Comment Text:
Public Comment: RIN 3038-AF65 — Prediction Markets
Submitted to: Christopher Kirkpatrick, Secretary of the Commission, CFTC
Re: Advance Notice of Proposed Rulemaking on Prediction Markets
Date: April 30, 2026
I submit this comment to urge the Commission to take the only regulatory action proportionate to the harm prediction markets have caused and continue to cause: the revocation of DCM designation for platforms like Kalshi and a categorical prohibition on retail-facing binary event contracts that serve no legitimate economic purpose. Anything short of this represents regulatory capitulation to an industry that has built its business model on exploiting legal loopholes, targeting vulnerable populations, and systematically evading the consumer protections that every other form of legalized gambling in this country is required to provide.
The Commission has studied this industry since 2008. It has issued concept releases, proposed rules, withdrawn those rules under litigation pressure, and now issued yet another request for comment. Meanwhile, Kalshi and its competitors have spent that time growing aggressively, lobbying effectively, and marketing binary gambling products to millions of Americans — particularly young people — under the legal cover that CFTC registration provides. That cover must be removed.
I. Kalshi Is a Gambling Company. The Commission Should Say So.
The foundational question before the Commission is not procedural or definitional. It is whether the agency will continue to allow a gambling industry to operate under the fiction that it is a derivatives market.
Kalshi's contracts on whether Donald Trump will be impeached, whether Taylor Swift will win a Grammy, whether the Federal Reserve will cut rates by a specific date, or whether a named celebrity will be arrested share precisely one characteristic with legitimate commodity derivatives: a binary payoff structure. They share nothing else. There is no hedging constituency. There is no price discovery function that serves any commercial purpose. There is no underlying commodity whose price volatility creates genuine economic risk that market participants need to manage.
What these contracts do share — completely and without exception — with regulated sports gambling products is their economic function: a retail customer puts money at risk on a binary outcome they cannot control, in exchange for the chance to profit. That is gambling. It has always been gambling. The fact that Kalshi calls it a "prediction market" and holds a CFTC designation does not change what it is any more than calling a casino a "risk management facility" would bring it under commodity law.
The Commission's own statutory framework in CEA section 5c(c)(5)(C) authorizes prohibition of event contracts contrary to the public interest, including those involving "gaming." The Commission should apply this provision with the breadth the public interest demands: the vast majority of contracts currently listed on retail prediction markets involve gaming as that term is understood in every state gambling statute in the country, and they should be prohibited accordingly.
II. Kalshi Is Engaged in Regulatory Arbitrage Against State Gambling Laws — and the Commission Has Enabled It
This point cannot be stated gently enough: Kalshi exists, in its current form, specifically because it identified a gap between federal commodity law and state gambling regulation, and built a billion-dollar business in that gap. Every state that has legalized sports betting has attached to that legalization a comprehensive framework of consumer protections — age verification, responsible gambling tools, loss limits, advertising restrictions, self-exclusion programs, addiction treatment funding requirements, and independent oversight. Kalshi has none of these. It has a CFTC self-certification process.
The Commission asks, in question 16, how it should treat event contracts that are lawful under some state laws but not others. The more pressing question is the inverse: how should the Commission treat event contracts that would be illegal as unlicensed gambling in virtually every state if offered by a company without CFTC registration? The answer is that CFTC registration must not function as a federal preemption shield that allows a company to offer gambling products nationally while evading every state consumer protection regime that would otherwise apply.
Several states have already recognized this problem. New York, New Jersey, and others have taken the position that Kalshi's political contracts constitute illegal gambling under state law. Rather than treating this state-level resistance as a nuisance to be litigated away — which Kalshi has done aggressively — the Commission should treat it as a signal that the industry has outrun its legitimate regulatory authorization.
The Commission should adopt a categorical rule: any event contract offered to retail participants that (a) has no identifiable hedging constituency, (b) involves an outcome with no commercial consequence to the typical participant, and (c) is structured and marketed in a manner functionally indistinguishable from a sports bet, is contrary to the public interest under CEA section 5c(c)(5)(C) and shall not be listed. This rule would, correctly, prohibit the overwhelming majority of contracts currently listed on Kalshi.
III. Prediction Markets Are Causing Measurable Mental Health Harm, Particularly Among Young People
The Commission's question 19(d) asks whether the Commission should consider that participants in gaming-adjacent event contracts "tend to be younger than those trading other financial instruments." The Commission frames this as a factor to weigh. It should be treated as an alarm.
Kalshi and its competitors have deliberately, aggressively, and successfully marketed their products to young Americans — people in their late teens, twenties, and early thirties — using social media advertising, influencer partnerships, and app designs that are functionally identical to the gamified interfaces of mobile sports betting and casino apps. The psychological architecture of these platforms is not accidental. Variable reward schedules, real-time price feeds, push notifications timed to news events, social leaderboards, and frictionless deposit mechanisms are not features of a commodity exchange. They are features of a product engineered to maximize engagement and compulsive use.
The research on gambling disorder is unambiguous: younger adults are substantially more vulnerable to developing problematic gambling behavior than older adults. The rate of gambling disorder among adults under 35 is estimated to be two to four times higher than in older populations. The introduction of mobile sports betting has already triggered what public health researchers have described as an emerging addiction crisis among young men in states where it has been legalized. Prediction markets are replicating that crisis with the additional toxin that they wrap gambling in the language of civic participation, financial sophistication, and intellectual engagement — making it harder for young users to recognize that what they are doing is gambling, and making it harder for families and clinicians to intervene.
There is no responsible gaming framework on these platforms. There are no mandatory loss limits. There is no addiction screening. There is no funding of gambling addiction treatment. There is no minimum age enforcement equivalent to what regulated gambling requires. There is no advertising standard that limits targeting of people under 25. The Commission has done nothing to require any of these protections, and the industry has voluntarily adopted none of them.
The Commission should:
Require that any prediction market DCM serving retail participants implement mandatory responsible gambling protections at least as stringent as those required under the most protective state sports betting regulatory framework currently in effect — including hard loss limits, mandatory cooling-off periods, third-party self-exclusion programs, and age verification equivalent to that required of licensed gambling operators.
Prohibit prediction market advertising on any platform where more than 20% of the user base is under 25, and prohibit influencer marketing arrangements entirely.
Require DCMs to fund independent gambling addiction research and treatment at a rate proportional to their gross revenue, as regulated gambling operators are required to do in most jurisdictions.
Direct the Commission's Division of Enforcement to investigate whether Kalshi's marketing practices constitute abusive sales practices under CEA section 3(b).
If the Commission is unwilling to implement these protections — and the track record suggests the industry will resist them fiercely — then it should recognize that the absence of these protections is itself grounds for finding that retail prediction markets are contrary to the public interest, and act accordingly.
IV. Political Event Contracts Are a Threat to Democratic Integrity, Not a Contribution to It
Kalshi has argued, with considerable public relations success, that political prediction markets serve democracy by aggregating information and improving the accuracy of political forecasting. The Commission should reject this argument categorically.
The question is not whether political prediction markets produce accurate forecasts. It is whether the social costs of those markets — normalized financial speculation on electoral outcomes, structural incentives for insider trading by political actors, the transformation of civic participation into a financial instrument, and the corruption of the information environment when large financial positions create incentives to manipulate perceived probabilities — outweigh whatever forecasting benefit they provide.
They do. Manifestly and overwhelmingly.
Regarding the manipulation risk the Commission raises in questions 29 through 32: the Commission is correct that prediction markets create incentives for people with asymmetric information to trade. In political markets, those people are congressional staff, political operatives, lobbyists, executive branch officials, and campaign insiders. CEA sections 4c(a)(3) and 4c(a)(4) prohibit federal employees from trading on non-public government information, but these provisions are narrow and largely unenforced. Kalshi now offers thousands of contracts on outcomes that federal officials have direct, material, non-public information about. The Commission has brought zero enforcement actions in this space. That is not a sustainable posture.
Beyond the enforcement problem, there is a more fundamental democratic concern that the Commission's ANPRM does not adequately address: financial markets in political outcomes create constituencies with strong financial interests in particular political results. A participant who holds a large long position in a contract tied to a specific candidate's victory has a financial incentive to take actions — spreading information, suppressing turnout, engaging in disinformation — that influence the outcome of the underlying event. This is not a speculative risk. It is the predictable consequence of creating liquid, leveraged financial markets in democratic outcomes, and it has no analogue in legitimate commodity derivatives where the underlying events are not susceptible to human manipulation in this way.
The Commission should:
Categorically prohibit all event contracts based on electoral outcomes — candidate victory, vote share, Electoral College results, or any proxy thereof — as contrary to the public interest under CEA section 5c(c)(5)(C). The Commission already has authority to do this. It should use it.
Prohibit event contracts based on the actions of specific named government officials, including legislative votes, regulatory decisions, and appointment outcomes.
Refer to the Department of Justice and the Office of Congressional Ethics a formal request to investigate insider trading on political prediction markets using existing statutory authority.
V. The Self-Certification Regime Has Failed and Must Be Replaced
The Commission asks throughout this ANPRM what factors it should consider in applying existing core principles to prediction markets. The Commission is asking the wrong question. The right question is why an industry that listed 1,600 new contracts in a single year — many of them novel, many of them without precedent, many of them covering outcomes with direct democratic implications — was permitted to do so through a process that requires one business day's notice and no prior Commission review.
The self-certification system was designed for established exchanges adding incremental variations on well-understood contract types within mature regulatory frameworks. It is grotesquely inappropriate for an industry that is, by the Commission's own account, in a period of explosive, unprecedented expansion in both volume and subject matter. The Commission has effectively outsourced public interest review to the companies whose financial interest is served by the absence of such review. That is not regulation. It is accreditation.
The Commission should:
Immediately suspend the self-certification pathway for all new event contract categories pending completion of this rulemaking and adoption of new standards.
Require mandatory prior Commission approval for all event contracts offered to retail participants, with a minimum 60-day review period, a public comment window, and explicit Commission findings on public interest, manipulation susceptibility, and consumer protection adequacy before any contract may be listed.
Require that any application for listing of a retail event contract be accompanied by independent third-party analysis of the contract's potential for manipulation, its likely participant population, and its relationship to any existing regulated gambling products.
VI. The Commission Should Initiate Revocation Proceedings Against Kalshi's DCM Designation
Everything documented above leads to a conclusion the Commission has the authority to reach and an obligation to seriously consider: Kalshi should not hold a DCM designation.
A DCM designation is not a property right. It is a regulatory authorization granted on the condition that the designated entity serves the public interest by providing markets that enable legitimate price discovery and risk management. Kalshi's primary business — retail-facing binary gambling products marketed aggressively to young people, covering political outcomes, celebrity events, and sporting competitions, with no responsible gambling infrastructure and no identifiable hedging constituency — does not meet that standard. It has never met that standard. It met the standard, if at all, only on the thinnest possible reading of the Commission's self-certification requirements and only because the Commission has repeatedly declined to enforce more stringent standards.
The Commission has authority under the CEA to initiate proceedings to revoke a DCM's designation if the DCM fails to comply with the CEA or Commission regulations, or if the Commission finds that revocation is in the public interest. Both grounds are available here. The Commission should use them.
VII. The Cost-Benefit Analysis Overwhelmingly Favors Prohibition
The Commission asks throughout this ANPRM about cost-benefit considerations. The analysis is not complicated.
The costs of prohibition: Kalshi and its investors lose a business built on regulatory arbitrage. Participants who used these platforms for entertainment lose a gambling venue — and would retain access to the many legal gambling venues that are subject to appropriate consumer protection requirements.
The benefits of prohibition: Millions of retail participants, predominantly young, are protected from a product designed to exploit psychological vulnerabilities with no regulatory safety net. State gambling laws, passed through democratic processes to protect state residents, are no longer preempted by a federal registration that was never intended to serve this purpose. The integrity of political prediction — and, more importantly, of democratic participation — is no longer compromised by the financialization of electoral outcomes. The Commission's own enforcement resources are no longer stretched across thousands of novel contract types that no surveillance infrastructure was designed to monitor.
There is no serious cost-benefit argument for the status quo. The Commission has simply lacked the institutional will to say so.
Conclusion
The Commission has framed this ANPRM as an open inquiry. It is not. The facts are in. Prediction markets as currently operated by Kalshi and its competitors are gambling platforms that have obtained commodity exchange registrations through a combination of clever legal structuring, aggressive litigation, and regulatory inertia. They target young people with gambling products that cause real harm. They circumvent state consumer protection laws that democratic majorities have chosen to enact. They create financial incentives that threaten both market integrity and democratic integrity. And they do all of this while providing, at most, marginal social benefits that could be achieved through means far less harmful.
The Commission should prohibit retail-facing binary event contracts that lack a genuine economic purpose, ban political event contracts entirely, immediately suspend self-certification for new event contract categories, impose full responsible gambling requirements on any prediction market permitted to continue operating, and initiate revocation proceedings against DCMs — including Kalshi — that have built their businesses on the exploitation of regulatory gaps rather than the provision of legitimate market functions.
Anything less is not regulation. It is complicity.
