Dems urge CFTC to rein in prediction markets sports betting, insider trading

A group of Democratic lawmakers is calling on the Commodity Futures Trading Commission to issue a rule aimed at reining in prediction markets, cracking down on insider trading and banning certain types of event contracts.

In a letter first shared with CNBC and sent to the CFTC on Thursday, a group of Congressional Democrats led by Oregon’s Jeff Merkley called on the federal agency to address the “rapid erosion of integrity” in prediction markets like Kalshi and Polymarket.

“We strongly encourage you to use your authority to protect the purpose of prediction markets and the congressional intent behind the Commodity Exchange Act by issuing a rule that prevents insider trading and corruption in the market and prohibits event contracts on the results of elections, war and military actions in the United States or abroad, sports, and government actions without a valid economic hedging interest,” the lawmakers wrote.

Sen. Richard Blumenthal of Connecticut, Chris Van Hollen of Maryland, Sheldon Whitehouse of Rhode Island and Rep. Jamie Raskin of Maryland also signed the letter.

Prediction markets have soared in popularity over the past year, particularly attracting interest from regulators after a number of bets were placed on the Polymarket platform ahead of major events around the world.

Last week, a US soldier was arrested for bets he allegedly placed on Polymarket ahead of military action in Venezuela that would have earned him $400,000. Kalshi, another prediction market giant, suspended and fined three candidates for elected office for allegedly trading on their own campaigns.

A series of bills introduced since the beginning of the year aim to curb insider trading and, in some cases, ban event contracts for sports, elections, military and government activities. Merkley spearheaded a bill in March that would ban some government officials from using prediction markets altogether. Another bill, introduced by Merkley in the Senate and Raskin in the House, would ban prediction market betting on elections, war and sports.

In the letter, the group says event contracts tied to election results “pose a danger to our democracy and our elections.”

“Such contracts were not available in the United States before 2024, and for good reason,” they wrote. “Electoral prediction contracts create a financial incentive for political figures participating in elections to subvert the will of American voters by changing their behavior.”

Sports is the most popular type of event contract in terms of volume, accounting for almost 90% of bets on Kalshi in the year ending February. Congressional Research Service. The report found that sports also constitute the largest category on Polymarket, accounting for 38% of event contracts on the platform. The companies have also drawn the ire of state regulators and casinos, who argue that sporting event contracts are just gambling.

“Event contracts regarding the outcome of a sports game or event are far from the purpose of the CFTC’s mission. They are one of the most egregious examples of how these contracts represent gambling and violate states’ rights to regulate this activity,” the lawmakers wrote.

The CFTC issued a call for public comment in March as part of the rulemaking process.

“Today’s action is an important step in the Commission’s continued effort to promote responsible innovation in our derivatives markets,” the CFTC Chairman said. he said. Michael Selig said in a statement: It announces the rulemaking period, which ends Thursday. “This begins new rulemaking based on a rational and consistent interpretation of the Commodity Exchange Act, while reassuring the American public that the CFTC will exercise exclusive jurisdiction over prediction markets.”

The CFTC’s rulemaking decision comes as the agency is fighting against states trying to regulate prediction markets, arguing that authority rests with the federal government.

The CFTC has filed suit against several states that have issued cease and desist orders to prediction markets for violating gambling laws. In April, a federal appeals court ruled that New Jersey regulators could not ban the use of Kalshi to bet on sporting events.

“We’re seeing an attempt by state gaming commissions to effectively override federal law,” Selig said on CNBC’s “Squawk Box” in March before the New Jersey decision was announced.

Disclosure: CNBC and Kalshi have a business relationship that includes a minority investment in CNBC.