Federal Agencies Signal Renewed Focus on Prediction Markets

Key Points

• The Chairman of the Commodity Futures Trading Commission (CFTC) and the United States Attorney for the Southern District of New York (SDNY) in recent days signaled they are increasingly focused on prediction markets.
• In a speech on January 29, 2026, CFTC Chairman Michael Selig outlined the agency’s plans for addressing prediction markets, including directing staff to draft new rules specifically relating to event contracts.
• At the Securities Enforcement Forum in New York on February 5, 2026, the U.S. Attorney in SDNY, Jay Clayton, said he expects fraud prosecutions relating to trading on prediction markets.
• While the laws and regulations governing prediction markets are evolving, existing laws prohibit manipulating event contracts and trading such contracts based on material nonpublic information. Market participants should ensure they have clear policies and procedures in place to prohibit such activity.

Background

Prediction markets are online platforms where people can bet on the outcome of future events with a “yes” or “no” answer, including contracts based on sports, popular culture and politics. These markets have exploded in popularity in the last year, with total trading exceeding $60 billion in 2025—a 400% increase from 2024. While a small number of prediction markets generated the vast majority of this volume, new companies are rapidly entering the market, including traditional sports betting platforms.

Unlike traditional sports books and gambling, which are regulated by the states, prediction markets in the U.S. are regulated at the federal level by the CFTC. Yet despite their growing popularity and several high-profile instances of suspected insider trading, the CFTC and criminal authorities have yet to bring a case alleging fraud or manipulation in these markets. That may change soon, as both the CFTC and SDNY have indicated in recent days that they are increasingly focused on prediction markets.

In a speech on January 29, 2026, CFTC Chairman Michael Selig outlined a four-point plan to address prediction markets, in which he directed staff to:

1. Withdraw a rule proposed in 2024 that would have prohibited politics- and sports-related event contracts.
2. Begin drafting new rules specifically addressing event contracts.
3. Assess whether the Commission should participate in ongoing litigation in which courts may decide issues relevant to the CFTC’s jurisdiction over prediction markets.
4. Develop joint interpretations of certain definitions in the Dodd-Frank Wall Street Reform and Consumer Protection Act, in conjunction with the Securities and Exchange Commission, to clarify the dividing lines between the two agencies relating to options and swaps.

Notably absent from these priorities is any reference to enforcement. The CFTC’s Division of Enforcement was quiet in 2025, filing just 11 enforcement actions compared to 58 in the 2024 fiscal year. But there is reason to think the CFTC may increase its enforcement oversight in prediction markets in 2026, particularly in relation to fraud and manipulation.

In an interview on February 12, 2026, Chairman Selig indicated that the CFTC is focused on insider trading in prediction markets and has been in contact with prediction markets and sports leagues to ensure the agency is on top of the issue. Selig also noted that prediction markets are themselves monitoring for potentially fraudulent and manipulative trading. If a prediction market discovers a credible instance of potential insider trading, it would likely disclose it to the CFTC, which could then open an investigation.

Further highlighting the federal government’s increased focus on prediction markets, the U.S. Attorney for the Southern District of New York, Jay Clayton, stated on February 5, 2026, that he expects to see fraud prosecutions relating to trading on prediction markets. Such prosecutions may look similar to recent indictments out of the Eastern District of New York last year, in which the office brought wire fraud charges against Major League Baseball and National Basketball Association players for placing bets in traditional sports books based on inside information. Because event contracts are regulated by the CFTC (unlike traditional sports books), insider trading prosecutions relating to prediction markets might also include charges under the Commodity Exchange Act, which may be prosecuted criminally.

Compliance Considerations

• Event contracts are regulated by the CFTC, meaning that CFTC rules prohibiting fraudulent and manipulative trading generally apply to prediction markets.
• Although the CFTC’s Division of Enforcement has been relatively quiet under the current administration, it may increase its oversight over prediction markets in the coming year.
• There is ambiguity and debate regarding the extent to which the Commodity Exchange Act (CEA) and CFTC regulations (including regulations regarding fraud and manipulation) apply to certain event contracts, such as contracts relating to sports. New CFTC rules may clarify these issues.
• Even if certain event contracts currently offered by prediction markets are not subject to the CEA and CFTC regulations, criminal authorities may still prosecute insider trading on prediction markets under a wire fraud theory, similar to other recent sports betting cases.
• To minimize the risk of government scrutiny relating to prediction market trading, market participants should ensure they have clear policies and procedures in place to prevent trading in prediction markets on the basis of inside information, including surveilling for suspicious activity where appropriate.