A group of Democratic lawmakers is asking the Commodity Futures Trading Commission to enact rules aimed at reining in prediction markets, curbing insider trading and banning certain types of event contracts.
In a letter first shared with CNBC and sent to the CFTC on Thursday, a group of Congressional Democrats led by Jeff Merkley of Oregon called on the federal agency to address the “rapid erosion of integrity” in prediction markets such as Calci and Polymarket.
“We strongly recommend that you use your authority to preserve the intent of prediction markets and the intent of Congress behind the Commodity Exchange Act by enacting rules to prevent insider trading and corruption in the markets and to prohibit event contracts for the outcome of elections, wars and military operations, sports, and government actions within or outside the United States that do not involve a valid economic hedging interest,” the lawmakers wrote.
Sen. Richard Blumenthal of Connecticut, Sen. Chris Van Hollen of Maryland, Sen. Sheldon Whitehouse of Rhode Island, and Rep. Jamie Raskin of Maryland also signed the letter.
Prediction markets have skyrocketed in popularity over the last year and have received increasing attention from lawmakers, particularly after a series of bets were placed on the platform Polymarket ahead of major world events.
Last week, a U.S. soldier was arrested for allegedly making $400,000 in polymarket bets ahead of military operations in Venezuela. Karsi, another leading prediction market, suspended and fined three political candidates for allegedly exploiting its own election campaign.
A series of bills introduced since the beginning of this year are aimed at curbing insider trading, and in some cases would ban event contracts related to sports, elections, military and government activities. In March, Merkley led a bill that would completely ban the use of prediction markets by some government officials. Another bill, introduced by Merkley in the Senate and Raskin in the House, would ban prediction market betting on elections, wars and sports.
The group said in the letter that event contracts tied to election results “pose a danger to our democracy and elections.”
“This type of contract did not exist in the United States before 2024, and for good reason,” they wrote. “Election-related predictive contracts create financial incentives for political insiders involved in elections to subvert the will of American voters by changing their behavior.”
Sports is the most popular type of event contract, accounting for nearly 90% of bets placed on Calci in the year ending in February, according to the Congressional Research Service. According to the report, sports is the largest single category on Polymarket, accounting for 38% of event contracts on the platform. The companies have also drawn the ire of state regulators and casinos, who say the sporting event deals are just gambling.
“Event contracts regarding the outcome of sports games and events fall far short of the intent of the CFTC’s mission. This is one of the most egregious examples of how these contracts represent gambling and violate states’ rights to regulate this activity,” the lawmakers wrote.
The CFTC solicited public comments in March as part of the rulemaking process.
“Today’s action is an important step in the Commission’s continued efforts to foster responsible innovation in derivatives markets,” CFTC Chairman Michael Selig said in a statement announcing the rulemaking period, which ended Thursday. “This begins a new rulemaking process based on a reasonable and consistent interpretation of the Commodity Exchange Act, while reassuring Americans that the CFTC will exercise exclusive jurisdiction over prediction markets.”
The CFTC’s rulemaking comes as the CFTC has been battling states seeking to regulate prediction markets, arguing that authority lies with the federal government.
The CFTC is suing several states that have ordered prediction markets to cease and desist for violating gambling laws. A federal appeals court ruled in April that New Jersey regulators could not ban the use of Calsi to bet on sporting events.
“What we’re seeing is an attempt by the state gaming commission to effectively override federal law,” Selig told CNBC’s “Squawk Box” in March, before the New Jersey ruling was announced.
Disclosure: CNBC and Kalsi have a commercial relationship that includes a minority investment in CNBC.
