The list of CFTC opponents is growing, and former chair Gary Gensler and the Chicago Mercantile Exchange are the latest to challenge the growth of prediction markets.
As the fight between prediction markets and the gaming industry evolves, the list of detractors for both the exchanges and their regulator, the Commodity Futures Trading Commission, has grown to include some very notable parties, such as a former CFTC chairman as well the biggest derivatives marketplace in the US.
On Wednesday, the Indian Gaming Association’s New Normal webinar featured Gary Gensler, a longtime financial regulator who served as chair of the Securities and Exchange Commission from 2021 to 2025 and chair of the CFTC from 2009 to 2014. With regard to the latter, Gensler helmed the commission during the height of the Great Recession and its subsequent fallout, including the passage of the Dodd-Frank Act in 2010.
Gensler has become a vocal critic of both the proliferation of prediction markets and the CFTC’s role in encouraging their growth. He has voiced this disagreement both in the media and in court, having filed an amicus brief in favour of Ohio in that state’s lawsuit with Kalshi on 11 June. His biggest contention, as he reiterated this week, is that Congress never intended for the CFTC to become the nation’s de facto betting regulator by allowing trading on sports event contracts.
“I chose to speak up … as a friend of the court to say, ‘What were we all doing [at the CFTC] back then, and what were we not doing back then?’ And by the way, unambiguously, we were not trying to have a federal regulator regulate sports betting,” Gensler told hosts Victor Rocha and Jason Giles.
Gensler joins the fight
As a former leader of the CFTC who was at the agency when many of the rules now being contested were implemented, Gensler is among the most notable prediction market opponents to date. In his Ohio brief and in his appearance on Wednesday, the former CFTC and SEC chief sided with the gaming industry on two points: sports event contracts are not financial swaps and the CFTC does not have the resources to oversee nationwide betting.
If sports event contracts are in fact swaps, Gensler told Rocha and Giles, then every state-level and tribal sports bet placed in the last decade is technically illegal, which would be a highly unlikely Congressional intention.
This legal question has become a key element of many prediction market lawsuits. In Nevada, Carson City District Court Judge Jason Woodbury initially granted a preliminary injunction to Kalshi but eventually dissolved it, primarily due to a change of heart about the swap issue. That case remains the only example of a state or federal court ordering the suspension of trading for a given jurisdiction.
“Congress did not consider bets on outcomes of sporting events, how many points a player would score in a quarter, or sportsbook-style parlays to be swaps,” Gensler wrote in his Ohio brief. “These contracts do not have hedgers meeting speculators to lay off risk.”
Selig currently lone commissioner
Sports event contracts and prediction markets overall are just a fractional piece of the CFTC’s remit. The broader commodities, futures and derivatives marketplace is worth trillions of dollars, and the commission is actively taking on more duties through the advancement of digital assets like cryptocurrency and the markets that trade them.
Despite this workload, CFTC Chairman Michael Selig has been the sole acting commissioner since his appointment last December and the commission has faced criticism from Congress for staffing reductions. Commissioners are nominated by the president and confirmed by the Senate, but there are no active nominations as of writing. Gensler said on Wednesday that he had participated in thousands of votes between the CFTC and SEC, and the bipartisan nature of those bodies was a tenet he came to appreciate.
“I think that we were better off and stronger as a nation with those [full] commissions, even though sometimes those commissions were a little slower to act, sometimes a bit cumbersome, but I think it was good to have three to five people debating these things and seeking compromise,” he said. In his brief, Gensler noted that the CFTC did not seek additional resources after the repeal of PASPA, which would have aligned better with its argument.
If a case on sports-event contracts is heard before the Supreme Court, numerous legal experts believe the decision could rest on the court’s interpretation of federal preemption. In addressing the topic, Gensler wrote that the nation’s highest court has “long disapproved of taking obscure statutory” language out of context and interpreting it as conferring massive power to the Executive Branch. Gensler borrowed a line from former Supreme Court Justice Antonin Scalia who described it “as hiding elephants in mouse holes”.
Pushing back against CFTC criticism
Conversely, some prediction market proponents have pushed back on the idea that the CFTC is shirking its duties under one commissioner.
Elie Mishory, chief regulatory officer for Novig who previously held the same role at Kalshi and served as an advisor for both the CFTC and SEC, argued in a LinkedIn post on Tuesday that while a full commission is desirable, the leadership largely sets the course anyway.
“The CFTC is a chair-driven institution,” Mishory wrote. “So is the SEC. We saw that very clearly at the SEC under Gensler. The chair sets the agenda, directs staff priorities, decides what gets worked on, decides what gets elevated and decides what gets brought to a vote. If the chair has a majority, the chair’s agenda generally moves. If the chair does not have a majority, the agenda generally stalls.”
None would argue under that logic that Selig is an opponent of prediction markets – the commission under his guise has sued nine states to try and affirm federal jurisdiction over the platform, including Kentucky this week. The CFTC has also released a draft proposal for its first set of prediction market rules, and the language would leave large swaths of sports event contracts untouched if approved.
CME takes issue with perps
In addition to Gensler, the CFTC now has another high-profile opponent to contend with: the Chicago Mercantile Exchange, the largest derivative marketplace in the world. The CME and prediction markets like Kalshi and Polymarket are all categorised as designated contract markets under the CFTC; the latter two are hovering around valuations of $20 billion while CME Group’s current market cap is over $80 billion.
CME filed a lawsuit against the CFTC on 18 June in DC federal court, not over the approval of sports contracts, but a different controversial type of contract market: perpetual futures, or “perps”. Perps, as the name suggests, are derivate contracts with no expiration date, allowing speculators to hold a position indefinitely.
Proponents of perps view them as innovative, while opponents say they encourage extreme leverage and pose risks to market stability. On Kalshi, the most popular perp markets are tied to crypto prices – the 24-hour trading volume on perpetual Bitcoin and Ethereum contracts are currently $240 million and $105 million, respectively. Within a week of its listing, Kalshi cleared $1 billion in trading volume on perps. The listing of perps on prediction markets has weighed on the CME Group, with shares down roughly 12% since the derivatives went live.
In an appearance on CNBC earlier this month, Kalshi CEO Tarek Mansour called perps “the purest form of trading” because, unlike traditional options, users only need a conviction and not a time horizon. The CME, on the other hand, does not share that view. Rather, its perp lawsuit makes some of the same assertions featured in sports contract lawsuits, including opaque definitions and undue influence from Selig.
“With one stroke of his pen, the chairman overrode Congress’ definition of the term ‘swap’ and circumvented the regulatory regime Congress required for that form of derivative,” the lawsuit says. “In the short time since, Kalshi has self-certified over a dozen additional cryptocurrency perpetuals in reliance on the chairman’s order and brought those perpetuals to market, resulting already in more than a billion dollars of trades.”
Future implications for the legality of perps
To be sure, CME is concerned first and foremost with the potential impacts to its own business. As the lawsuit states, crypto perps “directly compete with CME’s products aimed at the same customer base” and are “designed to draw away CME’s customers who currently trade true Bitcoin and cryptocurrency futures”. In response to the suit, the CFTC said in a statement to the Financial Times that CME is engaging in “lawfare” against “the Trump administration’s pro-innovation agenda”.
Yet despite these interests, the CME’s suit represents a major development for prediction markets. The two main reasons why the exchanges have grown so fast, so quickly, is that their markets on sports and crypto are attracting droves of retail traders. At the same time, institutions are slowly taking interest as well. However, it is well established that sports contracts could be outlawed or significantly curtailed, and if perps fall to the same fate, the future growth prospects become incredibly murky during a period of feverish investment.
In its suit, the CME is seeking a reversal of Kalshi’s perpetual crypto approvals, as well as a declaration that “perpetual digital commodities contracts are ‘swaps’ under the Commodity Exchange Act”. Consequently, the CME alleges that it is “therefore unlawful for the CFTC to authorise Kalshi and other DCMs to list such products as futures”.
