White House eyes CFTC proposal for regulating prediction markets

• CFTC Chairman scrapped a proposed ban on sports and political betting on prediction platforms on Jan. 29, instead planning to write new regulatory rules for the sector
• Several states are challenging CFTC authority, with New York AG suing Kalshi and Polymarket for allegedly operating illegal gambling, and Minnesota enacting the nation's first state-level prediction market ban
• Former CFTC and SEC Chairman Gary Gensler stated the agency is not authorized under the 2010 Dodd-Frank Act to regulate prediction markets and lacks capacity, arguing states should have regulatory authority instead

White House Reviews CFTC Proposal for Prediction Market Regulation

Key Developments:

The White House is reviewing a Commodity Futures Trading Commission (CFTC) proposal to regulate prediction markets like Kalshi and Polymarket, according to a Tuesday filing. Specific details of the proposal remain undisclosed pending Office of Management and Budget review.

Political Backing:

President Donald Trump publicly supported the initiative the same day, stating via social media that "the CFTC's exclusive authority over Prediction Markets is maintained, and that they will thrive." Trump emphasized keeping U.S. leadership in this emerging financial market sector against international competition.

Regulatory Dispute:

A significant jurisdictional conflict exists between federal and state oversight. CFTC Chairman announced plans on January 29 to develop governing rules while scrapping proposed prohibitions on sports and political betting. However, former CFTC and SEC Chairman Gary Gensler contradicted current agency claims, asserting the CFTC lacks authorization under the 2010 Dodd-Frank Act to regulate prediction markets, arguing states should maintain this authority.

State Opposition:

Several state officials are challenging CFTC jurisdiction. New York Attorney General Letitia James sued Kalshi and Polymarket in April for allegedly operating illegal gambling operations. Minnesota enacted the nation's first state-level prediction market ban, while Illinois restricted state employees from wagering with confidential information.

Market Implications:

The regulatory uncertainty creates compliance risks for prediction market platforms. Gensler predicted the federal-state authority dispute will ultimately reach the Supreme Court. He questioned the CFTC's capacity to oversee these markets, noting the agency is smaller than 15 years ago while capital markets have expanded significantly.

Disclosure: CNBC maintains a commercial relationship with Kalshi.