Comment Text:
I. Introduction
I am writing as an individual to urge the Commission to use its authority under CEA Section 5c(c)(5)(C) to prohibit the vast majority of event contracts currently traded on prediction markets. These contracts are gambling dressed in the language of derivatives. They lack genuine hedging or price-discovery functions, they expose retail participants to serious financial and psychological harm, and they create insider trading risks that the Commission cannot realistically police.
The comment period for this ANPRM has provided a near-perfect case study. On April 23, 2026, the Department of Justice unsealed an indictment against U.S. Army Master Sergeant Gannon Ken Van Dyke, a special forces soldier who participated in the planning and execution of the military operation to capture Venezuelan leader Nicolás Maduro. Van Dyke allegedly used classified information about the operation to place bets on Polymarket, turning $33,000 into more than $400,000. He is the first person to face criminal charges in the U.S. for insider trading on a prediction market, but he is not an isolated case. In February 2026, Israeli authorities indicted a military reservist and a civilian for using classified information about IDF operations to profit on Polymarket as well.
These are not edge cases that better enforcement will solve. They are the predictable, structural consequence of creating financial markets on events where asymmetric information is widespread and uncontainable.
II. Most Event Contracts Are Gaming and Should Be Prohibited (ANPRM Section II.C)
CEA Section 5c(c)(5)(C) grants the Commission authority to prohibit event contracts that involve "gaming" as contrary to the public interest. The Commission should adopt a functional definition: a contract involves gaming when the participant has no independent economic exposure to the underlying event and the contract serves no hedging or risk-management purpose.
Under this standard, contracts on sporting events, entertainment awards, political outcomes, geopolitical events, and cultural occurrences are gaming. Buying a "yes" contract on whether a team wins the Super Bowl is economically identical to placing a bet at a sportsbook. Calling it a "swap" does not change what it is. The Commission's own data shows that event contract listings exploded from roughly five per year (2006 to 2020) to approximately 1,600 in 2025. That growth was driven by retail wagering, not by institutional demand for hedging instruments.
This interpretation is consistent with congressional intent. When the relevant authority was being debated, then-Senator Blanche Lincoln, chair of the Senate Agriculture Committee, stated that the provision was intended to prevent gambling through "supposed 'event contracts,'" specifically naming sporting events like the Super Bowl and the Kentucky Derby.
III. The Insider Trading Problem Is Structural, Not Enforceable (ANPRM Section II.E)
In securities markets, the universe of material nonpublic information is bounded by corporate disclosure obligations and fiduciary duties. Prediction markets have no such boundaries. A contract on a government policy decision creates insider trading exposure for every government employee involved in that decision. A contract on a military operation creates exposure for every service member, intelligence analyst, and defense official with knowledge of the operation. A contract on a sporting event creates exposure for athletes, coaches, medical staff, referees, and league officials.
The Van Dyke and Israeli military cases demonstrate this clearly. Van Dyke was a soldier who signed nondisclosure agreements and had access to classified operational details. The existence of Polymarket contracts on the timing of the Maduro operation gave him a direct, anonymous mechanism to monetize that access. The Israeli case followed an identical pattern: reservists with classified knowledge of military operations used prediction markets to turn that knowledge into profit.
The Commission simply does not have the investigative reach to police insider trading across military operations, government policy, sports leagues, entertainment industries, and every other domain that prediction markets touch. The honest response is not to promise better enforcement. It is to recognize that contracts covering these domains should not exist.
IV. The Claimed Benefits Do Not Withstand Scrutiny (ANPRM Section II.B)
Proponents argue that prediction markets aggregate information and produce superior forecasts. The Commission should evaluate this claim critically.
First, for events of genuine economic significance, existing mechanisms already produce robust forecasts. Polling, statistical modeling, and traditional financial markets already aggregate dispersed information about interest rates, elections, economic indicators, and commodity prices. No compelling evidence demonstrates that prediction market prices provide actionable information unavailable through these channels, let alone that any marginal improvement justifies the harms described above.
Second, binary event contracts are structurally zero-sum. Every dollar gained by one participant is a dollar lost by another, minus platform fees. Unlike equity markets, there are no aggregate positive returns over time. Retail participants systematically face informational disadvantages relative to sophisticated traders and, as we have now seen, insiders with classified information.
Third, a peer-reviewed policy forum recently published in Science (Packin & Rabinovitz, 2026) characterized prediction markets as a public health threat. The authors documented that prediction market participation is behaviorally indistinguishable from gambling, that platform revenue depends disproportionately on heavy users, and that the rebranding of wagering as "trading" helps operators avoid gambling regulations while cultivating the same addictive dynamics. Because prediction markets currently operate outside state gambling frameworks, participants lack the protections those frameworks provide: spending limits, self-exclusion programs, addiction warnings, and age verification.
The Commission was not designed to be a gambling regulator and is not equipped to replicate these protections.
V. Recommendations
1. The Commission should define "gaming" under CEA Section 5c(c)(5)(C) broadly and functionally, encompassing all event contracts where participants have no independent economic exposure to the underlying event.
2. The Commission should require affirmative prior approval under Regulation 40.3 for all event contracts, replacing the current one-business-day self-certification process that was designed for conventional derivatives.
3. The Commission should prohibit event contracts on elections, government policy decisions, judicial outcomes, military and geopolitical events, sporting events, and entertainment outcomes as contrary to the public interest.
4. If any categories of event contracts are permitted, the Commission should impose consumer protections comparable to state gambling regulations, including position limits, responsible-gambling disclosures, self-exclusion options, and age verification.
5. The Commission should conduct a cost-benefit analysis that honestly accounts for gambling-related public health harms, the zero-sum financial structure of binary event markets, the structural impossibility of policing insider trading across unlimited domains, and the institutional cost to the CFTC of diverting resources from its core mission.
VI. Conclusion
The rapid growth of prediction markets represents a massive expansion of unregulated gambling that has occurred without meaningful review by any elected body. The Van Dyke prosecution, coming during this very comment period, illustrates why these markets are fundamentally different from the derivatives markets the CFTC was created to oversee. The Commission has the statutory authority to act. It should use it.
