Comment Text:
Public Comment Opposing Prediction Markets (RIN 3038‑AF65)
To the Commodity Futures Trading Commission:
I am writing in response to the Advance Notice of Proposed Rulemaking on “Prediction Markets” (RIN 3038‑AF65). After reviewing the Commission’s request for comment and the statutory framework described in the notice, I urge the CFTC to adopt significantly stronger regulatory action—including the prohibition of retail‑facing prediction markets such as Kalshi. These markets pose systemic, democratic, and consumer‑protection risks that far outweigh any purported benefits.
The Commission notes that prediction markets have expanded dramatically, with DCMs certifying “approximately 1,600 event contracts” in 2025 alone, covering political, economic, weather, cultural, and even international events. This explosion of speculative contracts—many of which directly implicate public governance—demands a far more restrictive regulatory posture.
Two sentences from the notice illustrate the core problem:
“Event contracts… may be based on a wide variety of… political events, international events, scientific and cultural events, current events, and sporting events.”
“Some events underlying event contracts are under the control of a single individual or small group of individuals.”
These statements reveal why prediction markets are fundamentally incompatible with the public interest.
1. Prediction markets create direct financial incentives to manipulate real‑world events
Unlike traditional commodity derivatives, event contracts often reference outcomes that are not exogenous to market participants. Many political, regulatory, or institutional events can be influenced—subtly or directly—by individuals with financial exposure. The Commission itself acknowledges that some events are “under the control of a single individual or small group of individuals.” This is an extraordinary admission: it means these markets invite corruption.
A market that allows individuals to profit from influencing elections, legislative outcomes, regulatory decisions, or public emergencies is not a price‑discovery tool—it is a destabilizing force.
2. Prediction markets undermine democratic legitimacy
Allowing retail traders to speculate on political outcomes—such as which party controls Congress or whether a bill passes—effectively transforms democratic processes into gambling instruments. This is squarely within the “gaming” category listed in CEA §5c(c)(5)(C), which empowers the Commission to prohibit such contracts.
The CEA’s public‑interest mandate (7 U.S.C. §5(a)–(b)) emphasizes:
market integrity,
protection of the public, and
avoidance of systemic risk.
Prediction markets erode all three. They create incentives for misinformation campaigns, coordinated manipulation, and targeted disinformation designed to move prices. The Commission should not permit markets that reward individuals for degrading public trust in elections and institutions.
3. These markets are uniquely susceptible to insider trading and asymmetric information abuse
The Commission explicitly raises concerns about “the misuse of inside information” and asks whether informed traders create public benefit. The answer is unequivocally no.
Unlike corporate earnings or commodity inventories, political and regulatory information is:
non‑public,
unevenly distributed, and
often held by government officials, who are explicitly prohibited from using it under CEA §4c(a)(3)–(4).
Prediction markets create a direct pipeline for monetizing privileged information about government actions. This is not a hypothetical risk—it is a structural inevitability.
4. Prediction markets do not serve the hedging or price‑discovery purposes envisioned by the CEA
CEA §3(a) states that regulated derivatives markets exist to:
manage price risks,
discover prices, and
disseminate pricing information.
Event contracts do none of these things. They do not hedge commercial risk. They do not provide economically meaningful price discovery. They do not support any legitimate commercial activity.
They are, in effect, retail gambling products masquerading as financial instruments.
The Commission itself notes that many event contracts fall under “gaming,” one of the explicit categories Congress empowered the CFTC to prohibit.
5. The rapid proliferation of event contracts demonstrates regulatory arbitrage, not innovation
The notice states that DCMs listed 1,600 event contracts in 2025, compared to an average of five per year before 2021. This is not organic market development—it is a rush to exploit regulatory gaps before the Commission acts.
The Commission should not reward this behavior with permissive rules. It should close the loophole.
6. Retail prediction markets pose severe consumer‑protection risks
Event contracts are binary options with:
high volatility,
unclear resolution criteria,
susceptibility to manipulation, and
no legitimate hedging purpose.
The Commission asks whether margin trading should be allowed. The answer is emphatically no. In fact, the Commission should go further: retail access to these markets should be prohibited entirely.
Binary‑outcome gambling products have historically been banned or heavily restricted because they are addictive, opaque, and prone to abuse. Prediction markets are no different.
7. The Commission has clear statutory authority to prohibit these markets
Under CEA §5c(c)(5)(C), the Commission may prohibit event contracts involving:
unlawful activity,
terrorism,
assassination,
war,
gaming, or
“other similar activity… contrary to the public interest.”
Political event contracts fall squarely within “gaming” and “other similar activity.” They also implicate democratic governance, which is unquestionably a matter of public interest.
The Commission should use its authority to ban retail prediction markets outright.
Conclusion
Prediction markets like Kalshi do not advance the purposes of the Commodity Exchange Act. They do not hedge commercial risk, improve price discovery, or support market integrity.
Instead, they:
incentivize manipulation of real‑world events,
undermine democratic processes,
enable insider trading,
expose retail consumers to gambling‑like losses, and
create systemic vulnerabilities.
The Commission should adopt the strongest possible regulatory posture: prohibit the listing, clearing, and trading of political and other high‑risk event contracts, and bar retail‑facing prediction markets from operating as DCMs.
The public interest demands nothing less.
