Intermediaries Act. This legislation is designed to empower the CFTC to regulate digital commodities and enhance consumer protections in the emergent market.
The bill managed to pass the committee with a narrow 12-11 party-line vote and contains provisions for new definitions of digital commodities, conflict of interest protections, and a registration framework to facilitate regulated markets. It also outlines SEC-CFTC collaboration requirements and includes measures for reinforcing protections for software and technology firms, along with new funding for the CFTC to establish a spot market regulatory regime.
This legislation aims to accompany ongoing crypto market structure bills currently stalled in the Senate Banking Committee, with both measures needing to gain committee approval and combine for a full Senate vote. Selig and Atkins frequently referenced the impending legislation, expressing confidence in its eventual passage. Atkins commended Selig for his prospective responsibilities, stating, "There is no one that I’d rather have at the helm of the CFTC, as our markets move on-chain."
As prediction markets see increased activity, tensions within the gaming industry have heightened. Digital-centric firms such as FanDuel, DraftKings, and Fanatics have ventured into this sector to protect their interests amid unregulated sports betting opportunities in states like California and Texas. In contrast, other companies have distanced themselves from the American Gaming Association (AGA) due to their involvement with prediction markets.
The AGA has taken a strong stance against prediction markets, tracking substantial state betting tax losses that are estimated to exceed $400 million shortly. In response, the AGA has collaborated with the Indian Gaming Association (IGA) to highlight the impacts of prediction markets on tribal gaming and has written to Congress urging the inclusion of language prohibiting sports event contracts in crypto legislation. Neither the AGA nor IGA provided comments on Thursday.
The Sports Betting Alliance, which represents a coalition of bookmakers and prediction market operators, opted not to comment.
The Coalition for Prediction Markets, which includes Kalshi, Robinhood, and Underdog, issued a statement praising Selig's commitment to clarifying the CFTC's jurisdiction over event contracts. The coalition welcomed the Commission’s withdrawal of uncertain guidance regarding sports event contracts and expressed enthusiasm for collaborating with the CFTC to enhance market clarity and innovation.
