Can We Legally Trade on Anything? By Oren Stern

Key Takeaways

• CFTC regulates prediction markets under Commodity Exchange Act
• Certain event contracts prohibited as contrary to public interest
• War, assassination, terrorism contracts stay listed despite illegality
• CFTC relies on self‑certification; enforcement remains limited
• Chairman Selig vows rulemaking, but no proposals yet

Summary

Prediction markets like Kalshi and Polymarket let users trade on speculative events, from alien confirmations to geopolitical outcomes. While the Commodity Futures Trading Commission (CFTC) oversees these platforms under the Commodity Exchange Act, the law explicitly bans contracts tied to war, terrorism, assassination, and other activities deemed contrary to the public interest. Despite these prohibitions, many questionable contracts remain publicly listed, relying on a self‑certification process that the CFTC has yet to enforce. New CFTC Chairman Mike Selig has pledged clearer rules, but concrete regulations are still pending.

Pulse Analysis

Prediction markets have surged in popularity by offering a platform to wager on virtually any future event, from box‑office receipts to political upheavals. However, the regulatory framework governing these swaps is rooted in the Commodity Exchange Act, which grants the CFTC authority to deem certain contracts unlawful. Specifically, contracts involving war, terrorism, assassination, or other activities deemed contrary to the public interest are expressly prohibited. Despite clear statutory language, platforms continue to list such contracts, relying on a self‑certification process that places the burden of compliance on the exchanges rather than on proactive CFTC oversight.

The legal ambiguity surrounding insider‑type trading in prediction markets has drawn media attention, but the more pressing issue is the existence of contracts that may violate federal law. For example, bets on the capture of foreign leaders or the declaration of war intersect with international statutes and domestic anti‑war provisions, making them potentially illegal. While the CFTC has the power to halt or suspend these offerings, it has historically taken a hands‑off approach, opting for enforcement by rulemaking rather than immediate action. This regulatory inertia creates a gray zone where traders can inadvertently engage in prohibited activity, exposing both users and platforms to enforcement risk.

Chairman Mike Selig’s recent statements signal a shift toward more definitive guidance for prediction markets. He has criticized the current framework as “difficult to apply” and promised to establish clear standards that would reduce uncertainty for market participants. Yet, despite withdrawing earlier proposals on political and sports contracts, the CFTC has not issued new rules, leaving the industry in limbo. Stakeholders should monitor forthcoming rulemaking, as any clarification will directly impact the legality of high‑risk contracts and could reshape the competitive landscape of prediction‑based trading platforms.