CFTC Proposes New Rules for Prediction Markets Amid Regulatory and Legal Challenges The CFTC has relEased a sweeping proposal to regulate prediction markets,defining permissible event contracts while addressing state conflicts and insider trading concerns. Federal regulators have introduced a comprehensive proposal to establish recent rules for the prediction markets industry, which is experiencing rapid growth amid ongoing legal disputes over federal versus state regulatory authority. The Commodity Futures Trading Commission (CFTC) released a notice of proposed rulemaking detailing which event contracts would be permissible under federal law. this move follows heightened scrutiny from state regulators, lawmakers, and gambling authorities concerning platforms like Kalshi and Polymarket and the real-world events on which users can wager. according to the CFTC, trading volume in federally regulated prediction markets exceeded $25 billion in 2025, driven by rising popularity and expanding event divErsity. The agency asserts that event contracts fall under the Commodity Exchange Act, as derivatives markets serve the public interest by facilitating risk management and price discovery.Under the proposal, sports-related contracts would generally be allowed, covering outcomes such as final scores, point differentials, win-loss records, tournament advancement, and individual or team performance statistics. However, micro-event contracts tied to specific plays or moments-like a single baseball pitch or hockey shot-would be prohibited, as would contracts involving player injuries,physical altercations,officiating decisions and precollegiate sports. casino-style games of pure chance, including roulette, remain banned, though some skill-chance hybrids like poker tournaments might qualify under certain conditions.The proposal as well bans contracts on terrorism, assassinations, or war due to national security concerns. CFTC Chairman Michael Traynor emphasized that the framework aims to protect market integrity while allowing responsible innovation. The proposal emerges amid a conflict over whether prediction markets are financial products or gambling. Critics,such as Utah Governor Spencer Cox, argue they are gambling and vow to resist federal preemption of state authority.The CFTC has challenged state actions, including cease-and-desist orders and lawsuits, to prevent bans. Additionally, the industry faces allegations of insider trading, highlighted by a federal investigation into a former U.S. representative and a special operations soldier accused of using classified information to profit from bets on a Venezuelan raid via Polymarket. The trader allegedly earned over $400,000 before the operation. The case is set for trial later this year