US Lawmakers Press CFTC to Crack Down on Prediction Markets

A coalition of Democratic lawmakers, led by Senator Jeff Merkley of Oregon, has formally urged the Commodity Futures Trading Commission (CFTC) to implement stringent regulations on prediction markets to curb corruption and insider trading. The lawmakers are calling for a rule that would prohibit event contracts tied to the outcome of US elections, military actions, and sports unless there is a valid economic hedging interest. The push follows a perceived erosion of integrity within the sector. Lawmakers cited recent scandals, including the arrest of a US soldier who allegedly earned $400,000 on Polymarket by betting on military action in Venezuela. Additionally, the platform Kalshi recently suspended and fined three political candidates for allegedly trading on their own campaigns. Data from the Congressional Research Service highlights the scale of the activity, noting that sports contracts account for nearly 90% of the volume on Kalshi and 38% on Polymarket. This has led critics and state regulators to argue that these platforms are operating as unregulated gambling entities rather than legitimate financial derivatives markets. CFTC Chair Michael Selig has already initiated a rulemaking process to establish a coherent interpretation of the Commodity Exchange Act. This federal effort comes amid ongoing legal disputes between the CFTC and various state governments over whether the authority to regulate prediction markets belongs at the federal or state level.