WASHINGTON — A group of 16 U.S. Senate Democrats is calling on the Commodity Futures Trading Commission to tighten its regulation of prediction markets, citing concerns over insider trading and other consumer harms as betting on future events grows in popularity.
The senators, led by Agriculture, Nutrition and Forestry Committee ranking Democrat Amy Klobuchar, of Minnesota, asked the CFTC to offer guidance to those participating in bustling prediction markets such as Kalshi and Polymarket in an effort to restrict event contract manipulation and insider trading, according to the June 1 letter.
“The volume of event contracts trading on prediction markets has grown exponentially over the past 18 months,” the senators wrote. “These markets have a significantly higher proportion of retail participants than traditional derivatives markets, heightening customer protection concerns.”
The senators sent the letter before the CFTC proposed rules Wednesday that would ban bets on war, assassination and other extreme events, which critics said did not do enough to rein in the industry.
Lawmakers also want the CFTC to conduct detailed reviews of participating futures markets to ensure that their policies and procedures are clearly outlined and that they are equipped with adequate resources to prevent market abuse.
On a similar note, they wrote that the commission should instruct the markets to monitor the terms and conditions of event contracts, as ambiguous contract language can lead to conflicts over resolution and payout once an outcome has occurred.
“Sufficient resources should be devoted to anticipating and addressing such issues prior to contract listing, rather than after problems arise,” the senators wrote.
In addition to Klobuchar, the letter was signed by Sens. Lisa Blunt Rochester and Chris Coons of Delaware, Elissa Slotkin of Michigan, John Hickenlooper and Michael Bennet of Colorado, Dick Durbin of Illinois, Richard Blumenthal of Connecticut, Sheldon Whitehouse of Rhode Island, Ben Ray Luján of New Mexico, Cory Booker and Andy Kim of New Jersey, Chris Van Hollen of Maryland, Raphael Warnock of Georgia, John Fetterman of Pennsylvania and Kirsten Gillibrand of New York.
Concerns around insider trading
Prediction markets allow consumers to bet on the outcomes of future events and trade in products commonly called event contracts.
Most event contracts offer two possible outcomes, presenting traders with the option to bet either “yes” or “no.” The price of each outcome at any given time, expressed as a fraction of a dollar, corresponds to the market’s forecast of an outcome occurring, with $1 meaning 100%. Consumers who correctly predict an outcome then earn a profit equal to the difference between the price at which they bought and the end fixed payout, typically $1, according to the CFTC.
That system leaves the markets vulnerable to manipulation by people with inside knowledge of an event, which is partly what prompted the Democratic senators to write the letter, they said.
For example, a U.S. soldier was charged in April with making more than $400,000 on Polymarket by betting the United States would launch a military operation to capture Venezuelan President Nicolás Maduro. Prosecutors say the soldier used classified information to make the wagers in advance of the operation.
The senators did not give the CFTC a deadline to carry out their requests. Rather, they urged the commission in their letter to consider their recommendations as it continues to “develop rules and guidance for the prediction market industry.”
The CFTC did not respond to States Newsroom’s request for comment in time for publication.
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