After House Hearing, CFTC Refreshes Prediction Markets on Self-Certification

Last week’s hearing by a House subcommittee on prediction markets may not lead to legislation coming from the House Agriculture Committee, but it’s already having an impact.

Late Friday, the U.S. Commodity Futures Trading Commission put forth an advisory to prediction market operators reiterating the steps they must follow in self-certifying event contracts. The six-page memo sent by Duncan Hennes, the commission’s acting director in the Division of Market Oversight, said staff within the division have noticed a trend of operators submitting a template for contracts for multiple markets that use different sources for grading.

“This practice hampers DMO’s ability to determine whether a (designated contract market) has supplied all information, explanation, and analysis required under Commission Regulation (section) 40.2 and has adequately evaluated the settlement methodology, data sources, and core-principles compliance of all permutations of the contract the DCM intends to list,” the memo stated. “Further, it prevents market participants from accessing and evaluating such information.”

Friday’s memo comes more than four months after the CFTC issued an advisory to operators that they need to adhere to the nearly two dozen core principles listed in the Commodity Exchange Act. Those principles include offering contracts that can’t be easily manipulated and mandating operators develop rules that “promote fair and equitable trading.”

‘Active Oversight with Real Teeth’

The topic of self-certification came up during last Tuesday’s House Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development hearing.

In his opening statement, American Gaming Association Vice President of Government Relations Chris Cylke called on Congress to prevent federally regulated prediction markets from self-certifying contracts on sports or casino-style gambling. He also said federally-regulated prediction markets do not adhere to the same standards as state-licensed sportsbooks when it comes to protecting bettors and match integrity.

However, Carl Kennedy, co-chair of the financial markets and regulation practice for Katten Muchin Rosenman LLP, shot back, noting that the self-certification process is not a rubber stamp. The CFTC can request a public interest review within 10 days of the operator listing the contract. That review takes 90 days, and the CFTC can take down the contract if the agency finds it does not meet public interest standards.

“That’s not a loophole,” Kennedy said. “That’s active oversight with real teeth.”

A supporter of prediction markets offering sports contracts, Kennedy said he gets why commercial and tribal gambling interests have concerns.

That said, he believes they can coexist.

“Think about gold as an example,” he said. “You can buy gold from a local dealer under state law. Trade gold futures on CFTC exchanges, or buy a gold ETF that the SEC oversees. Three regimes, same underlying asset, operating side by side for decades without controversy. Sports event contracts work the same way.”

Single Player Contracts May Not Meet Public Interest

U.S. Rep. Nikki Budzinski (D-Ill.) also raised concerns about the self-certification process, asking panelists if the information operators provide when they self-certify provides enough information for the CFTC to determine if the contract should go under review — especially for contracts where one player or individual could have significant influence on the outcome.

Robert Schwartz, a partner at Morgan, Lewis & Bockius and a former CFTC general counsel, pointed out that the commission’s proposed rules unveiled in June, and the March memo, cover the congresswoman’s question.

“They do expect that those self-certifications to be comprehensive, to explain the risks, (and) to address settlement risks,” he said. “Especially around single-actor contracts… In fact, in the proposal that was just issued, the commission did expressly state that it’s highly unlikely that a contract of that nature would meet the public interest threshold that’s in the special rules.”

Monday is the deadline for the public to submit comments regarding the CFTC’s proposed rules.

Legislation May Help Bolster CFTC Staff

The hearing also allowed House members to bring up the CLARITY Act. While that bill deals with digital assets, like cryptocurrencies, it also includes language that may help the CFTC hire additional staff. That, in turn, would help it regulate better across the board, including overseeing prediction markets.]

Schwartz said that the commission was understaffed when he was working there, from October 2011 to January 2025, and since then, its workforce has been reduced by 20%.

“The agency, though, has a history of doing more with less,” he added. “It’s been able to be flexible and adapt over time as new financial products have come online, and it has partnerships with the exchanges, with the National Futures Association that are a force multiplier, but you won’t hear me disagreeing that the agency has less in the way of resources than it needs and the public deserves.”

Opponents against prediction markets encroaching on gaming would like to see the Clarity Act do more to prevent prediction markets from expanding.

“The language in the Clarity Act opens the door to expand beyond [prediction markets’] current illegal activity in the sports betting space into the gaming space,” said Indian Gaming Association Chairman David Bean.

According to Kalshi odds on Monday night, there’s a 68% chance the Senate will vote on the bill before Congress takes its summer recess on Aug. 7.

Trading on Kalshi through Monday evening showed a crypto market structure bill has a 44% chance to become law before Dec. 1. Chances it happens by July 1, 2027, are 52%.