Key Takeaways:
- Sen. Jeff Merkley led Democrats asking the CFTC to ban event contracts in 5 categories, including sports.
- Merkley filed the letter on April 30, the final day of the CFTC’s 45-day rulemaking input period.
- Sports drove 87% of Kalshi’s $39.7 billion in event-contract volume in the year ending February.
Lawmakers Want the CFTC to Write a Rule Prohibiting Five Contract Categories
The senators wrote that prediction-market platforms, including Kalshi and Polymarket, are seeing a “rapid erosion of integrity” in line with recent controversies and urged the agency to use its statutory authority to prevent insider trading and prohibit several broad contract categories. They argued election-related contracts create a financial incentive for political insiders to subvert voter intent and that sports-event contracts represent gambling that intrudes on state regulatory authority.
The agency’s rulemaking notice, published in the Federal Register on March 16, sought public input on which event-contract categories may be seen as contrary to the public interest, with comments due Thursday. Sports contracts have been the dominant volume category at Kalshi, accounting for roughly 87% of the $39.7 billion traded on the platform in the year ending February, according to a Congressional Research Service insight published last month. Sports comprised 38% of the $36.2 billion traded on Polymarket over a comparable window.
The letter contrasts sharply with the CFTC’s current regulatory posture under Chair Michael Selig. In an interview with Front Office Sports last week, Selig identified manipulation and insider trading as “the biggest issue that comes up” in prediction markets, but said exchanges are the first line of defense as self-regulatory organizations with quasi-governmental authority. Selig said the CFTC could reject contracts and police fraud and did not rule out future restrictions on prop bets and parlays once final rules are issued.
This Democratic move follows a March 29 letter from a similar group of lawmakers urging the CFTC and the Office of Government Ethics to issue executive-branch-wide guidance against federal-employee insider trading on prediction markets, citing Polymarket trades tied to the U.S. military operation that captured Venezuelan leader Nicolás Maduro in January. A U.S. Army sergeant, Gannon Ken Van Dyke, has since been indicted in connection with those trades and pleaded not guilty earlier this week.
Several legislative proposals targeting prediction markets have been introduced this year. Merkley, Sen. Elizabeth Warren, D-Mass., and Rep. Jamie Raskin, D-Md., introduced the STOP Corrupt Bets Act on March 26, which would prohibit federally regulated event contracts on elections, sports, government actions, and military moves. A separate bipartisan bill from Sens. Adam Schiff, D-Calif., and John Curtis, R-Utah, would block CFTC-registered platforms from offering sports-event contracts.
The CFTC has continued to assert exclusive federal jurisdiction over event contracts. The agency sued Arizona, Connecticut, and Illinois on April 2 and has since filed similar actions against New York on April 24 and Wisconsin on April 28, alleging the states are encroaching on federal authority by attempting to enforce gambling laws against CFTC-registered exchanges.
The Third Circuit Court of Appeals affirmed an injunction barring New Jersey from enforcing its gambling laws against Kalshi’s sports-event contracts on April 6. Arizona has separately filed a 20-count criminal information against Kalshi’s CFTC-registered exchange, the most aggressive state-level action to date, which was temporarily stood down by the courts.
