If there were any “mention” contracts listed on prediction markets in relation to CFTC Chairman Michael Selig’s testimony on Thursday before the House Committee on Agriculture, the phrase “advanced notice of proposed rulemaking” would have made traders a hefty payday.
Selig faced multiple hours of questioning from committee members about a host of derivatives topics, which ranged from prediction markets to agriculture and staff diversity. Gaming stakeholders were keyed into his responses to prediction market questions, which came primarily from officials whose jurisdictions included legal sports betting or tribal gaming.
Selig’s first allusion to the CFTC’s advanced notice of proposed rulemaking for prediction markets came in his opening remarks, and that message was repeated in response to nearly all subsequent questions about the controversial platforms. He emphasised several times he would not “pre-judge” certain aspects of prediction markets before said rulemaking was established.
At the same time, the onslaught of scandals mentioned repeatedly by lawmakers could not be ignored. Traders have profited immensely in recent months on a number of geopolitical events, such as the coup of Venezuelan President Nicolas Maduro and developments in the Iran war. In response, Selig ardently sought to assuage concerns related to investigation and enforcement.
Whereas the CFTC chair previously told prediction market detractors that the commission would “see them in court”, he directed that same energy Thursday toward bad actors.
“I want to be crystal clear to anyone who engages in fraud, manipulation or insider trading in any of our markets: we will find you, and the full force of the law will come to bear,” Selig asserted. “Nothing is more important than protecting market integrity, and that’s why I’ve been diligently working to reinvigorate our enforcement division and upgrade our surveillance tools to meet the challenges of our growing markets.”
All-important rulemaking process
The rulemaking proposal for prediction markets Selig alluded to was posted to the Federal Register 16 March, with a comment period open through this month. Over 800 submissions from individual citizens, interest groups, elected officials and tribal entities have been posted as of writing. In one example, Nevada Representative Dina Titus, a longtime gaming supporter who has authored prediction market legislation this year, submitted a letter to Selig dated 15 April.
“These platforms now contend that sports event contracts are financial derivatives, effectively conflating sports betting with a form of investment,” Titus wrote. “This distinction is not merely semantic; it carries serious consequences for consumers who may misunderstand the risks involved and assume protections that do not exist.”
Over the last two years, prediction markets have obtained CFTC licences and self-certified numerous categories of event contracts, including sports and politics. This has quickly snowballed into a sizable industry, with the $20 billion valuations of Kalshi and Polymarket now exceeding that of any commercial bookmakers.
In the wake of the immense scrutiny the platforms and their contracts have garnered, the CFTC’s rulemaking proposal seeks to clarify key terms and potentially rein in some of the more dubious markets that are seen as subject to manipulation, like mention contracts.
“In particular, the Commission is seeking information and public comment on statutory core principles and Commission regulations that apply to prediction markets, the types of event contracts that may be prohibited as contrary to the public interest, cost-benefit considerations related to prediction markets, and other topics,” the proposal reads. “The Commission may use the information and comments received from this Notice to inform potential future agency action, such as rulemaking, with respect to prediction markets.”
Small staff, big ambitions at CFTC
As that process unfolds, a major point of contention from committee members Thursday was the CFTC’s barebones staff. Selig is currently the lone sitting commissioner, out of a typical five. The CFTC has seen a gradual erosion in commissioners since US President Donald Trump took office last January – Selig’s predecessor, Caroline Pham, was also the lone sitting commissioner by the time she left in December.
This is not technically in Selig’s remit, as commissioners are appointed by the president and confirmed by the Senate. But the CFTC’s overall headcount and budgets have decreased in recent years, lawmakers noted, including in key investigative and enforcement units. At the same time, the commission appears more ambitious than ever.
The CFTC is both seeking to cement its exclusive jurisdiction over prediction markets and could potentially take on immense duties as part of a yet-unpassed crypto framework bill in the Senate. But when asked about these challenges, Selig was confident in his staff’s abilities and their resources.
“We are utilising new tools from AI to automation and other surveillance systems that we’re building out, and we take this responsibility very seriously, I assure you,” Selig said.
Selig alluded multiple times to the self-regulatory structure of CFTC-licensed exchanges, which he said represent the “first line” of defence. The commission comes behind them to fill gaps, though prior chair Pham said last year the CFTC has never denied or taken action against an event contract.
“It’s a comprehensive scheme where we have multiple levels of review of each contract and various activities in the markets, and we will continue to work together with the exchanges to ensure the markets are well-functioning,” Selig said on Thursday.
According to staffing data from 2023-25, the CFTC employed between 700 and 750 workers – a number that appears slightly lower now.
Tribal interests at the forefront
From California to Minnesota to New Mexico, tribal gaming interests were front-and-centre as lawmakers from those states grilled Selig on tribal exclusivity and sovereignty.
One notable dialogue came from New Mexico Representative Gabe Vasquez, who presented a board with two sets of betting lines and totals for a Houston Astros-Colorado Rockies’ MLB game. Selig, who said he was “not an expert in betting lines”, could not distinguish which set came from a prediction market or a commercial bookmaker. Vasquez harped on this point, asking whether team- and player-level contracts constitute economic hedging interests.
“There are many risks that could be hedged through various contracts on our markets,” Selig answered. “The bottom line is that these markets need to be well-functioning and comprehensively regulated by the CFTC. Our statute mandates it, and we’ll continue to do it.”
Vasquez quickly shot back that “if this product looks like sports betting, the public should expect sports betting-type protections and regulations”.
When asked directly by Oregon Representative Andrea Salinas whether prediction markets encroach on the Indian Gaming Regulatory Act, Selig deferred to the rulemaking, saying it was “something that can be addressed” in that process. He added that he has “met with several” tribes and will continue to do so.
In a similar discussion with California Representative Salud Carbajal, Selig rejected the idea that prediction markets are “gambling-style products”.
“Derivatives are a type of financial instrument, and as our statute prescribes, they can be traded with a broad range of different underlying assets,” Selig said. “It’s very important that we continue to oversee these markets comprehensively, whether the market is a sports-related derivatives contract, a political derivatives contract or a derivative on corn or grain.”
Will prediction markets implement RG?
While Selig was largely non-committal in his responses, there where two topics that he seemed receptive to. One, surprisingly, was the potential for addiction and the need for consumer protections similar to those for gamblers. In one example, Kalshi announced a self-exclusion initiative in partnership with IC360, which also provides services to the gaming industry.
This would seem antithetical to prediction markets’ claim that their products are not gambling, as CFTC rules do not require or support any addiction help services.
Selig called the potential for addiction “deeply concerning”, and said licensees have an obligation to inform customers of potential risks.
“We’ll continue to work with our exchanges and our brokers to make sure that they’re providing that information disclosure to their market participants,” he said.
Mention markets slammed by states rights backers
Over the last few months, “mention markets,” have been flagged by prediction-market detractors as contracts that are susceptible to manipulation. In the lead-up to US President Donald Trump’s State of the Union Address, Connecticut Senator Chris Murphy took exception with wagers on the length of the speech. At this week’s East Coast Gaming Congress in Atlantic City, several panellists criticised operators for listing the offerings.
Also at the conference, former New Jersey governor Chris Christie made an appearance with American Gaming Association President Bill Miller during a fireside chat. Christie now represents the AGA in its fight against prediction markets. While language on event contracts appeared in the Dodd-Frank Act of 2010, Christie noted that Congress attempted to restrict expansion of the derivative products because of the deleterious effect they had on the economy.
“This is clearly a use of swaps and derivatives,” Christie said. “We have the advantage on our side here to call a bet, a bet, because that’s what it is. It’s not an investment.”
Prediction market expansion outside the US
Back in Washington, Selig was receptive to the idea of international collaboration with sister agencies around the world. Regulations throughout Europe are largely fragmented, with France, Germany and the Netherlands among the nations that have bans against Polymarket specifically. Gibraltar recently licensed its first prediction market product, while Malta is reportedly considering a regulatory framework.
Polymarket has also been the subject of a number of highly-publicised scandals. While the platform operates a limited US exchange, it also has a broader international one, with fewer restrictions. At present, there are pending investigations on whether some suspicious trades came from outside the US, such as Israeli service members placing contracts on airstrikes.
“We of course on a regular basis are consulting with our foreign counterparts throughout the world,” Selig asserted. “It’s very important that we do so, because fraud, manipulation and market issues span across our borders.”
Matt Rybaltowski contributed to this report.
Jess Marquez
Jess has covered the global gaming industry since 2022. A native of Reno, Nevada, he’d like to note that it’s Ne-va-da, not Ne-VAH-da.
Original article: https://igamingbusiness.com/legal-compliance/regulation/cftc-selig-testimony/
