The Commodity Futures Trading Commission’s (CFTC) first Innovation Advisory Committee (IAC) session put CFTC prediction markets regulation at the centre of a three-hour debate on Thursday, as exchanges, platforms, and regulators clashed over self-certification, insider trading, and contracts that let traders bet on words spoken from a podium.
The committee, whose agenda was divided into formal sessions on crypto, artificial intelligence, and prediction markets, was convened by CFTC Chairman Michael Selig, currently the only sitting commissioner on the agency’s typically five-member board. Walt Lukken serves as the IAC’s chair.
According to Better Markets, the committee has 35 members in total, with more than half drawn from the industries it will help to oversee: 16 represent crypto and decentralised finance, and five represent prediction markets. Public interest groups, despite being referenced in the IAC’s own charter, hold no seats.
Mention Markets, Manipulation, and a Sharp Exchange
Terry Duffy, chair and chief executive of CME Group, delivered the sharpest critique of the session. Under the Commodity Exchange Act, prediction market platforms can file and certify new event contracts without prior CFTC approval, a process called self-certification.
Duffy argued the mechanism has been abused. ‘There’s been 2,500 self-certifications since this administration was taking office in January of 2025, of which none have been opposed,’ he said. ‘There’s been a lot of self-certifications around products that are in violation of core principles.’
The CFTC’s own Division of Market Oversight had already flagged the practice in a July 24, 2026 advisory, reminding designated contract markets (DCMs) of proper procedures for self-certifications of event contract series, specifically addressing broad, template-style filings that bundle many contract variations into a single certification.
Duffy also cited recent insider trading cases tied to prediction markets, including the April arrest of a US soldier following bets on the capture of Venezuelan leader Nicolás Maduro, and a teleprompter operator under federal investigation over bets linked to statements by President Trump.
Kalshi co-founder Luana Lopes Lara pushed back on Duffy’s self-certification concerns, asking whether CME had itself encountered insider trading issues. ‘If you’d like to have a debate, I’m happy to have a debate with you,’ Duffy replied. Lopes Lara then stated her support for self-certification: ‘We need to be able to have these markets fast for our users.’
Robinhood co-founder and chief executive Vlad Tenev shared Duffy’s unease over so-called mention markets, where traders speculate on specific words being spoken during a speech, earnings call, or public event. Tenev stopped short of calling for a ban, but urged the CFTC to scrutinise them closely. Polymarket chief executive Shayne Coplan was also present at the session.
A Roadmap for Prediction Markets Regulation
Selig outlined a three-part regulatory roadmap for CFTC prediction markets regulation during his introductory remarks. The first step addresses the agency’s June 2026 proposal to amend its rules on which event contracts the CFTC could prohibit, including the need to define the term ‘gaming’ and to spell out public interest criteria.
‘Contracts are at the risk of rejection based on arbitrary whims of political biases, and DCMs have been left operating in the dark,’ Selig said.
The second step involves modernising the reporting framework for fully collateralised event contracts. The third covers further amendments governing how DCMs list event contracts and ensuring stronger consumer protections, including what Cooley’s analysis of the meeting identified as pending retail protections, product governance standards, and market-design requirements under a forthcoming Rule 40.11 proposal.
Cooley also noted that if the CLARITY Act stalls in Congress, the CFTC may pursue crypto market-structure rulemaking under its existing authority, and that ongoing CFTC-SEC coordination on products that straddle both securities and derivatives regulation remains a live priority.
The broader Kalshi regulatory picture has grown considerably more fraught in recent weeks. On July 31, 2026, New York Attorney General Letitia James filed suit against KalshiEX LLC, seeking a temporary restraining order and more than $36 billion in damages, alleging the platform operates as an illegal gambling operator. The CFTC responded on 11 August, issuing an emergency authority order directing Kalshi to continue operating under the Commodity Exchange Act’s core principles, after KalshiEX notified the agency of a market emergency stemming from the lawsuit, according to PYMNTS.
That was not the CFTC’s first intervention for Kalshi this summer. On July 14, 2026, the agency had already issued a separate emergency order, staying an emergency rule self-filed by KalshiEX after a Michigan state court ordered the platform’s trades with Michigan residents to be voided and refunded. Kalshi faced $120,000-per-day in penalty exposure under that state court order.
Selig, speaking at the White House the day before the IAC meeting, framed the New York action in pointed terms: ‘We’ve also protected federally regulated prediction markets from rogue state attorneys general like Letitia James, who seek to nullify federal law and drive these markets offshore to unregulated and foreign venues.’
Whether the pending Rule 40.11 amendments can resolve the jurisdictional standoff before further state-level actions test the CFTC’s emergency powers again is the question the committee’s next session will need to answer.
