On March 12, the Commodity Futures Trading Commission (CFTC) issued an advisory to the exchanges to tighten supervision of event contracts.
At the same time, the regulator opened a 45-day regulatory process that will ask pointed questions about inside information, manipulation and whether some markets serve the public interest at all.
Two weeks earlier, the agency had highlighted two disciplinary cases in Kalshi, involving traders who appeared to have decisive information advantages.
One is a California gubernatorial candidate betting on his own race, the other is a YouTube editor who traded contracts related to “Mr. Beast,” even though he likely had material non-public information.
The March 12 measure treats prediction markets as a real market structure problem.
When prices influence news coverage, political narratives and investor sentiment, insider edges and weak guardrails become public trust issues.
Grow without guardrails
From 2006 through 2020, the designated contract markets recorded an average of approximately five event contracts per year. That rose to 131 in 2021 and reached approximately 1,600 event contracts certified for listing in 2025, representing 12 times the 2021 level and 320 times the historical baseline.
Applications for stock exchange registration have more than doubled in the past year, largely from companies focused on running prediction markets.
Under current rules, an exchange can self-certify a new contract by notifying the CFTC in writing just one business day before launch. In a market that can scale overnight, the burden of integrity falls on the exchanges before the problems become public.
The CFTC does not speak in the abstract about insider abuse.
In the Langford case, Kalshi found that a California gubernatorial candidate acted on his own candidacy and imposed a five-year suspension plus a $2,246.36 fine.
In the Kaptur case, Kalshi found that a YouTube editor trafficked in “Mr. Beast’ contracts while likely in possession of material non-public information and imposed a two-year suspension plus a $20,397.58 fine.
The Enforcement Division said both fact patterns could implicate the anti-fraud rules of the Commodity Exchange Act.
The advance notice of proposed rulemaking continues.
It explicitly asks whether asymmetric information can ever serve the public interest, whether prediction markets are particularly vulnerable to cross-market manipulation, whether participants are younger, and whether self-exclusion programs, monetary or time limits, advertising restrictions, disclaimers and warnings should be included in the Commission’s public interest analysis.
The boundary between crowd-wisdom and single-actor vulnerability
The March 12 advisory provides the clearest framework for understanding what the CFTC now considers risky.
Some prediction markets still look like information aggregation, but others look like insider-sensitive micro-markets.
The opinion says that contracts for sports and other events are often compliant with anti-manipulation standards when settlement depends on the aggregate performance of multiple participants over an extended period of time, as the breadth makes manipulation more difficult.
It warns that contracts related to injuries, unsportsmanlike conduct, physical altercations, official actions or results determined by a single person or a small group carry an increased risk of manipulation or price distortion.
That distinction separates broad contracts, which can plausibly claim price discovery value, from narrow contracts that resemble monetized access to privileged information.
| Contract type | Example | Why it can be useful | Why the CFTC sees more/less manipulation risk |
|---|---|---|---|
| Broad, composite markets | Full game results, macro data, election results | May reflect distributed public information | More difficult to influence by one person or small group |
| Medium risk markets | Merit-adjacent stories, results of official releases | Some predictive value | Information asymmetries can still matter |
| Narrow markets with one actor | Injuries, referee calls, administer penalties | Limited price discovery value | Easier to exploit for insiders or directly involved actors |
| Micromarkets with the highest risk | Candidates trade under contracts with homegrown creators and insiders | Weak matter of public interest | Biggest insider/manipulation concern |
Prediction markets are shifting to mainstream retail finance distribution. Robinhood offers event contracts through CFTC-regulated partner exchanges in the areas of politics, sports, culture, crypto, climate, economics and health.
Interactive Brokers’ ForecastTrader is live for political, economic, financial and climate contracts.
They are also moving into the mainstream media. In January, Dow Jones signed an exclusive deal with Polymarket to bring real-time forecast data to The Wall Street Journal, Barron’s and MarketWatch, and CNBC signed a similar deal with Kalshi.
These prices become important inputs.
Once market-implied opportunities are embedded in coverage of elections, corporate events, the economy, wars, or sports, a distorted market can become a distorted news signal.
The rulemaking request itself asks how event contracts should be assessed against the public interest objectives of the Commodity Exchange Act, namely price discovery, price dissemination, anti-manipulation, and protection against abusive sales practices.
The CFTC warns that prediction markets are becoming too important for trust-based mechanisms to function.
Reuters Breakingviews framed the risk in classic adverse selection terms: people can choose not to participate if they think the other party knows more than they do.
The central tension is whether prediction markets can remain useful when insiders know the public is watching the odds.
The regulatory subtext
The CFTC essentially questions whether prediction markets are a derivatives market, a gambling-related consumer product, or both.
The regulatory request asks about “gaming,” whether sports competitions should be treated differently from prize competitions, whether responsible gaming tools should matter, and how the Commission should balance the needs of younger participants.
The language suggests a regulator testing how far the logic of the financial market can go before it collides with gambling-style consumer protection.
The state-federal battle makes this more urgent. Massachusetts blocked Kalshi’s sports markets in January and February, and Nevada sued in February, arguing that the contracts constitute illegal gambling under state law.
The CFTC has insisted that it has exclusive federal jurisdiction over many event contracts traded on registered markets.
A recent analysis from the American Gaming Association found that nearly 43% of digital sports betting ads that U.S. consumers saw in the first two months of 2026 came from prediction market operators and were therefore not subject to state gambling regulations that require responsible gaming messaging.
The same analysis shows that Kalshi generated about 5.2 billion digital ad impressions this year, compared to 2.9 billion for FanDuel.
What comes next
The CFTC says comments must be submitted 45 days after publication of the Federal Register, and the regulatory notice was submitted for public inspection on March 12, with a scheduled publication date of March 13, suggesting a likely April 27 deadline.
The most natural outcome is that the CFTC allows growth but imposes narrower guardrails.
In this scenario, the market can expect stricter supervision of individual and small group markets, more explicit lists of restricted traders, stricter requirements on the source of settlement and heavier exchange control.
Broad macro, election, climate and full game contracts are likely to survive. At the same time, the most integrity-sensitive micromarkets are under pressure.
The alternative routes are clear. If the process produces sustainable rules, broker distribution will expand and prediction markets will become a normalized category for retail derivatives.
Robinhood and IBKR distributions are already live.
Cboe is launching a new prediction market framework in the second quarter, Nasdaq has sought SEC approval for binary index options, and ICE has invested up to $2 billion in Polymarket.
However, if the federal framework remains muddy as states continue to litigate, product menus fragment by state and regulated operators hesitate to list anything that resembles a prop bet or a gambling-adjacent micromarket.
One high-profile scandal could settle the debate overnight. A case involving political insiders, league insiders, military intelligence, or a market resolution fiasco could prompt emergency freezes, category-level bans, or swift, bipartisan calls for stricter laws.
Broad public forecasts versus narrow, insider-prone micro-markets may shape the future more than the distinction between crypto and traditional finance.
The CFTC recognizes the potential information value of informed trading while simultaneously questioning whether the same asymmetry could lead to dishonesty and insider trading.
The agency’s warning is clear: Prediction markets are so influential that the same issues people understand about traditional markets now apply. This includes inside information, weak supervision, conflicts of interest and the risk that ordinary users will no longer trust the market if they believe they are trading against better-informed insiders.