Comment Text:
I am writing to urge the Commission to prohibit prediction market event contracts that function as gambling products rather than legitimate tools for hedging commercial risk.
At their core, many prediction markets do not appear to serve the traditional purpose of derivatives regulation. Derivatives markets exist to help commercial actors manage real economic risk. But contracts on elections, wars, legislative outcomes, sports, celebrity events, and other public spectacles are not meaningfully tied to productive economic activity for most participants. Instead, they invite speculative betting on matters of public concern, often marketed directly to retail users as entertainment. When a product overwhelmingly serves an entertainment purpose rather than a hedging function, it should not receive the legal and regulatory treatment reserved for legitimate financial instruments.
These markets also present serious risks of manipulation and insider trading. Event contracts tied to politics, military action, public policy, regulatory decisions, health outcomes, or sports can create incentives for traders to exploit nonpublic information or attempt to influence the underlying event itself. In some categories, the very existence of a market may erode confidence in public institutions by creating the perception that politically sensitive or socially consequential events are being turned into vehicles for profit. The Commission should give substantial weight to these integrity concerns when determining whether such contracts are contrary to the public interest.
Prediction markets also pose particular dangers to retail consumers. These products are often presented in the language of forecasting, collective intelligence, or market efficiency, but for many users they operate as a fast, accessible form of gambling. Retail traders may be drawn in by the illusion that they are participating in informed investing when they are in fact engaging in binary wagering on uncertain outcomes. The risk is especially troubling where the contracts concern emotionally charged topics such as elections, armed conflict, immigration policy, natural disasters, or public health emergencies. The Commission should be wary of allowing a gambling-like product to expand under the label of financial innovation.
Another concern is that prediction markets may undermine the distinction between regulated derivatives and prohibited gaming. If contracts on highly salient public events are allowed to proliferate simply because they are structured as exchange-traded event contracts, then the public-interest limitation in the Commodity Exchange Act risks becoming meaningless. The Commission should not permit form to prevail over substance. A product that looks, feels, and functions like gambling should not be treated as a protected financial market merely because it uses derivatives terminology.
In addition, these markets can damage public trust. Political and governmental event contracts are especially problematic because they may encourage cynicism, feed conspiracy thinking, and create the appearance that democratic processes or national-security events are being monetized for private gain. Markets on military operations, deaths, crimes, or other tragic outcomes are even more troubling. Even if some participants claim informational benefits, the broader social harms and reputational damage to the regulatory system are too great.
Proponents often argue that prediction markets improve price discovery or aggregate information. But even if that is sometimes true in narrow cases, it does not justify opening the door to widespread commodification of major civic and social events. Information value alone should not be enough to override concerns about manipulation, consumer harm, addictive behavior, and the degradation of public institutions. There are many ways to gather forecasts and public expectations without creating a regulated wagering market.
For these reasons, I urge the Commission to adopt a clear rule prohibiting event contracts that do not serve a genuine commercial hedging function and that resemble gambling in purpose or effect. At a minimum, the Commission should prohibit contracts involving elections, legislative or regulatory outcomes, military conflict, public health emergencies, deaths, crimes, collegiate sports, and other categories where manipulation, insider trading, public harm, or institutional distrust are especially acute. The better course, however, is to ban prediction market contracts of this type altogether.
The Commission’s responsibility is not merely to accommodate novel products, but to protect market integrity and the public interest. Prediction markets that turn public events into speculative wagers do not advance that mission. They should be prohibited.
