CRS Reviews Regulatory Framework and Policy Issues Regarding Prediction Markets
Commentary by Stephan Ariyan
The Congressional Research Service ("CRS") reviewed the structure, regulatory history, and policy concerns surrounding prediction markets—exchange platforms specializing in offering binary-payoff event contracts tied to the occurrence or non-occurrence of specific events.
In its report, the CRS explained that the current CFTC leadership has taken the position that many event contracts—including sports event contracts—constitute "swaps" under the CEA subject to the agency's exclusive jurisdiction, thereby preempting state and tribal gaming laws. The report noted that this jurisdictional claim is currently being litigated, with several states challenging CFTC authority to displace legalized sports gambling frameworks. The CRS also explained that there are two dominant prediction market operators — Kalshi, which operates a CFTC-regulated exchange, and Polymarket, whose largest prediction market exchange is domiciled offshore and claims to block U.S. users.
The CRS identified regulatory arbitrage as a central policy concern, observing that CFTC-regulated prediction market exchanges currently offer products functionally similar to legalized sports gambling while avoiding state-level restrictions on bet types, age requirements, and sports gambling taxes. The report also considered insider trading risks, noting that while certain CFTC regulations and exchange rules address limited forms of insider trading, the degree to which such provisions are being, or can practically be, enforced against prediction market participants remains an open question. The CRS highlighted that the CFTC recently reported enforcement cases brought by Kalshi against two individuals for "insider trading" and the CFTC issued a related advisory opinion on its existing authority to combat improper trading activity.
The CRS further reviewed the CFTC's evolving regulatory posture, noting that in March 2026 the agency issued a staff advisory requiring that event contracts not be "readily susceptible to manipulation" and that exchanges conduct real-time monitoring, and separately published an Advance Notice of Proposed Rulemaking soliciting comments on prediction market regulation. The report also identified several bills introduced in the 119th Congress that would variously prohibit categories of event contracts, "delegate regulation to the states," or restrict trading by certain government-affiliated individuals. The CRS cautioned that absent congressional action or definitive judicial resolution, future CFTC leadership could revisit the current permissive approach to event contract regulation.
Commentary
The new CRS report provides an objective overview of how predictive market platforms look like casinos to some, derivatives exchanges to others, and catnip to regulators caught in the middle. Event contracts are federally regulated commodities products, yet their subject matter increasingly overlaps with sports betting and elections, areas traditionally policed by the states. The result is a regulatory Rorschach test: Are these markets sophisticated price‑discovery tools or simply gambling with better math? The CRS doesn’t pick sides, but its analysis underscores the real takeaway for market participants: prediction markets may be innovative, but they are no longer flying under the radar. Stay tuned!
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