The US Commodity Futures Trading Commission (CFTC) issued proposed rulemaking regarding prediction markets on Wednesday, coinciding with the World Cup kickoff. The agency published the guidelines in the Federal Register on Friday to initiate a 45-day public comment period.
The proposal outlines standards for event contracts, an asset class estimated to reach $1 trillion in annualized trading volume by 2030. Stakeholders have responded with mixed views regarding the federal oversight. The following day, CFTC Chairman Michael Selig stated on Fox Business that the agency will define which sports products are suitable for national trading.
Regulatory Framework and Legal Background
The regulations stem from the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 5c(c)(5)(C), known as the Special Rule, allows the CFTC to restrict contracts involving gaming if they are contrary to the public interest. The new proposal introduces a specific definition for gaming.
While the rules prohibit trades on officiating decisions and player injuries, the majority of existing sports-event contracts remain permitted.
Former CFTC chair Gary Gensler criticized the federal approach during an interview with CNBC. He argued that states, rather than the federal government, should regulate sports wagering. Gensler testified before Congress more than 40 times during his tenure but noted that he does not recall sports event contracts being discussed during the passage of the Dodd-Frank Act.
The CFTC is currently reviewing public feedback on the proposed guidelines. The outcome will determine the long-term regulatory structure for the prediction market industry.