Regulatory Headwinds Gather for Prediction Markets: Gensler and CME Launch Dual Challenges

The burgeoning prediction market industry is facing escalating opposition from powerful figures and institutions, with former Commodity Futures Trading Commission (CFTC) chair Gary Gensler and the Chicago Mercantile Exchange (CME) emerging as significant challengers. These entities are raising distinct, high-profile concerns regarding the scope of federal regulatory oversight for prediction markets, targeting both sports event contracts and perpetual futures.

Gary Gensler, who led the CFTC from 2009 to 2014 and the SEC from 2021 to 2025, has become a prominent critic of the CFTC's expanding role in prediction markets. During a recent Indian Gaming Association webinar, he reiterated his long-standing argument that Congress never intended the CFTC to act as a de facto regulator for sports betting. Gensler formally underscored this position by filing an amicus brief in support of Ohio's lawsuit against Kalshi on June 11, contending that sports event contracts do not qualify as financial swaps. "Unambiguously, we were not trying to have a federal regulator regulate sports betting," Gensler stated, emphasizing that such contracts lack the risk-laying function characteristic of swaps, suggesting a congressional oversight on state-level sports betting would be an unlikely interpretation.

Adding another layer of legal complexity, the CME Group, the world's largest derivatives marketplace, filed a lawsuit against the CFTC in a D.C. federal court on June 18. This action specifically targets the approval of perpetual futures (perps)—derivative contracts without an expiration date—on prediction platforms. The CME alleges that CFTC Chairman Michael Selig overstepped congressional definitions of a "swap" by allowing these products, which have no fixed expiry, to be listed as futures. Kalshi, for instance, has rapidly amassed over $1 billion in trading volume on its crypto-tied perpetuals since their introduction, directly competing with the CME's established cryptocurrency futures products.

This mounting pressure comes as the CFTC operates under unique circumstances, with Michael Selig serving as the sole acting commissioner since his appointment last December. Gensler highlighted the value of full, bipartisan commissions for thorough deliberation and compromise. However, Elie Mishory, chief regulatory officer for Novig and a former advisor to both the CFTC and SEC, countered this perspective, arguing that agencies like the CFTC are inherently "chair-driven." Mishory contends that the chair dictates the agenda and staff priorities, suggesting that a lack of additional commissioners primarily affects the pace of action rather than the overall direction. Despite the criticism, the CFTC under Selig has actively pursued its agenda, including suing nine states to assert federal jurisdiction over platforms and proposing its first set of prediction market rules.

The combined challenges from Gensler and the CME could significantly impact the future trajectory of prediction markets. The industry's rapid growth has largely been fueled by the accessibility of sports and crypto-based contracts to retail traders. Should these core offerings, particularly perpetual futures or sports event contracts, face legal restrictions or be declared unlawful, the investment landscape and growth prospects for prediction markets could become substantially uncertain. The ongoing legal battles emphasize the critical importance of how "swaps" are defined and interpreted, potentially leading to Supreme Court involvement on questions of federal preemption and statutory authority.