Overview & Key Takeaways
On January 29, 2026, Michael S. Selig delivered his first public remarks as Chairman of the Commodity Futures Trading Commission (“CFTC”).[1] Chairman Selig outlined the central pillars of his regulatory agenda for the “new frontier of finance,” highlighting regulations he intends to pursue for cryptocurrency and prediction markets. He emphasized the importance of “regulatory clarity” and “inter-agency coordination.”
- Prediction Markets: Chairman Selig said the CFTC would withdraw a 2024 proposed rule that would have prohibited certain event contracts and instead would promulgate “clear rules” to regulate the prediction market industry.
- Cryptocurrency: Chairman Selig announced that the CFTC would partner with the Securities and Exchange Commission (“SEC”) on “Project Crypto” to bring a “unified approach to the federal oversight of crypto asset markets.”
The following week, the U.S. Attorney for the Southern District of New York, Jay Clayton, indicated that his office is scrutinizing prediction markets under traditional fraud-related statutes.
Based on these remarks, market participants should consider the following:
- Prepare for CFTC Rulemakings: Chairman Selig’s speech previewed that the CFTC will undertake rulemaking processes that could significantly shape these financial markets. Given the significant stakes of such rulemakings, industry participants should consider providing comments to them, whether individually or through trade associations.
- Prediction Market Platforms Should Consider Reviewing Compliance Programs: Given the heightened scrutiny from the Department of Justice (“DOJ”), prediction market platforms should consider taking steps to review their compliance programs and should consider appropriate modifications, particularly regarding the permissible use of material non-public information.
Prediction Markets
Chairman Selig’s Remarks Signal New Regulatory Framework for Prediction Markets
Chairman Selig announced a significant shift in the CFTC’s position on prediction markets, known as “event contracts” at the CFTC, with major implications for the industry.
As background, the CFTC defines an event contract as a “a derivative contract whose payoff is based on a specified event, occurrence, or value such as the value of a macroeconomic indicator, corporate earnings, level of snowfall, or dollar value of damages caused by a hurricane.”[2] An event contract is typically structured as a binary option where the contract pays out a fixed amount if the underlying event occurs and pays out zero if it does not. For example, an event contract on an election would be structured as a yes/no binary on whether a specific candidate will win, and the yes/no options would be priced based on how the market views the likelihood of that candidate’s success.
Chairman Selig emphasized the CFTC’s support for “lawful innovation” in prediction markets and its commitment to fostering their “responsible development.”
- New Rulemaking: Chairman Selig outlined a plan for a new “event contracts rulemaking” aimed at “establishing clear standards for event contracts that provide certainty to market participants” and “support the responsible development of event contract markets.” As an immediate step, he directed CFTC staff to withdraw the 2024 proposed rule that would prohibit sports- and politics-related event contracts and the 2025 staff advisory cautioning against sports-related event contracts. On February 4, the CFTC withdrew the proposed rule and guidance, with Chairman Selig noting that these steps “reflect the CFTC’s commitment to lawful innovation in our markets” and stating that the commission would “advance a new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act that promotes responsible innovation in our derivatives markets in line with Congressional intent.”[3]
- Asserting Exclusive Jurisdiction over Prediction Market Regulation: Chairman Selig also directed CFTC staff to reassess the CFTC’s “participation in matters currently pending” in court to “defend its exclusive jurisdiction over commodity derivatives.” As context, a number of state gaming commissions and Native American tribes have asserted that event contracts are regulated under state gambling laws (particularly in the context of sports-related event contracts).[4] In a number of jurisdictions, market participants have filed suit to enjoin enforcement of state gambling laws against them, arguing that event contracts are regulated under the Commodity Exchange Act and that any state-level regulation is therefore preempted.[5] The CFTC had acknowledged this litigation in an advisory in September 2025, but it had not weighed in on the preemption issue.[6] These remarks signal that the CFTC may intervene in litigation to assert federal preemption over any state-level regulation. Indeed, on February 5, the CFTC asked the Ninth Circuit for leave to file an amicus brief in an appeal involving a CFTC‑registered designated contract market’s challenge to Nevada’s efforts to regulate event contracts under its gambling laws.[7] Previewing its arguments in support of the challenger, the CFTC identified its intention to raise argument on the preemption issue, noting that the case implicates its “exclusive authority” under the Commodity Exchange Act. Given that district courts across the country have issued conflicting rulings, the issue may ultimately be decided by the Supreme Court.
U.S. Attorney’s Remarks Signal SDNY Focus on Fraud in the Prediction Markets
While Chairman Selig’s remarks focused on creating a regulatory framework that would provide clarity on prediction markets, he also noted that regulators would not “abandon our age-old principles, like investor protection, anti-fraud and anti‑manipulation, and market integrity, which remain our north star.”
These themes were underscored in remarks by Jay Clayton, the U.S. Attorney for the Southern District of New York, at a February 5 securities enforcement forum. He emphasized that the prediction markets are “an area that I am looking at” and that placing a bet through a “prediction market doesn’t insulate you from fraud.”[8] He added that he expected enforcement actions in this space.
DOJ has brought fraud cases in traditional sports betting markets where bettors use material non-public information to gain an advantage over others. For example, DOJ prosecuted bettors who allegedly conspired with a basketball player to obtain material non‑public information about his plans to withdraw from certain games to ensure that they won bets placed on the player’s performance in those games. The DOJ press release underscored that these “alleged actions violated the prohibition on using non-public information—eliminating the risk associated with the unpredictable nature of the betting world—an unfair advantage not afforded to other bettors.”[9] Although this case arose in the context of traditional betting markets, DOJ may seek to bring cases in the prediction markets under similar theories.
The use of material non-public information in prediction markets gained considerable public attention following a large bet on the imminent removal of Nicolas Maduro, Venezuela’s former president, just hours before the U.S. raid.[10] Congressman Ritchie Torres subsequently introduced legislation, the “Public Integrity in Financial Prediction Markets Act of 2026,” which would prohibit certain government employees from trading on event contracts if they have access to material non‑public information.[11]
Cryptocurrency
Project Crypto: The CFTC and SEC Collaborate to Modernize Cryptocurrency Regulations
Additionally, in what he described as a “generational opportunity” for the CFTC and SEC to “collaborate on clear, durable, rules of the road” for cryptocurrency asset markets, Chairman Selig’s first public remarks announced several new initiatives the CFTC has undertaken in the cryptocurrency space:
- CFTC-SEC Coordination on “Project Crypto”: Chairman Selig announced that the CFTC would formally partner with the SEC on “Project Crypto” to bring “coordination, coherence, and a unified approach to the federal oversight of crypto asset markets.” Chairman Selig acknowledged that cryptocurrency market participants face uncertainty as to whether certain tokens are regulated by the SEC, the CFTC, or both, and emphasized that it is incumbent on the agencies to “draw a bright jurisdictional line for our nation’s builders and innovators.” Chairman Selig likewise directed CFTC staff to “work together with SEC staff to consider joint codification” of the SEC’s proposed “crypto asset taxonomy.”[12] This joint codification could lend clarity to the uncertain regulatory status of certain cryptocurrency assets.
- Rulemaking to Expand Eligible Tokenized Collateral: Stating that “tokenization and automation can begin to fulfill the original promise of blockchain technologies: a more open, transparent, and efficient market infrastructure,” Chairman Selig announced that he had directed CFTC staff to “develop rules to enable the responsible deployment of additional forms of eligible tokenized collateral.” “Tokenization” involves representing traditional assets (e.g., Treasury securities, stocks, or bonds) as digital tokens on a blockchain. Tokenization allows for digital ownership, fractional ownership, and faster trading compared to traditional methods.[13] This move could pave the way for companies operating in the United States to offer additional tokenized asset classes with greater confidence in the regulatory implications of how those assets are structured.[14]
- Perpetual Futures Regulation: In his remarks, Chairman Selig also promised to use the tools at the CFTC’s disposal “to onshore perpetual and other novel derivative products so that they can flourish . . . subject to appropriate safeguards.”[15] Perpetual futures contracts, or “perps,” are financial derivatives that offer the same characteristics as traditional futures contracts but without an expiration date. Perpetual derivative products are popular in cryptocurrency markets, and certain offshore perp markets routinely advertise high-leverage products currently unavailable in the United States because of jurisdictional and regulatory limits.
- Exploring Safe Harbors for Cryptocurrency Innovators and Embracing “Super-Apps”: Chairman Selig also acknowledged that many innovative financial products exist in a regulatory gray area under the CFTC’s existing framework. He promised to explore how the CFTC could “encourage innovation in software development . . . including by assessing whether an innovation exemption may be appropriate” and committed to establishing “safe harbors for software developers.” Chairman Selig likewise suggested that the CFTC would work in concert with the SEC to pave the way for market participants to offer multiple products on the same platform—for example, perpetual futures, derivatives, event contracts, and tokenized equities—suggesting that CFTC staff would consider creating a new category of Designated Contract Market registration that is “tailored specifically to retail leveraged, margined, or financed crypto asset trading.” That promise suggests increased regulatory flexibility for financial innovators, particularly those seeking to offer a “one‑stop shop” for trading novel cryptocurrency products.
Looking Ahead
In light of these announcements, participants in the prediction markets and cryptocurrency space should expect to see significant rulemakings in the coming months. Given the significance of these rulemakings for the future of these industries, industry participants should be prepared to participate actively in the rulemaking process.
Given the remarks from Jay Clayton on fraud in the prediction markets and Congressman Torres’s proposed legislation, platforms should also consider reviewing their compliance programs, particularly their policies, procedures, and controls regarding material non-public information.
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[1] Michael S. Selig, The Next Phase of Project Crypto: Unleashing Innovation for the New Frontier of Finance (Jan. 29, 2026), available here.
[2] CFTC, Contracts & Products, available here.
[3] CFTC, CFTC Withdraws Event Contracts Rule Proposal and Staff Sports Event Contracts Advisory (Feb. 4, 2026), available here.
[4] See, e.g., Bobby Allyn, Kalshi in court over 19 federal lawsuits. What’s the future of prediction markets?, NPR (Jan. 30, 2026), available here.
[5] E.g., KalshiEX LLC v. Martin, 793 F. Supp. 3d 667 (D. Md. 2025); KalshiEX LLC v. Flaherty, No. 25-CV-02152-ESK, 2025 WL 1218313 (D.N.J. Apr. 28, 2025).
[6] CFTC Advisory No. 25-36(Sept. 30, 2025), available here.
[7] CFTC Mtn. to File Amicus Curiae Br., N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir.), available here.
[8] Jessica Corso, SDNY Chief Says Office Has Eye On Prediction Markets, Law360 (Feb. 5, 2026), available here.
[9] DOJ (EDNY), Brooklyn Man Arrested for Illegal Sports Betting Scheme Involving National Basketball Association Player (June 4, 2024), available here (remarks of FBI Assistant Director-in-Charge Smith).
[10] NPR, A $400,000 profit on Maduro’s capture raises insider trading questions on Polymarket (Jan. 5, 2026), available here.
[11] Rep. Ritchie Torres, In Response to Suspicious Polymarket Trade Preceding Maduro Operation, Rep. Ritchie Torres Introduces Legislation to Crack Down on Insider Trading on Prediction Markets (Jan. 9, 2026), available here.
[12] For background on the SEC’s regulatory agenda see: Paul, Weiss, SEC Chairman Atkins Addresses SEC’s Next Steps in Regulation of Digital Assets (Nov. 21, 2025), available here.
[13] CFTC Staff Guidance, Tokenized Collateral Guidance (Dec. 8, 2025), available here.
[14] This announcement follows the release of the SEC’s joint staff’s Statement on Tokenized Securities, which addresses common tokenized securities questions raised by market participants seeking clarity on how existing federal securities laws apply to various tokenization structures. SEC Divisions of Corporation Finance, Investment Management, & Trading and Markets, Statement on Tokenized Securities (Jan. 28, 2026), available here.
[15] These remarks build on the CFTC’s April 2025 Request for Comment on the Trading and Clearing of “Perpetual” Style Derivatives in which the agency sought comment from market participants on the unique characteristics of these contracts, their impact on market dynamics, and the adequacy of existing regulatory frameworks to address associated risks. CFTC, Request For Comment On The Trading And Clearing Of “Perpetual” Style Derivatives (Apr. 21, 2025), available here.
