On January 29, 2026, Michael S. Selig delivered his first public remarks as Chairman of the Commodity Futures Trading Commission (“CFTC”).1 Chairman Selig outlined the central pillars of his regulatory agenda for the “new frontier of finance,” highlighting regulations he intends to pursue for prediction markets.
Chairman Selig said the CFTC would withdraw a 2024 proposed rule that would have prohibited certain event contracts and instead would promulgate “clear rules” to regulate the prediction market industry. Chairman Selig also announced the CFTC’s plan to participate in ongoing litigation to argue that federal law preempts state-level regulation of prediction markets. Subsequently, the CFTC submitted an amicus brief to the Ninth Circuit asserting that the CFTC has exclusive jurisdiction over event contracts and state gambling laws are therefore preempted from regulating these contracts.
In recent weeks both the CFTC’s Enforcement Division and the U.S. Attorney’s Office for the Southern District of New York indicated they were focused on fraud on prediction market platforms.
Based on these events, market participants should consider the following:
1. Prepare for CFTC Rulemakings: Chairman Selig’s speech previewed that the CFTC will undertake rulemaking processes that could significantly shape these financial markets. Given the significant stakes of such rulemakings, industry participants should consider providing comments to them, whether individually or through trade associations.
2. Monitor Litigation Developments Regarding CFTC Jurisdiction over Prediction Markets: Whether state gambling laws apply to prediction markets, or if instead those markets fall within the exclusive jurisdiction of the CFTC is the subject of ongoing debate in courts across the country. The CFTC’s decision to formally take the position in litigation that federal law preempts state gambling laws when it comes to prediction markets is a significant development, and market participants should monitor these cases.
3. Prediction Market Platforms Should Consider Reviewing Compliance Programs: Given the heightened scrutiny from the Department of Justice (“DOJ”) and CFTC, prediction market platforms should consider taking steps to review their compliance programs and should consider appropriate modifications, particularly regarding the permissible use of material non-public information.
Chairman Selig’s Remarks Signal New Regulatory Framework for Prediction Markets
Chairman Selig announced a significant shift in the CFTC’s position on prediction markets, known as “event contracts” at the agency, with major implications for the industry.
As background, the CFTC defines an event contract as a “a derivative contract whose payoff is based on a specified event, occurrence, or value such as the value of a macroeconomic indicator, corporate earnings, level of snowfall, or dollar value of damages caused by a hurricane.”2 An event contract is typically structured as a binary option where the contract pays out a fixed amount if the underlying event occurs and pays out zero if it does not. For example, an event contract on an election would be structured as a yes/no binary on whether a specific candidate will win, and the yes/no options would be priced based on how the market views the likelihood of that candidate’s success.
Chairman Selig emphasized the CFTC’s support for “lawful innovation” in prediction markets and its commitment to fostering their “responsible development.”
- New Rulemaking: Chairman Selig outlined a plan for a new “event contracts rulemaking” aimed at “establishing clear standards for event contracts that provide certainty to market participants” and “support the responsible development of event contract markets.” As an immediate step, he directed CFTC staff to withdraw the 2024 proposed rule that would prohibit sports- and politics-related event contracts and the 2025 staff advisory cautioning against sports-related event contracts. On February 4, the CFTC withdrew the proposed rule and guidance, with Chairman Selig noting that these steps “reflect the CFTC’s commitment to lawful innovation in our markets” and stating that the commission would “advance a new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act that promotes responsible innovation in our derivatives markets in line with Congressional intent.”3
- Asserting Exclusive Jurisdiction over Prediction Market Regulation: Chairman Selig also directed CFTC staff to reassess the CFTC’s “participation in matters currently pending” in court to “defend its exclusive jurisdiction over commodity derivatives.” Chairman Selig issued this directive as courts across the country debate whether event contracts may be regulated by state-level gambling laws, or if instead event contracts are “swaps” exclusively regulated by the Commodities Exchange Act and state-level regulation of these contracts is federally preempted.4 On February 17, the CFTC filed an amicus brief in an appeal to the Ninth Circuit of a Nevada district court decision finding that a CFTC-registered designated contract market’s event contracts were not “swaps” within the exclusive jurisdiction of the CFTC.5 In its brief, the CFTC asserted that “[s]tates cannot invade the CFTC’s exclusive jurisdiction over CFTC-regulated designated contract markets (“DCMs”) by re-characterizing swaps trading on DCMs as illegal gambling.”6 Given that courts across the country have issued conflicting rulings on this preemption question, the Supreme Court may ultimately weigh in.
Federal Enforcement Agencies Signal Focus on Prediction Market Fraud
While Chairman Selig’s remarks focused on creating a regulatory framework that would provide clarity on prediction markets, he also noted that regulators would not “abandon our age-old principles, like investor protection, anti-fraud and anti-manipulation, and market integrity, which remain our north star.”
These themes were underscored in the CFTC Enforcement Division’s Prediction Markets Advisory released on February 25, 2026. The advisory made clear that insider trading and other fraudulent conduct on prediction market platforms can violate the Commodity Exchange Act and related regulations over which the agency has enforcement authority and underscored that the CFTC “has full authority to police illegal trading practices occurring on . . . prediction markets.” In particular, the advisory pointed to (i) insider trading, (ii) “pre-arranged, noncompetitive trading and wash sales,” (iii) “disruptive trading,” and (iv) “fraud and manipulation” as illegal practices the Commission would scrutinize on prediction markets. The advisory also emphasized that prediction markets “have an independent duty to maintain audit trails, conduct surveillance, and enforcerules against prohibited practices.”7
Similarly, in remarks at a February 5 securities enforcement forum, U.S. Attorney for the Southern District of New York Jay Clayton emphasized that the prediction markets are “an area that I am looking at” and that placing a bet through a “prediction market doesn’t insulate you from fraud.”8 He added that he expected enforcement actions in this space.
DOJ has brought fraud cases in traditional sports betting markets where bettors use material non-public information to gain an advantage over others. For example, DOJ prosecuted bettors who allegedly conspired with a basketball player to obtain material non-public information about his plans to withdraw from certain games to ensure that they won bets placed on the player’s performance in those games. The DOJ press release underscored that these “alleged actions violated the prohibition on using non-public information—eliminating the risk associated with the unpredictable nature of the betting world—an unfair advantage not afforded to other bettors.”9 Although this case arose in the context of traditional betting markets, DOJ may seek to bring cases in the prediction markets under similar theories.
The use of material non-public information in prediction markets gained considerable public attention following a large bet on the imminent removal of Nicolas Maduro, Venezuela’s former president, just hours before the U.S.raid.10 Congressman Ritchie Torres subsequently introduced legislation, the “Public Integrity in Financial Prediction Markets Act of 2026,” which would prohibit certain government employees from trading on event contracts if they have access to material non-public information.11
Looking Ahead
In light of these announcements, participants in the prediction markets space should expect to see significant rule makings in the coming months as well as further participation by the CFTC in ongoing litigation regarding the agency’s exclusive jurisdiction to regulate prediction markets. Given the significance of these rule makings and litigation for the future of the industry, participants should be prepared to participate actively in the rule making process and monitor litigation developments.
Given the CFTC Enforcement Division’s Prediction Markets Advisory and remarks from Jay Clayton on fraud in the prediction markets, platforms should also consider reviewing their compliance programs, particularly their policies, procedures, and controls regarding material non-public information.
1 Michael S. Selig, The Next Phase of Project Crypto: Unleashing Innovation for the New Frontier of Finance (Jan. 29, 2026), available here.
2 CFTC, Contracts & Products, available here.
3 CFTC, CFTC Withdraws Event Contracts Rule Proposal and Staff Sports Event Contracts Advisory (Feb. 4, 2026), available here.
4 See, e.g., Bobby Allyn, Kalshi in court over 19 federal lawsuits. What’s the future of prediction markets?, NPR (Jan. 30, 2026), available here; KalshiEX LLC v. Martin, 793 F. Supp. 3d 667 (D. Md. 2025); KalshiEX LLC v. Flaherty, No. 25-CV-02152-ESK, 2025 WL 1218313 (D.N.J. Apr. 28, 2025).
5 N. Am. Derivatives Exch., Inc. v. Nevada ex rel. Nevada Gaming Control Bd., No. 2:25-CV-00978-APG-BNW, 2025 WL 2916151 (D. Nev. Oct. 14, 2025).
6 Brief for CFTC as Amicus Curiae Supporting Appellant at 2, N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir. Feb. 17, 2026), available here.
7CFTC Enforcement Division,Prediction Markets Advisory, Release No. 9158-26 (Feb. 25, 2026), available here.8Jessica Corso, SDNY Chief Says Office Has Eye On Prediction Markets, Law360(Feb. 5, 2026), available here.
9DOJ (EDNY), Brooklyn Man Arrested for Illegal Sports Betting Scheme Involving National Basketball Association Player (June 4, 2024), available here (remarks ofFBIAssistant Director-in-Charge Smith).
10NPR, A $400,000 profit on Maduro’s capture raises insider trading questions on Polymarket(Jan. 5, 2026), available here.
11Rep. Ritchie Torres,In Response to Suspicious Polymarket Trade Preceding Maduro Operation, Rep. Ritchie Torres Introduces Legislation to Crack Down on Insider Trading on Prediction Markets(Jan. 9, 2026), available here.
This post is based on a Paul, Weiss, Rifkind, Wharton & Garrison LLP memorandum, “CFTC Chairman Outlines Regulatory Agenda for Prediction Markets and Cryptocurrency and SDNY Signals Focus on Prediction Markets Fraud,” dated February 12, 2026, and available here.