Why It Matters
The rapid growth of prediction markets is creating new regulatory and ethics questions for Congress as lawmakers consider restrictions on what contracts exchanges may offer and whether government officials should be allowed to trade on events connected to their official responsibilities.
A Congressional Research Service report published in August examines prediction market legislation in the 119th Congress amid mounting tensions between federal and state regulators and concerns about traders using confidential information. CRS notes that the application of existing federal ethics and insider trading rules to event contracts remains uncertain.
Congress has begun responding to that uncertainty. The Senate has prohibited senators, officers and employees from trading event contracts, while lawmakers have introduced broader proposals targeting prediction-market trading by executive branch officials, intelligence personnel, military personnel and other federal employees.
At the same time, the Trump administration's CFTC is actively defending federally registered prediction markets against state enforcement actions, arguing that the Commodity Exchange Act gives the commission exclusive jurisdiction over those markets and preempts state gambling laws as applied to CFTC-registered exchanges.
The Big Picture
Prediction markets operate as exchange platforms where participants trade contracts tied to whether specific events will occur, with prices determined by continuous buying and selling. The markets have grown rapidly in recent years, facilitated by judicial decisions and changes in regulatory posture, with sports contracts becoming a significant source of growth.
Under the Commodity Exchange Act, CFTC-registered exchanges can generally list event contracts through self-certification. The CEA's "Special Rule" authorizes the CFTC to prohibit certain event contracts involving activities including gaming if the commission determines they are contrary to the public interest. CRS notes that although CFTC regulations contain what appears to be a per se prohibition on contracts falling within enumerated categories, the agency historically has applied a two-step analysis considering both whether a contract falls within a category and whether it is contrary to the public interest.
Congress is considering several approaches to restricting those markets. H.R. 7477 would prohibit CFTC-registered entities from offering transactions involving sporting events or casino-style gaming contracts. Other proposals would impose broader restrictions on event contracts, reflecting disagreement over whether products involving sports, elections, government actions and other events should be treated as federally regulated derivatives.
The Senate agreed to S.Res. 708 on April 30, amending Senate Rule 37 to prohibit senators, officers and employees from trading event contracts, with an exception for insurance in which the insured has a lawful insurable interest. The Senate adopted the resolution by unanimous consent.
H.Res. 1248, introduced by Rep. Dina Titus (D-NV), would amend House Rule 23 to restrict House members, officers and employees from participating in prediction markets and explicitly exempts lawful sports wagers. H.Res. 1263 similarly would prohibit House members, delegates, resident commissioners, officers and employees from trading event contracts. Neither House resolution has been adopted.
S. 4615, the Intelligence Authorization Act for Fiscal Year 2027, includes a provision prohibiting intelligence community employees and contractors with security clearances from participating in prediction markets on topics related to nonpublic information they can access through their positions. The restriction would continue for two years after an individual leaves the covered position.
Other legislation would extend restrictions to additional federal officials and employees. CRS identifies proposals covering members of Congress, political appointees, executive branch officials and Defense Department personnel as lawmakers consider whether existing financial ethics rules adequately address prediction markets.
The Bottom Line
The growth of prediction markets has exposed gaps and uncertainties in the regulatory framework governing both the exchanges and government officials who may participate in them. CRS found that although the STOCK Act affirmed that insider trading laws apply to covered federal officials and employees, the degree to which those provisions cover event contracts remains uncertain. Other federal ethics offices have not publicly disclosed guidance explaining how the STOCK Act applies to event contracts.
The Senate has addressed that uncertainty for its own members and employees by prohibiting their participation in prediction markets. But comparable restrictions have not yet been adopted across the House and executive branch, leaving Congress to consider whether broader statutory prohibitions or disclosure requirements are necessary.
Meanwhile, the CFTC is aggressively defending its jurisdiction over federally regulated prediction markets. The commission has sued Arizona, Connecticut, Illinois, New York, Wisconsin, Minnesota, Rhode Island and New Mexico or intervened in litigation involving those states, arguing that federal commodities law preempts state efforts to regulate CFTC-registered event-contract markets under state gambling laws.
The result is a two-front policy debate in Congress over what Americans should be permitted to bet on through federally regulated prediction markets and which government officials should be prohibited from participating when their positions give them access to information or influence unavailable to ordinary traders.
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