Lawyer: CLARITY bill may give CFTC authority to regulate forecasting markets

U.S. lawmakers pressure CFTC on sports event prediction market platform

This week, the U.S. House Agriculture Subcommittee pressured the Commodity Futures Trading Commission (CFTC) at a hearing on the regulation of sports event prediction market platforms, while pointing out that the Senate's ongoing Clarification Act could become a clearer source of authority and funding.

At a hearing titled "Customer Protection and Market Integrity in the Sports Event Forecasting Market," Carl Kennedy, a partner at law firm Katten Muchin Rosenman, said that the CFTC may not be able to fully regulate and enforce the rapidly expanding forecasting market due to staffing constraints. Kennedy said the CLARITY bill could expand the agency's jurisdiction beyond digital assets and help it cope with the "explosive growth" of the forecast market.

Key Points

Carl Kennedy told the House Agriculture Subcommittee that the CFTC is likely to be "understaffed" to effectively regulate forecasting market platforms. Kennedy said the CLARITY bill could give the CFTC more powers to cover not only digital assets, but also the fast-growing forecast market area. CFTC Chairman Michael Selig believes the agency has "exclusive jurisdiction" over event contracts on major forecasting platforms and treats them as "swaps." State regulators are increasingly questioning this federal position, including through litigation and court disputes involving platforms such as Kalshi and Polymarket. Senate supporters of the CLARITY bill expect the text of the bill to be released soon, but as of Tuesday, details on forecast market terms had not been made public.

Why Members Pay Attention to Forecasting Market Regulation

This hearing focused on customer protection and market integrity in the sports event Forecasting market, highlighting that legal and regulatory issues have shifted from "whether forecasting platforms can operate" to "who is responsible for supervising them." Kennedy's core point is that even if the CFTC had jurisdiction, it might not have enough resources to regulate emerging complex markets at the rate that the market is growing. He suggested that expanding authority under the CLARITY Act must be accompanied by additional capabilities so that the agency can handle supervision and enforcement of cash markets, cryptocurrencies, and forecasting markets. "With additional resources... to deal with these new asset classes in the cash market and cryptocurrency... and to deal with the explosive growth of the forecast market, I think the CFTC certainly deserves more resources," Kennedy said at a hearing on Tuesday.

Subcommittee discussions also reflected that forecasting markets, often based on event contracts tied to real-world outcomes, have become a regulatory stress test for existing derivatives rules, especially as platforms attract a wider range of participants.

CFTC's "exclusive jurisdiction" stance comes under review

Legal and regulatory experts at the hearing referred to the CFTC's approach under Chairman Michael Selig. Selig was confirmed by the Senate in December last year and is the only member confirmed by the Senate to serve as a leadership position on the committee, which usually consists of five members. Since taking office, Selig has insisted that the CFTC has "exclusive jurisdiction" over forecast markets companies. The reason is that event contracts on these platforms fall under the jurisdiction of the CFTC because they can be classified as "swaps." The stance has attracted criticism, especially from Democratic senators, who have described it as an "attack" on the state's power to regulate and predict markets.

This federal-state tension has led to an increasing number of lawsuits. Some states have filed lawsuits against platforms such as Kalshi and Polymarket, arguing that they involve state-level sports betting issues.

State Court Conflicts and the Road to the Supreme Court

A recent conflict point involves the direct opposition of the CFTC chairman's position to state court rulings. According to previous reports, Selig last week ordered Kalshi to ignore a Michigan court decision, which Kalshi argued put him in a "dilemma" between federal and state authorities. More broadly, experts believe that legal conflicts between state regulators and the CFTC could eventually reach the U.S. Supreme Court. This possibility stems from the same fundamental question raised by lawmakers: Does the CFTC's interpretation of its jurisdiction leave room for states to regulate event contracts linked to sports and related forms of gambling.

This is important for market participants because jurisdiction affects compliance obligations, product design decisions, and the legal risk profile of operating in different states. For consumers, this affects who makes customer protection rules and how they are enforced-especially when platforms operate nationwide.

What the CLARITY bill may change-and what remains unclear

Much of Tuesday's discussion pointed to the CLARITY bill as the most important potential legislative change coming. Republican senators pushing for a vote before the August recess said they expected the text of the bill to be released soon. As of Tuesday, details of how the CLARITY bill would address forecast markets, ethics provisions and other concerns raised by lawyers had not been made public. However, earlier reports pointed to positive political pressure to shape the scope of the bill. In June, gaming industry groups petitioned the Senate to add language to the CLARITY bill that would explicitly ban event contracts related to sports and casino-style gambling. In addition, previous reports quoted sources saying that the White House has confirmed that the Trump administration has agreed to what is described as comprehensive ethics provisions, while also taking into account Democrats 'concerns.

This mix-requiring stricter boundaries for contracts for gaming-related events while introducing broader ethical requirements-highlights that the CLARITY bill is not just about regulatory powers over digital assets. Kennedy's remarks at the hearing saw the bill as potentially relevant to forecasting markets as a category, particularly in terms of customer protection and market integrity. For traders, platform operators and state regulators, the most noteworthy thing right now is the release text of the CLARITY Act and how it resolves core jurisdictional conflicts: whether it will expand and clarify federal regulation of event contracts, and whether it will restrict or replace state enforcement in areas where prediction markets meet sports betting. Before the bill's wording is released, questions raised in courts and Congress-who regulates, who enforces, and how resources match the size of these markets-are likely to continue to escalate.