The U.S. Commodity Futures Trading Commission (CFTC) is working on the issue of distinguishing between prediction markets and gambling as the industry grows to offer more products related to specific events. The division plays a critical role, as event contracts can fit under the jurisdiction of the federal derivatives law, while similar instruments are subject to separate regulations on gambling and state securities laws.
How Prediction Markets Work & Why It Matters To Regulation
Prediction markets enable people to buy and sell contracts that are based on whether certain conditions will take place, and the conditions usually concern events. People who trade contracts estimate the probability of an outcome and profit from the inaccuracy of their prediction.
Some of the most common examples include political elections, sports results, and macroeconomic indicators, among others. Supporters believe that such contracts allow the collection and pooling of information and opinions; regulators worry about the terms of the products and whether they violate the law.
NEW: The CFTC proposed a rule to explicitly include event contracts tied to sports, politics, cultural events and weather within the definition of swaps, seeking to clarify its authority over prediction markets.
The proposal would resolve ambiguity over the classification of the contracts, which the agency says fall under its exclusive jurisdiction pursuant to the Commodity Exchange Act.
“Event contracts are used by Americans every day to hedge risks, speculate, and provide the public with information about the outcome of future events,” CFTC Chair Michael Selig said.
— The Block (@TheBlockCo) October 9, 2026
The debate around prediction markets is particularly relevant as the industry attempts to grow by targeting a broader audience of clients and jurisdictions. In other words, firms that provide prediction market products need to adapt their offerings to the specific markets they enter, the types of contracts they let people purchase, and the applicable legal and regulatory frameworks.
The CFTC’s Division of Market Oversight issued a staff advisory on September 22, 2026, to explain the approach towards regulating event contracts tied to the statements, appearance, attendance, or involvement of a person. The document is part of the CFTC’s broader strategy to create a regulatory framework for products that enable people to bet or trade on events or actions.
Labeling Does Not Necessarily Determine A Product’s Legal Fate
The border between the concept of prediction markets and gambling is not always clear since different laws and acts might be applied to similar products. Regardless of the contract type, if it is prediction market product or not, its legal classification will hinge on the terms of the agreement and relevant regulations.
In other words, a contract between two parties that are provided through a digital asset platform does not automatically become a derivatives product even if it claims so.
For the firms that provide such products, the regulatory environment will dictate the markets that they can access, the products they can offer, the customers that they can target, and the documentation that they need to prepare. For the clients, the categorization of prediction markets determines what regulators apply to them and what rules they need to adhere to.
The CFTC’s Position Is Not A Universal Permission Or Denial
The CFTC’s position on prediction markets is, therefore, important to the future of the industry. However, the decision in any particular case will depend on the specific facts and circumstances of the case and should be determined on a case-by-case basis. It is essential to recognize that the CFTC’s actions do not constitute an endorsement or rejection of all prediction markets.
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