The Commodity Futures Trading Commission on March 12 issued its first formal advisory on prediction market event contracts, paired with an Advanced Notice of Proposed Rulemaking that opens a 45-day public comment period. The twin actions mark the federal government's first concrete attempt to bui...
"Prediction markets are one of the most exciting innovations in financial markets." — Mike Selig, Chairman, Commodity Futures Trading Commission
The Commodity Futures Trading Commission on March 12 issued its first formal advisory on prediction market event contracts, paired with an Advanced Notice of Proposed Rulemaking that opens a 45-day public comment period. The twin actions mark the federal government's first concrete attempt to build a regulatory framework around an asset class that processed $18.3 billion in combined monthly volume in February 2026 — up from under $2 billion in August 2025.
The guidance arrives as Kalshi and Polymarket each pursue fundraising rounds at approximately $20 billion valuations, as officials in at least 11 states have issued cease-and-desist orders, and as 39 state attorneys general have urged federal courts to preserve state authority over sports gambling. The result is a jurisdictional collision between the CFTC's claim of exclusive federal oversight and state gaming regulators who view sports event contracts as unlicensed gambling.
The Division of Market Oversight's advisory, spanning 32 pages, addresses designated contract markets (DCMs) — the regulatory classification held by Kalshi, Coinbase, and Polymarket. The document covers three areas.
Product integrity. DCMs must ensure that listed event contracts are "not readily susceptible to manipulation," per CEA Section 5(d), Part 38, and DCM Core Principle 3. Self-certification remains available for new contract listings, but the CFTC now encourages platforms to flag contracts that create heightened abuse incentives.
Prohibited categories. The advisory reaffirms the CFTC's authority under Section 5 of the Commodity Exchange Act to ban event contracts deemed "contrary to the public interest." Explicitly prohibited: contracts involving assassination, war, terrorism, and activity that is unlawful under federal or state law.
Sports-specific requirements. Platforms listing sports event contracts must engage in "communications with such relevant sports governing bodies or authorities when developing terms and conditions, compliance and market oversight programs." The agency identified specific manipulation vectors including injuries, unsportsmanlike conduct, and officiating decisions.
The companion ANPRM poses questions across the 32-page document about how to define key terms, set manipulation thresholds, and draw lines between financial instruments and gambling products. Applications for DCM registration have more than doubled over the past year, according to the CFTC, with the majority from entities focused on prediction markets.
Chairman Selig, currently the sole sitting CFTC commissioner, stated the guidance "begins the process of new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act." As the only commissioner, Selig has sole authority to advance rulemaking without the majority quorum typically required.
The market's growth trajectory contextualizes the regulatory urgency.
Monthly volume. Kalshi and Polymarket's combined monthly notional volume hit $18.3 billion in February 2026 ($9.93 billion Kalshi, $7.94 billion Polymarket), according to DeFi Rate. That figure stood at less than $2 billion in August 2025, representing a 9x increase in six months.
Weekly records. The week of March 2-8 produced a combined record of $5.35 billion in weekly notional volume.
Revenue. Kalshi's annualized revenue run rate is approximately $1.5 billion, according to CoinMarketCap. The platform generated over $1 billion in trading volume on Super Bowl Sunday alone.
Valuations. Both platforms are pursuing fundraising rounds that would approximately double prior marks. Kalshi was valued at $11 billion after raising $1 billion in December 2025. Polymarket was valued at $9 billion in October 2025. Both now target approximately $20 billion. Intercontinental Exchange (ICE) has agreed to commit up to $2 billion to Polymarket.
Historical context. In 2025, prediction markets handled more than $40 billion in total volume across both platforms. The sector has gone from a niche experiment — Polymarket's breakout during the 2024 U.S. presidential election — to a mainstream financial product category in under 18 months.
Kalshi has led Polymarket in monthly volume since September 2025, driven primarily by sports markets. This has made sports contracts the central regulatory flashpoint.
The core legal question: are prediction markets federally regulated financial exchanges or state-regulated gambling operations?
The CFTC's position. Chairman Selig has asserted exclusive federal jurisdiction over prediction markets under the Commodity Exchange Act. The advisory reinforces this claim by treating event contracts as a financial asset class within the CFTC's regulatory perimeter.
State opposition. Officials in at least 11 states have issued cease-and-desist orders to prediction market platforms, according to the American Gaming Association. Litigation is active in at least eight states. A bipartisan coalition of 39 state attorneys general and the District of Columbia has urged a federal court to uphold state authority to regulate sports gambling.
Court rulings are split. The judiciary has produced contradictory results across jurisdictions:
CME Group CEO Terry Duffy has predicted the conflicting court decisions "could eventually land before the Supreme Court."
Sports event contracts are the engine of the prediction market boom and the source of nearly all regulatory friction.
The CFTC's statutory framework, codified in the Commodity Exchange Act, requires that event contracts be associated with "financial, economic, or commercial consequences." Critics argue sports contracts do not meet this threshold.
Benjamin Schiffrin, Director of Securities Policy at Better Markets, criticized the advisory for selectively reminding platforms about prohibited contract categories — assassination, war, terrorism — "while conspicuously omitting the statutory ban on gaming." Better Markets contends the CFTC "is so intent on pretending that so-called 'event contracts' on sporting events are not gambling" that it has abandoned its statutory mandate.
The advisory's requirement that platforms consult with sports governing bodies acknowledges manipulation risk but does not resolve the classification question. Specific concerns identified by the CFTC include contracts linked to individual athlete injuries and narrow in-game events like officiating decisions — outcomes that are structurally vulnerable to insider manipulation.
Kalshi generates the majority of its volume growth from sports markets. Restricting or reclassifying these contracts would fundamentally alter the platform's economics.
Kalshi operates as the only CFTC-approved event exchange in the U.S. It offers contracts across politics, economics, and sports to U.S. users. It faces a class-action lawsuit over an unpaid $54 million payout tied to an Ayatollah Khamenei market. It has 19 active federal lawsuits related to state-level gambling disputes.
Polymarket currently bars U.S. users from its platform. It is building a regulated U.S. version planned for 2026 launch. ICE's $2 billion commitment signals institutional confidence, but the platform must navigate the same state-level challenges confronting Kalshi.
Coinbase launched prediction markets for U.S. users in January 2026 through a partnership with Kalshi via Coinbase Financial Markets (CFM), an NFA member firm. All market flow currently routes through Kalshi's infrastructure. Coinbase has announced plans for a fully integrated native prediction market experience in its app by late Q1 2026.
The CFTC reports that DCM applications have more than doubled in the past year, with the majority from prediction market entrants. The advisory effectively sets the baseline compliance requirements for this growing queue.
Federal lawmakers have introduced legislation that could constrain the market. Representatives Blake Moore (R-Utah) and Salud Carbajal (D-California) introduced a bipartisan bill that would block Kalshi and Polymarket from offering markets on war and sports — two of the categories that have driven volume growth.
The bill represents a potential legislative override of the CFTC's more permissive stance. If enacted, it would codify restrictions that the CFTC's advisory merely flagged as areas of concern, effectively resolving the regulatory ambiguity in favor of prohibition for contested categories.
Prediction markets have crossed a threshold where regulatory ambiguity is no longer sustainable. An $18 billion monthly market built on self-certification and a patchwork of court orders now faces simultaneous pressure from a federal rulemaking process, state gaming regulators in at least 11 jurisdictions, a bipartisan congressional bill, and class-action litigation.
The CFTC's advisory provides process but not resolution. It clarifies how platforms should submit contracts and communicate with sports leagues. It does not answer whether sports event contracts are financial instruments or gambling products — the question that determines whether the federal government or the states control this market.
The 45-day comment period that began March 12 will produce the industry's first formal regulatory proposals. The conflicting court rulings will likely consolidate toward the circuit courts and potentially the Supreme Court. And the Moore-Carbajal bill will test whether Congress prefers codified prohibition over regulatory discretion.
What is settled: prediction markets are now a permanent asset class. What remains unsettled: who regulates them, what contracts they can list, and whether the $40 billion in combined 2025 volume was traded on financial exchanges or gambling platforms.