Every legal prediction market in the United States exists because of one federal regulator. The Commodity Futures Trading Commission treats event contracts — agreements that pay depending on whether something happens — as derivatives, and an exchange that wants to offer them to Americans needs a CFTC licence as a designated contract market. Kalshi holds one. Polymarket bought one. Novig holds one through its Ludlow Exchange entity. The whole US industry sits on that framework.
How the CFTC regulates prediction markets explains almost every fight in the category right now: why election contracts went live in 2024, why states are suing over sports contracts, why Arizona filed criminal charges against Kalshi in March 2026, and why a bill in Congress would reclassify the whole business as gambling. This guide covers the legal machinery, the cases that shaped it, and what the framework does and does not do for your money.
| Date | Event | Why it mattered |
|---|---|---|
| April 2012 | CFTC blocks Nadex's proposed election contracts | First use of the public-interest rule against political contracts |
| October 2014 | CFTC staff issue a no-action letter to PredictIt's academic operator | Allowed small-stakes political markets without a full licence |
| November 2020 | Kalshi designated as a contract market | First federally regulated exchange built for event contracts |
| January 2022 | Polymarket settles with the CFTC for $1.4 million | Agreed to block US users |
| August 2022 | CFTC withdraws PredictIt's no-action letter | Triggered years of litigation |
| September 2023 | CFTC disapproves Kalshi's congressional control contracts | Led to Kalshi's lawsuit |
| September 2024 | Federal court rules for Kalshi | Election contracts go live that October |
| January 2025 | Kalshi lists sports event contracts | Opened the fight with state gaming regulators |
| May 2025 | CFTC drops its appeal in the Kalshi case | Election contracts effectively settled federally |
| 2025 | Polymarket acquires QCEX, a CFTC-licensed exchange, for $112 million | Route back to US users |
| March 2026 | Arizona charges Kalshi; Schiff-Curtis bill introduced | State and congressional counter-attack |
What the CFTC Is and Why It Regulates Prediction Markets
The CFTC was created in 1974 to regulate futures markets, and its remit has since grown to cover options and swaps under the Commodity Exchange Act. Its core jobs are licensing exchanges and clearinghouses, policing fraud and manipulation, and protecting customer funds.
Event contracts fall under that remit because, in legal terms, they are derivatives: their value depends on an underlying event, much as a futures contract's value depends on the price of oil or wheat. That classification is what lets a prediction market operate nationally rather than seeking approval from fifty separate state gaming regulators. The Commodity Exchange Act gives the CFTC exclusive jurisdiction over contracts traded on a licensed exchange, and that exclusivity is the basis of the industry's argument that federal law pre-empts state gaming law. Our guide to whether prediction markets are legal in the US covers what that means in practice for each state.
The framework was not designed with sports or elections in mind. It was built for commodities and financial risk, and the question of how far it stretches is the subject of nearly every current dispute.
Designated Contract Markets: The Licence Behind Kalshi
A designated contract market, or DCM, is a federally licensed exchange. It is the same category of licence held by the CME Group and ICE, the largest futures exchanges in the world. To earn it, an exchange must meet core principles covering market surveillance, protection against manipulation, fair access, financial resources and customer protection, and it must keep meeting them.
Kalshi was designated in November 2020 and was the first DCM built specifically for event contracts. That licence is the foundation of everything it does, from election markets to sports, and it is why Kalshi can offer contracts in states that would otherwise treat them as gambling. Our Kalshi review and our assessment of whether Kalshi is legit cover what the licence means for users.
Other routes into the US market run through the same licence category. Novig operates through its own DCM, Ludlow Exchange, which our Novig review covers. Brokers such as Robinhood act as intermediaries and route customer orders to licensed exchanges; our Robinhood review explains that structure. Polymarket, after years of blocking US users, acquired a licensed exchange to serve them.
How New Contracts Get Listed: Self-Certification
A DCM does not need the CFTC's permission for each new contract. Under the agency's rules, an exchange can list a contract by self-certifying that it complies with the Commodity Exchange Act and CFTC regulations, filing the certification with the agency. The CFTC can then review the contract and, in limited circumstances, stay or block it.
Self-certification is why the range of prediction markets expanded so quickly after 2024. Kalshi self-certified its sports contracts, launching them in January 2025 around the Super Bowl. Other exchanges followed with their own sports and event contracts, including the Crypto.com derivatives exchange behind its OG prediction product, which our OG review covers. An exchange can also ask for formal approval instead, which gives more legal certainty but takes longer.
The speed of the process is exactly what state regulators object to. From their perspective, an exchange can self-certify a contract on the outcome of a football game and start offering it nationwide without any state review, even though the same bet at a sportsbook would require a state licence, state taxes and state consumer protections.
The Public-Interest Rule and Its Limits
The CFTC's main tool for stopping an event contract is a special rule added to the Commodity Exchange Act by the Dodd-Frank Act in 2010 and implemented in CFTC Rule 40.11. It allows the agency to prohibit event contracts that involve terrorism, assassination, war, gaming, activity unlawful under federal or state law, or similar activity it determines to be contrary to the public interest.
The CFTC first used this power against political markets in 2012, when it blocked a proposal by the exchange Nadex to list contracts on the presidential election. For more than a decade afterwards, the agency's position was that election contracts involved "gaming" and were contrary to the public interest. That word — gaming — is the hinge of the entire legal debate, and our analysis of whether prediction markets are gambling explains why the two sides read it so differently.
That position was tested — and lost — in court. The central legal question in the Kalshi case was whether an election contract involves "gaming" in the sense the statute means. The court's answer, and the CFTC's decision not to pursue its appeal, narrowed the rule's reach considerably. It still exists, and the agency can still invoke it, but its power to block whole categories of contracts is far weaker than it was.
Kalshi v. CFTC: The Election Contract Case
In 2023, Kalshi self-certified contracts on which party would control the House and Senate. In September 2023, the CFTC disapproved them, citing the public-interest rule and arguing that the contracts involved gaming and activity unlawful under state law. Kalshi sued the agency in federal court in Washington, D.C.
In September 2024, the district court ruled in Kalshi's favour, holding that the contracts did not involve gaming or unlawful activity within the meaning of the statute. The CFTC appealed, but the appeals court declined to halt the ruling while the appeal proceeded, and Kalshi listed election contracts in October 2024, weeks before the presidential election. Interactive Brokers and Robinhood followed with election contracts of their own. In May 2025, the CFTC dropped its appeal.
The practical effect is that federally regulated election contracts are now a fixture of US politics. The 2026 midterm election odds are traded openly on Kalshi, and the Kalshi case is the reason. Our 2026 midterms trading guide covers how those markets work.
PredictIt and Polymarket: Two Other Paths
PredictIt took a different route. In 2014, CFTC staff issued a no-action letter to its operator, Victoria University of Wellington in New Zealand, allowing it to run small-stakes political markets for academic purposes without registering as an exchange. The letter capped individual investments per contract at $850. In August 2022, the CFTC withdrew the letter, and PredictIt's users and backers challenged the withdrawal in court. The episode showed how fragile a business built on staff relief, rather than a licence, can be. Our history of how prediction markets evolved covers PredictIt's role in the category.
Polymarket's path ran through enforcement. In January 2022, it settled with the CFTC for $1.4 million over offering event contracts to US users without registration, and agreed to block them. For the next several years it operated internationally only. In 2025 it acquired QCEX, a CFTC-licensed exchange, for $112 million to build a regulated US product, while its international platform continues separately. Our Polymarket review and our guide to where Polymarket is legal explain how the two products differ.
The States' Challenge
The federal framework is now under sustained attack from the states, focused mainly on sports contracts. State gaming regulators argue that a contract on which team wins is a sports bet by another name, and that federal derivatives law was never meant to displace state control of gambling.
Courts have split. Tennessee ruled in Kalshi's favour; Nevada, Massachusetts, Maryland and Ohio ruled against it. Arizona went further than any state, filing criminal charges against Kalshi on March 18, 2026. Eleven states introduced prediction market legislation during 2026. At the federal level, CFTC Chairman Michael Selig has publicly supported the position that federal law pre-empts state gaming rules for contracts on licensed exchanges.
The outcome matters for everyone who trades. If the federal pre-emption argument prevails, licensed exchanges can offer the same contracts nationwide. If it fails, access will vary state by state, as it already does for some products. Our state-by-state legal map tracks where things stand, and our analysis of whether prediction markets are gambling sets out both sides of the argument.
What Congress Might Do
Congress could settle the question directly. On March 23, 2026, Senators Adam Schiff and John Curtis introduced the Prediction Markets Are Gambling Act, which would treat event contracts as gambling rather than derivatives. It has not become law.
Legislation cuts both ways. A bill could clarify federal authority and end the state-by-state conflict, or it could hand the whole category to state gaming regulators. Until Congress acts, the framework is the one the CFTC and the courts have built, and it rests on the Commodity Exchange Act as written.
It is worth being concrete about what a gambling classification would change. Event contracts would come under state gaming law, which means state licences, state taxes and state rules on who may participate — many states set the minimum age for sports betting at 21. Nationwide access would end, replaced by a patchwork of states that license the products and states that ban them. And the tax picture would shift toward the gambling treatment, which is unfavourable because the OBBBA caps deductible gambling losses at 90% from tax year 2026. Our legal guide explains how today's rules already differ by state.
What CFTC Regulation Means for Your Money
For users, a CFTC licence brings concrete protections. Licensed exchanges and intermediaries must hold customer funds separately from their own money, maintain market surveillance to detect manipulation, and operate under rules the CFTC can enforce. The agency has broad anti-fraud and anti-manipulation authority, which extends to event contracts. Identity verification is part of the same framework — our guide to prediction market KYC explains what exchanges ask for and why.
The protections have limits. Accounts at futures-style intermediaries are not covered by SIPC or FDIC insurance, and a licence does not protect you from losing money on your trades. Enforcement against insider trading in event contracts is still developing, a gap our analysis of prediction market insider trading regulation covers in detail. Tax treatment is also unsettled: the IRS has issued no specific guidance, and our prediction market tax guide explains the treatments in use.
What to Watch Next
Three things will shape the next year. The first is the state litigation: appellate rulings on federal pre-emption will decide whether sports contracts can be offered nationwide. The second is Congress, where the Schiff-Curtis bill and any competing proposals will test whether lawmakers want to intervene. The third is the CFTC itself, which under its current leadership has favoured a broad reading of federal authority but could revisit its rules on event contracts.
For traders, the practical advice is unchanged: use licensed venues, understand what your state allows, and follow the cases. Our ranking of the best prediction market apps notes each venue's regulatory status, Polymarket vs Kalshi compares the two largest, and how prediction markets work covers the basics for anyone new.
Frequently Asked Questions
Does the CFTC regulate prediction markets?
Yes. The CFTC treats event contracts as derivatives under the Commodity Exchange Act, and exchanges that offer them to US users must be licensed as designated contract markets. Kalshi, Novig's Ludlow Exchange and Polymarket's US exchange operate under that framework.
What is a designated contract market?
A federally licensed exchange, the same category of licence held by the CME Group and ICE. It requires ongoing compliance with rules on surveillance, manipulation, customer protection and financial resources.
How did Kalshi get approval for election contracts?
The CFTC blocked its congressional control contracts in 2023, and Kalshi sued. A federal court ruled for Kalshi in September 2024, election contracts launched in October 2024, and the CFTC dropped its appeal in May 2025.
Why are states suing prediction markets?
States argue that sports event contracts are gambling that should be regulated by state gaming law, not federal derivatives law. Courts have split, and Arizona filed criminal charges against Kalshi in March 2026. See our state-by-state legal map.
Can the CFTC ban a prediction market contract?
It can prohibit event contracts involving terrorism, assassination, war, gaming or unlawful activity if it finds them contrary to the public interest. The Kalshi ruling narrowed how far that power reaches.
Is Polymarket regulated by the CFTC?
Its US product operates through QCEX, a CFTC-licensed exchange Polymarket acquired in 2025. Its international platform is separate and blocks US users. See our guide to where Polymarket is legal.
What is the Prediction Markets Are Gambling Act?
A bill introduced by Senators Adam Schiff and John Curtis on March 23, 2026, which would classify event contracts as gambling. It has not become law.
Are my funds protected on a CFTC-regulated prediction market?
Licensed venues must segregate customer funds and operate under CFTC surveillance, but accounts are not covered by SIPC or FDIC insurance, and the licence does not protect against trading losses.
