The CFTC Is Tying Its Own Hands on Prediction Markets

It is no secret that the prediction market industry has “steamrolled” its federal watchdog. As the New York Times recently detailed, industry-connected Trump officials at the agency “shrunk its work force, purged career officials…and helped out prediction markets at virtually every turn.” As such, one might expect the industry to receive some amount of favorable policy concessions. But a recent proposed rule from the Commodity Futures Trading Commission (CFTC) offers prediction markets something more than just minimal oversight or a light touch; instead, it aims to prevent a future Commission–perhaps under new leadership–from reversing course. Specifically, the proposal in question aims to transform the agency’s failure to review a particular prediction market’s offered listing into an affirmative, default approval of that listing–one that could complicate future efforts to protect the public. This effort raises serious implications for the rule of law, and the courts may have the final say on whether it is successful. 

Prediction markets have launched a multiprong assault on governments’ ability to regulate them. When companies such as Kalshi and Polymarket experienced explosive growth in recent years, state policymakers around the country viewed them as gambling by another name and began to regulate the platforms as such. The states’ efforts were met with fierce litigation from the prediction market companies, which argued that state laws were preempted by the CFTC’s authority to regulate “event contracts” under the Commodity Exchange Act (CEA). After the Trump administration eliminated the CFTC’s independence in February 2025 and installed new leadership in December 2025, the CFTC itself joined in the litigation on industry’s side in 2026–suing nine states and agreeing with industry that it should have exclusive, nationwide jurisdiction to regulate prediction markets. Those cases are still pending, with one potentially headed to the Supreme Court. 

The CFTC’s proposed rule is one piece of evidence that demonstrates why the industry wants the CFTC to have exclusive jurisdiction over prediction market platforms: if finalized and allowed to take effect, it would both disarm the agency now and potentially make it more difficult for the CFTC to conduct meaningful oversight over the industry in the future. Concerned about creating a system of legalized gambling that could incentivize harmful activity, Congress prohibited the listing of “event contracts” that the CFTC determines are “contrary to the public interest” because they “involve” illegal activities and events such as “terrorism,” “assassination,” “war,” or “gaming.” In addition to continuing the CFTC’s hands-off approach to reviewing prediction market listings (it has initiated only three public interest reviews of event contracts since 2012), the new rule is designed to make enforcement of this public interest review statute far more difficult and prevent a future administration from establishing guardrails on the prediction market industry.

Others have focused on the many substantive issues raised by the proposal, including its definitions of “gaming” and what it means for a contract to “involve” a prohibited activity. My focus is instead on the procedural moves that the proposed rule makes, which, although legally dubious, would have profound consequences if the rule is finalized and allowed to take effect. First, the proposal encumbers CFTC’s public interest review by imposing tight deadlines and paperwork burdens on the agency, making it harder for the agency to review event contracts at all. The proposal then recasts CFTC’s inaction on a contract as a settled determination on its legality–locking in the current CFTC’s preferences and limiting a future administration’s ability to revisit them. These provisions conflict with the CFTC’s obligations under the CEA, and the CFTC’s reasoning both misconstrues key principles of administrative law and fails to grapple with important considerations that the CFTC cannot ignore.

What the Proposal does: Time Limits, Paperwork, and Lock In

To start, the regulation imposes a series of time limits and paperwork requirements on the CFTC that could make it difficult for the agency to initiate or complete any public interest review of any event contract. Under the regulation, the CFTC would have 10 days to initiate the 90-day public interest review of a newly listed event contract. Within those 10 days, the CFTC would have to initiate review by developing a written determination that identifies the enumerated factors implicated in the review, the terms of the event contracts that are at issue, and the reasons that the contract warrants review. Then, within 15 days, the CFTC must provide the prediction market with a “written statement identifying the factual basis, legal theory, specific contract terms,” and analysis under several regulatory factors. The prediction market then gets multiple opportunities to rebut the CFTC’s findings, forcing the CFTC to respond. To compel the market to delist the contract, the Commission must ultimately vote to issue an order finding that the contract is contrary to the public interest within 90 days from the initiation of review. But if the CFTC fails to meet these tight timelines, the review is “deemed concluded” and the event contract can continue to be listed.

In addition to imposing unrealistic deadlines, the proposed rule would convert the CFTC’s failure to prohibit an event contract before the clock runs out into something closer to an affirmative approval of the contract—one that could set a precedent for the agency moving forward. In the Commission’s own words: after 100 days (the sum of the extrastatutory 10-day initiation deadline plus the statutory 90-day review window), “whether through an order or through non-action, the agency will have taken final agency action.” Although the proposed rule is not a model of clarity, CFTC seems to be trying to shield prediction markets by preventing a future CFTC from revisiting past public interest reviews and event contracts upon which the agency took no action.

The proposal also seems to require the CFTC to reconcile a decision to delist an event contract in the future with its failure to delist contracts in the past. As proposed, CFTC must “[e]xplain…the consistency of the [delisting] order with prior Commission determinations involving comparable” contracts “or provid[e] a reasoned explanation for any departure.” A “determination” is defined in CFTC’s new regulatory language as either an order finding an event contract contrary to the public interest or the lack of such an order, and in the preamble the Commission states that non-action on a contract that was “never subjected to review” likewise constitutes a “determination.” Putting these pieces together, the proposal could be interpreted to force a future CFTC with different policy priorities to distinguish its decision to review and disapprove an event contract from hundreds of thousands of event contracts that were approved as a result of agency inaction, multiplying the burdens on the agency.

Why the Proposal is Inconsistent with the CEA and CFTC’s Obligations Under Administrative Law

The proposal amounts to a blatant giveaway to the prediction market industry. But if the CFTC decides to finalize the rule, litigants might have a variety of arguments to prevent it from ever taking effect, or at least to dilute some of its effects.

The CEA itself is silent on when the CFTC must commence a public-interest review of an event contract, providing only that the review, once initiated, must conclude within 90 days. The fact that Congress created the 90-day time-limit for the length of the review but declined to impose a deadline by which the CFTC must begin the review implies that it did not intend to so limit the CFTC. There’s good reason to believe that Congress made this choice intentionally: continuous review authority is the norm across regulatory frameworks. This especially covers those governing markets, regulatory licenses and approvals. Moreover, Congress established a 10-day review-initiation deadline for review of exchange “rules” elsewhere in the same statutory section, but chose not to do so for event contracts.

But even assuming the Commission has the authority to establish timelines for review initiation, it must do so in a way that furthers–rather than inhibits–its statutory mission, and does not fail to consider important aspects of the problem, such as the agency’s already-limited capacity to police the ballooning prediction markets industry. Anything else would be arbitrary and capricious. CFTC justifies these provisions as necessary to “provide certainty” to market participants once they’ve listed their event contracts for longer than 10 days with no Commission action. Although the market’s desire for certainty is understandable, a small and shrinking CFTC workforce—made smaller by a DOGE-led purge—likely cannot identify and work up review-initiation determinations in just 10 days at a scale anywhere near commensurate to the exploding volume of event contract listings. As the proposed rule noted, one prediction market increased its daily average number of event contracts from 1,600 in April 2025 to 162,000 in April 2026. Platforms might also expand their efforts to game the system by batching their submissions in a single 10-day period to overwhelm the resource-strapped CFTC, thereby decreasing the already-slim chance that any single contract is subjected to public interest review. Additionally, new facts or circumstances (or new law, as the CEA empowers CFTC to add additional public interest review factors via rulemaking) might also warrant a public interest review that reaches back more than 10 days.

Furthermore, the proposal’s effort to recast agency inaction as a final determination stretches the CEA beyond the breaking point. If the CFTC chooses to initiate a public interest review, the statute directs it to “take final action” to conclude the review within 90 days. In contrast, the proposed rule says that “non-action”—that is, failure to initiate a public interest review in the first place—is itself a “final agency action” that deems an event contract as approved for trading. But nothing in the statute fashions an approval out of Commission inaction, and that’s something the CFTC cannot do itself. After all, Congress knows how to turn inaction into default approval when it wants to; for example, the Exchange Act deems the Security and Exchange Commission's failure to act on The Financial Industry Regulatory Authority’s proposed rule changes as an approval after a certain amount of time.

How the Proposal Misconstrues the Supreme Court’s Change-in-Position Doctrine 

Finally, even setting aside the CFTC’s confusing and circuitous regulatory text on the subject, the proposed rule’s provision requiring it to reconcile future delisting decisions with past determinations by default reflects an apparent effort to weaponize the Supreme Court’s change-in-position doctrine against a future administration that might seek to regulate prediction markets more tightly. Among other things, that doctrine requires that an agency changing a prior position acknowledge that it is changing course and give good reasons for the change. Where a prior position “engendered serious reliance interests,” the agency must “provide a more detailed justification than what would suffice for a new policy created on a blank slate,” by assessing those interests and weighing its policy choices against them. 

The proposed rule argues that the explanation provision simply codifies what is already required by the change-in-position doctrine. This is not so. On the contrary, the proposed regulation attempts to impose a kind of “justification tax” on a future CFTC, both by creating (through default approval) positions on topics about which the Commission took no affirmative action and by manufacturing reliance interests in this hands-off policy that could heighten the agency’s later burden under the doctrine.

Prior to the proposal, the CFTC’s posture of inaction on hundreds of thousands of event contracts likely would not even constitute a particular “position” that could trigger the doctrine at all. And after? Still no agency action, no deliberation, no Commission votes. But that inaction purports to result in hundreds of thousands of individual event-contract approvals by default, arguably constituting a policy of blanket approval for many or likely even most event contracts. Industry fighting a future event-contract disapproval could point to these approvals as evidence of a prior agency posture that requires justification to change.

Additionally, absent the proposed rule, prediction markets would have no “justifiable” reliance on the non-review approach because, without a review-trigger deadline, the CEA puts them on notice that the CFTC has the authority to review any event contract at any time. After the proposal, industry might argue that reliance on the CFTC’s position on any given event contract is justified as soon as the 10-day review-initiation clock runs out. This could raise the agency’s burden in any given future disapproval attempt–or even complicate a future effort to rescind the regulation, if industry claims that the default approvals justify their reliance on the regulatory scheme as a whole. 

Of course, it will ultimately be up to the courts to determine whether this gambit is successful. It is not clear that a mere regulation could convince a court to treat a default approval that reflects no Commission findings, vote, or reasoning as the kind of “position” from which departure triggers any heightened explanatory burden; administrative law generally does not turn on agency-created formalisms. I am skeptical that the supposed reliance interests that industry might claim in the default approvals would be considered serious enough to do any real damage to future regulatory efforts, especially if the next CFTC acts quickly to rescind the new regulation; courts have discounted reliance interests in relatively new policies and those that “could reasonably have been viewed as a regulatory step that might soon be reversed.”

But the fact that the CFTC is trying is reason enough to be concerned. Agency inaction can be expected from a generally deregulatory administration such as this one, but an effort to create legal meaning from that inaction—meaning that could outlast the current administration—shouldn’t be tolerated in a system where changes in leadership are supposed to bring policy change.

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Agencies are supposed to serve the public interest, not entrench the preferences of whoever captured them last. Congress gave the CFTC authority to review prediction market contracts for a reason: unregulated wagering on elections, war, and human life raise serious questions about perverse incentives, morality, and national security that the market will not answer on its own. The proposed rule abdicates that responsibility, and then tries to lock in that abdication for years to come, regardless of whether a future administration takes a more pro-regulatory stance on prediction markets. The CFTC should not finalize the proposal, and if it does, courts may review it with a skeptical eye.