Trump regulator proposes new rules on what’s allowed on prediction markets

Trump regulators are proposing an expansive new set of rules on how they will govern the booming prediction markets, with parameters that will continue to allow most sports-related bets while trying to avoid inviting obvious manipulation, according to people familiar with the matter.

The Commodity Futures Trading Commission will propose the new rules on Wednesday, seeking the ability to block prediction wagers it finds aren’t in the public interest or that seem highly susceptible to manipulation, such as in cases where one person could have outsize impact on the result, according to a copy of the proposed rules viewed by The Wall Street Journal.

That would likely include certain types of sports-related trading such as bets on player injuries and so-called first-pitch gambling, like the type that ensnared an all-star Major League Baseball pitcher. Virtually all bets on war, terrorism or assassinations would also likely be prohibited on the basis that they aren’t in the public interest, according to the proposed rules.

The agency’s proposal doesn’t outright ban trading on any specific types of so-called event contracts, but rather outlines factors that regulators will use to review certain types of contracts on a case-by-case basis, the people familiar with the matter said.

The CFTC had already offered some preliminary guidance on what types of betting should be avoided, and Kalshi and other prediction platforms have moved to get ahead of the new regulations. Kalshi said it was planning to require that some users disclose the identity of their employers, the Journal reported.

The proposal and Kalshi’s changes show how the rules are still being sorted out in a new world that allows betting on the outcome of everything from elections to corporate earnings to the Super Bowl halftime show.

The list of what is allowed is likely to be much longer than what isn’t. Officials say that in general, the intent is to permit the growth of prediction markets, including those focused on sports, despite intense pushback from states that have their own gambling laws and say prediction markets are an end-run around them.

The new rules are an effort by the CFTC to keep up with the quickly growing prediction markets, which began launching a range of new types of event contracts in the regulatory vacuum that preceded President Trump’s re-election. The Trump family has itself taken a financial interest in the emerging market, with one of Trump’s sons serving as an adviser to Kalshi and its largest competitor, Polymarket, whose large offshore platform is unregulated.

Polymarket has a data partnership with Dow Jones, the publisher of the Journal.

The CFTC, which was originally created to regulate commodities and derivatives markets, considers bets placed on prediction platforms a form of “swaps” trading. Under prior administrations, its leadership blocked Kalshi, Polymarket and other platforms from listing broad categories of these events contracts, including those relating to elections and sports.

Markets tied to war have been a particularly sensitive topic for prediction markets, given that information about geopolitical conflicts could rely on highly classified information and put lives in danger. A U.S. soldier was charged in April over trades he allegedly made around the operation that arrested Venezuela’s formerPresident Nicolás Maduro. A pair of lawmakers have proposed a law to ban those bets outright on U.S.-regulated platforms.

The CFTC under its Trump-appointed chair, Michael Selig, has pivoted toward being broadly permissive to the platforms. In a series of legal actions this year, the CFTC moved to block states that have tried to prevent Kalshi and other prediction markets platforms from operating in their jurisdiction.

While most U.S. professional sports leagues have embraced sports gambling, some have been more reluctant when it comes to prediction markets. Major League Baseball earlier this year signed a licensing deal with Polymarket.

Selig’s stance on prediction platforms has been controversial with some state leaders and federal lawmakers in both parties. In March, lawmakers introduced bipartisan legislation to prohibit U.S.-regulated prediction markets from listing contracts related to sporting events and casino-style games such as video poker, blackjack and bingo.

The rules proposed Wednesday are unlikely to be the last ones the CFTC issues on prediction markets. The agency is weighing other rules, including ones geared toward protecting retail traders, the people familiar with the matter said.

Write to Dylan Tokar at dylan.tokar@wsj.com