Securities Regulation Daily Wrap Up, CFTC NEWS—CFTC’s Selig signals close alignment with prediction markets industry, promises rules on consumer protection, (Aug 21, 2026)
Organizations Mentioned:Rutgers University
CFTC Innovation Session: Advisory committee members were in broad agreement on the need for consumer protection but expressed different views on contract certification and market manipulation.
The CFTC is working with Congress to obtain preemptions for prediction markets from state laws, CFTC Chairman Michael Selig said at a meeting of the CFTC Innovation Advisory Committee on August 20. Selig made the remarks in a wide-ranging discussion that touched on consumer protection, market manipulation, and the contract listing process, among other topics.
Selig noted that the CFTC recently proposed rule amendments for event contracts regarding public interest and reporting. He expects the CFTC will soon propose amendments to Parts 38 and 40 of the CFTC’s regulations to “modernize the core principles and listing rules governing DCMs that list event contracts and institute consumer protection requirements.”
Federal preemption. Selig indicated the CFTC is actively working to counteract state regulation of prediction markets.
“We're working with Congress to get more protections, more preemptions, so that you're not dealing with the same sorts of things you're dealing with in the prediction markets that you've dealt with in crypto,” he said.
The CFTC is embroiled in extensive litigation with states over regulation of event contracts. The CFTC has sued several states over state enforcement actions against prediction markets for alleged unlicensed gambling, asserting that the CFTC’s exclusive jurisdiction preempts state regulation of event contracts traded on CFTC-registered exchanges.
“I think you all should pat yourselves on the back for being here in this country, fighting the fight against everything that you've seen in the past, and a lot of you still today with many of these state actors,” said Selig.
“[W]e've learned so much from all of these challenges that we faced both at the agency and in the private sector, whether it was fighting against these anti-gaming and anti-bucket shop laws back in the 30s, or fighting Chris Christie and Letitia James today,” he continued.
Selig saw a parallel to state regulation of crypto assets.
“We saw it with crypto, where you had a 50-state patchwork and the bit license, and you're going to the Bahamas and offshore to build your projects,” he said. “And that really was not beneficial to anyone in the country or to any of the projects that had to take those risks.”
“I don't know how many millions and millions or hundreds and millions of dollars were spent on legal fees,” he added. “I'm sure everyone can compare notes in the room. But it wasn't good for the country."
Several committee members echoed that the CFTC has exclusive jurisdiction in this area.
“The federal law is unambiguous here that the CFTC has exclusive jurisdiction,” said Coinbase CEO Brian Armstrong. “Congress has said so explicitly, and we really appreciate you defending that territory from even in the face of litigation.”
Consumer protection. Tying to the federal preemption issue, Kalshi cofounder Luana Lopes challenged the assumption that states have stronger consumer protections.
“I've never heard a single argument on why a state has better consumer protection than a federal framework,” said Lopes. “If you go state by state, you see that very few states actually have any regulation against advertising to minors, or any regulation against advertising to self-excluded people. I think this is an opportunity for the CFTC to yet again show we can be great at consumer protection.”
Harry Crane, a professor at Rutgers University and director of a fintech analytics program, agreed there are customer protection issues.
“[I]f you look at how the states regulate these markets, or any type of related market, customer protection is not the first and foremost thing,” said Crane. “They are allowing these companies. Particularly the sports betting companies, they are exploiting losers. They are banning winners. They are not treating this in the same way as a properly operated financial market.”
Another consumer protection issue was the availability of offshore markets to U.S. customers. Exchanges that are not registered with the CFTC are not legally available to U.S. customers, but U.S. residents may be able to access these markets via VPN.
“The VPN thing is a real issue, and what I mean by that is there's a playbook to getting access to the U.S. markets if you're overseas,” said Bullish CEO Tom Farley. “I start overseas and I get a whole big U.S. following because they're spending 30 seconds downloading a VPN, and they're logging on supposedly from Turkey, but it's the U.S. What I've seen in crypto … [is]they have somewhere between a lot and tons of U.S. customers, even though they don't have access to the U.S.”
“That means that playbook will exist where firms will get big overseas. They'll tap the U.S. market illegally, and then they'll come to you and they'll apply and they'll say, ‘Oh, look, we're good people. We have no U.S. customers. Don't pay attention to any of this VPN business,’” he added.
Self-certification and manipulation. Several committee members discussed the contract listing process, which relies on self-certification by exchanges. One factor is whether a contract is susceptible to manipulation.
“There have been 2,500 self-certifications since this administration has taken office in January of 2025, of which none have been opposed,” said CME CEO Terry Duffy. “And there have been a lot of self-certifications around products that are in violation of Core Principle 3, which is susceptibility to manipulation.”
Duffy pointed to a Polymarket contract on the capture of former Argentinean president Nicolás Maduro, the subject of CFTC and DOJ enforcement actions alleging manipulation by U.S. soldier Gannon Ken Van Dyke, as well as another Polymarket contract on what President Trump would say in a speech, which was widely reported to have been traded by an individual who worked the teleprompter at Trump speeches.
“We're not a bunch of carnival barkers at a circus,” said Duffy. “Listing susceptible markets to manipulation is really doing the opposite of what we're trying to effectuate.”
Selig interjected.
“I would correct the record there. Those products are not listed in the United States. They never were. This occurred offshore, and that's fake news,” said Selig.
Duffy conceded that the contracts were listed overseas, but “regardless of the circumstances, the president's own teleprompter operator was in the manipulation. That was not good, and I believe you are looking at the investigation to that.”
Polymarket CEO Shayne Coplan pushed back on the manipulation issue, emphasizing that misconduct has been detected and addressed.
“[W]hen that happened, we worked with the Commission, we worked with law enforcement,” said Coplan. “We have someone here right now who is ex-FBI who works full time at Polymarket and has built custom proprietary surveillance software on-chain.”
“There's all this stuff like [it’s] anonymized and, you know, insider trading. First of all, it's not anonymous. It's all public. It's all on chain. It's the least anonymous financial market of all time. You can look at every single market and see every single trade and look at the trading history in full of every single participant,” he said.
Armstrong proposed a three-point framework for the certification of novel event contracts.
Does the contract create a public good or public benefit? A contract should be allowed unless it creates public harm.
Does the market have a direct causal link to that harm? If not, it should be allowed. For example, there are various ways the Ayatollah of Iran could be put “out of office.”
How subject to manipulation is the contract, and does that outweigh the public good? For example, a prediction market on President Trump making a comment about tariffs on Canada is subject to manipulation because it’s based on one person. But the public good outweighs the downside.
DRW CEO Don Wilson agreed with the idea of a three-point framework and said some contracts don’t meet the bar. For example, disgraced ex-U.S. Representative George Santos was found to have traded a contract on whether he would attend the State of the Union—an outcome he controlled. The CFTC ordered Santos to disgorge profits of $17,569.98 and pay a civil monetary penalty of $17,500.
“So, good outcome in policing that,” said Wilson. “But I would argue that never should have been listed in the first place.”
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