Caroline Pham, acting chair of the Commodity Futures Trading Commission, said that prediction markets operating through designated contract markets, or DCMs, are following the law. Her comments come as some states try to ban or limit these markets. This is the CFTC’s clearest statement so far that prediction markets can operate under current federal rules.

Pham made the remarks in response to questions from Senator Catherine Cortez Masto and six other senators, who wrote to the CFTC in September seeking clarification on sports-related contracts. She referred them to Staff Letter No. 25-36, which formally recognizes sports event contracts, and said any investigations into these markets remain confidential under CFTC policy.

Questions on Market Integrity

Lawmakers raised concerns about market integrity and the risk of manipulation. They asked how the CFTC ensures that athletes, referees, team personnel, and other insiders cannot influence the outcomes of events and how anti-manipulation rules are enforced in these marketplaces. In its written response, the CFTC said all DCMs must comply with 23 Core Principles under the Commodity Exchange Act. These principles include rules designed to protect market integrity, ensure fair play, and safeguard participants.

Pham’s remarks highlighted a tension between emerging market structures and the patchwork of state and federal rules governing gambling and derivatives. She explained that while some oversight exists, regulators face challenges in balancing market innovation with protections against abuse.

Oversight by the Division of Market Oversight

The agency’s Division of Market Oversight is responsible for monitoring compliance with the core principles. It conducts rule enforcement reviews, issues formal information requests under Regulation 38.5, and holds quarterly oversight calls with exchanges. Lawmakers also asked how the CFTC ensures that operators follow geolocation rules, Know Your Customer procedures, anti-money laundering standards, and problem gambling safeguards.

Pham clarified that some responsibilities, such as enforcement under the Federal Wire Act, are outside the CFTC’s authority. The Wire Act has been used in the past to block online gambling, most notably during the abrupt shutdown of online poker on Black Friday in 2011.

Industry Reaction and Uncertainty

Prediction market operators such as Kalshi and Polymarket, as well as sportsbooks considering entry into the sector, remain engaged in disputes about the classification and legality of their products. Several states have warned licensed sportsbooks that participating in prediction markets could risk their regulatory standing.

Pham’s comments do not officially approve these markets, but they offer some reassurance to operators seeking clearer guidance. The remarks underline the need for further discussion on how federal and state rules intersect. While uncertainty remains, the CFTC’s acknowledgment of prediction markets’ legality may encourage operators to continue exploring opportunities in the sector while following the agency’s rules.