Democrats urge CFTC to rein in prediction markets sports betting, insider trading

• Sports contracts make up nearly 90% of bets on Kalshi but only 38% on Polymarket, with lawmakers arguing these contracts represent gambling that violates states' rights to regulate such activity
• Democratic senators introduced bills to bar government officials from using prediction markets entirely and to prohibit event contracts on elections and military actions
• A federal appeals court ruled in April that New Jersey regulators could not prevent prediction markets from offering sports bets, as the CFTC asserts exclusive federal jurisdiction over these platforms

Summary: Democrats Push CFTC to Restrict Prediction Markets

A group of Democratic lawmakers, led by Senator Jeff Merkley (D-OR), has sent a letter to the Commodity Futures Trading Commission (CFTC) urging stricter regulation of prediction markets. The legislators are calling for prohibition of event contracts related to elections, war, military actions, sports, and government activities, while also demanding measures to prevent insider trading.

Key Developments:

The push comes as prediction markets like Kalshi and Polymarket have surged in popularity over the past year. Recent controversies include a bettor earning $400,000 on Polymarket by allegedly placing wagers ahead of military action in Venezuela, and Kalshi banning three political candidates for trading on their own campaigns.

Market Composition:

According to CFTC data, sports betting dominates these platforms, comprising nearly 90% of Kalshi's volume in the year ending February. On Polymarket, sports represented 38% of contracts, with a more diversified mix of event types.

Regulatory Action:

The CFTC announced plans for prediction market regulation in March, with the public comment period closing Thursday. CFTC Chair Rostin Behnam described the rulemaking as promoting "responsible innovation" while exercising the agency's exclusive jurisdiction over these markets.

Jurisdictional Disputes:

The CFTC has filed lawsuits against several states attempting to regulate prediction markets under gambling laws. A federal appeals court ruled in April that New Jersey regulators could not prevent bets on sporting events, reinforcing federal authority.

Democrats argue these contracts create financial incentives for insiders to manipulate outcomes and represent gambling that violates states' rights. Lawmakers have introduced multiple bills to restrict prediction market access and prohibit certain contract types.

Disclosure: CNBC has a commercial relationship with Kalshi, including a minority investment.