CFTC drops its prediction market rulebook

The @CFTC has released a long-awaited framework for prediction markets, drawing clear lines between what will be permitted and what will be outright banned on regulated platforms.

What Gets Banned

Under the proposal, contracts tied to war, terrorism, and assassinations are off the table. That ban extends to "out of office" markets on foreign leaders, a category that directly implicates platforms like Polymarket, which hosts an "Iran leader end of 2026?" market that has accumulated $14.4 million in total trading volume since the market launched on March 1, 2026. Such markets would only be permitted if they resolve on peaceful exits, not violent removal from power.

The concern is not theoretical. A report by the Anti-Corruption Data Collective found indications of "systemic insider-trading" in betting on military outcomes. In the hours before the start of the Iran war, one account made roughly $550,000 in a series of trades effectively betting that the U.S. would strike Iran and that Ayatollah Ali Khamenei would be removed from office. The CFTC's proposal directly addresses that vulnerability: it would impose a complete ban on wagers tied to events with a high risk of insider trading, including those related to war, terrorism, and assassinations.

Granular sports props also face restrictions. Injury bets, referee call markets, and fight markets are out under the new framework.

What Gets the Green Light

The CFTC's approach is not uniformly restrictive. Election markets are explicitly classified as legitimate financial instruments rather than gambling, and aggregate sports outcome contracts are also approved. Under the new framework, contracts on sporting events would be allowed, provided they meet certain transparency and liquidity standards. The CFTC is particularly focused on preventing manipulation, requiring market operators to implement surveillance systems and reporting mechanisms.

The broader rulemaking push has been months in the making. In June 2024, the prior CFTC administration published a proposed rulemaking that would have broadly identified political and sports-related event contracts as "contrary to the public interest," effectively barring them from CFTC-regulated exchanges. However, the proposal was never finalized. In February 2026, the CFTC formally withdrew that rulemaking. A new proposal for the CFTC to regulate prediction markets such as Kalshi and Polymarket is currently under review by the White House.

The industry now has 45 days to submit formal comments before any rules are finalized. Given the volume of litigation, congressional pressure, and the scale of capital already flowing through these platforms, the response is likely to be substantial.

Sources:
Norton Rose Fulbright: CFTC Advances Regulatory Framework for Prediction Markets
Federal Register: CFTC Advance Notice of Proposed Rulemaking on Prediction Markets
CBS News: Suspected insider accounts net $2.4 million on Polymarket Iran war bets