Betting on Washington: Legal Risks in the New Era of Political Prediction Markets

Key Takeaways:

• The Commodity Futures Trading Commission (CFTC) has shifted its approach to regulating political event contracts: a new proposed rule would narrow that agency's authority to prohibit listing of these contracts. Comments are due July 27, 2026.
• Government officials, by contrast, face tightening restrictions on trading political event contracts. The Senate has banned its Members and employees from prediction markets entirely, a House bill would reach Members and their families, and executive branch employees are constrained by existing ethics rules on non-public information and financial conflicts.
• Campaigns, vendors, and other non-governmental political actors should not assume these markets are unregulated territory. The CFTC has reiterated its intent to police illegal trading practices occurring on prediction market platforms. Those platforms are also moving to prohibit political insiders from trading certain event contracts.

Political prediction markets have quickly become mainstream. The largest prediction market platforms now offer event contracts tied to election outcomes, control of Congress, judicial and regulatory actions, and other exercises of federal authority. Trading volume and media attention suggest that these markets may soon rival, or even surpass, traditional polling as markers of political sentiment.

But as political information begins to move these markets, existing legal regimes may apply in ways participants have not fully considered. Meanwhile, multiple federal authorities are moving rapidly to clarify the law in this area, with implications for the commodities markets, government ethics, and political regulation of event contracts.

Recent CFTC Actions

The Commodity Futures Trading Commission (CFTC)'s posture toward political event contracts has shifted substantially over the past six months.

Historically, the CFTC has not approved event contracts for trading; Section 5c(c)(5)(C) of the Commodity Exchange Act (CEA) authorizes the CFTC to bar the listing or clearance of event contracts that involve terrorism, assassination, war, gaming, unlawful activity, or "other similar activity determined by the Commission, by rule or regulation, to be contrary to the public interest."[1] A Biden administration-era proposed rule would have categorically swept political event contracts within this prohibition by interpreting staking money on an uncertain outcome as a bet, and a bet as "gaming"-reasoning under which nearly any event contract could be barred.

The CFTC withdrew that proposal in February 2026,[2] and following an Advance Notice of Proposed Rulemaking (ANPRM) that drew roughly 3,500 comments, issued a Notice of Proposed Rulemaking (NPRM) in June, with comments due July 27, 2026.[3] This new NPRM reframes the CFTC's analysis: rather than focusing on what the trader is doing, it looks to the underlying contingency or occurrence that determines the payout. An election or agency decision is not a "game," so political event contracts would fall outside Section 5c(c)(5)(C) altogether: a result the CFTC acknowledges departs from its 2012 Nadex and 2023 Kalshi orders.[4]

The proposal is not a safe harbor; the CFTC would retain case-by-case authority and discretion to prohibit particular event contracts as contrary to the public interest following a 90-day review.[5] Under the NPRM, this review authority would be limited to contracts involving an enumerated activity or other similar activity. Moreover, once a contract is listed, the CFTC's Enforcement Division has confirmed it will investigate and prosecute insider trading, wash and pre-arranged trading, disruptive trading, fraud, and manipulation on prediction markets, and that it will continue to coordinate with Designated Contract Markets (DCMs) on referrals.[6]

Practically speaking, then, the live question is no longer whether regulated political prediction markets may exist, but who may trade on them, and on what information.

Considerations for Government Officials

Section 5 of the CEA expressly regulates DCMs, which are exchanges where futures, options, and swaps are traded. And the STOCK Act affirms that Members of Congress and legislative branch employees are not exempt from federal insider trading prohibitions, including with respect to transactions in futures, options, and swaps.[7] But while the CEA provides the CFTC with limited authority to prohibit event contracts that are contrary to the public interest, the larger question of whether event contracts are swaps at all remains open. The Third Circuit held in April 2026 that they are,[8] while district courts have held otherwise,[9] and appeals argued in the Fourth and Ninth Circuits remain pending.[10]

Notwithstanding this debate, Congress has begun closing the gap for its own Members and legislative branch employees. In April 2026, the U.S. Senate unanimously passed a resolution amending its rules to prohibit Senators and Senate employees from trading on prediction markets at all.[11] The House may take a narrower statutory approach: the Stop Lawmakers From Predicting Act, reported out of the Committee on House Administration in June 2026, would bar Members, spouses, and dependent children-but not staff-from trading contracts tied to government policy, government action, political outcomes, or information learned through congressional service.[12]

Meanwhile, executive branch officials remain subject to general ethics regulations that affect their ability to trade event contracts related to their official duties. The Standards of Ethical Conduct prohibit executive branch employees from using non-public information to further their own or another person's private interest, and they bar participation in a particular matter in which the employee holds a financial interest-which would include an open position in an event contract tied to that matter.[13]

Bribery and honest services fraud enforcement theories are also available where a corrupt exchange can be shown, but both require a quid pro quo, and the U.S. Supreme Court has held that neither reaches an official who simply trades or tips.[14]

Political Law Implications

Political law questions also loom. If campaigns, parties, donors, or aligned entities participate in prediction markets, regulators may examine whether these bets function as a proxy for contributions, expenditures, or coordinated activity. While the Federal Election Campaign Act and Federal Election Commission (FEC) regulations do not squarely address these types of issues, it is possible that the FEC could receive and adjudicate complaints and advisory opinion requests on the topic. While this risk may appear remote given the current lack of a quorum at the FEC, federal law provides for a private right of action in certain circumstances, and regulated entities should carefully evaluate the possibility of litigation stemming from an FEC enforcement complaint-which anyone can file.

Moreover, the CFTC remains functional, and its Enforcement Division's February 2026 advisory highlighted a platform disciplinary matter in which a candidate traded contracts on his own candidacy.[15] Market participants, including candidates, campaign staff, and others positioned to influence or learn of an outcome in advance, should therefore expect scrutiny of trading on material non-public information and coordinated trading activity.

The exchanges themselves are not blind to these risks. Many platforms prohibit participation in certain event contracts by government officials, candidates, political parties, and their employees. Some prohibit participation even by vendors, outside counsel, and other agents. Public reporting has noted efforts to cross-reference event contract participants with FEC reports listing vendors and campaign staff. These databases are not comprehensive, however, and the "commercial use" of FEC reports is prohibited by law.[16] The private enforcement of platform rules is likely to create additional institutional risk for political participants, including established vendors, law firms, and advertising platforms.

* * *

Ultimately, political prediction markets are expected to expand, with a corresponding expansion of regulatory and legal requirements. Organizations with access to sensitive or non-public government information should review trading restrictions, information controls, and ethics guidance now. BakerHostetler advises clients operating where political law, government ethics, and financial regulation converge, and is well positioned to help companies and individuals assess risk and design compliance strategies as these markets continue to grow. Please contact our team with any questions

[1] 7 U.S.C. § 7a-2(c)(5)(C).

[2] Event Contracts; Withdrawal of Proposed Regulatory Action, 91 Fed. Reg. 5386 (Feb. 6, 2026) (withdrawing 89 Fed. Reg. 48,968 (June 10, 2024)); Press Release, CFTC, CFTC Withdraws Event Contracts Rule Proposal and Staff Sports Event Contracts Advisory (Feb. 4, 2026), https://www.cftc.gov/PressRoom/PressReleases/9179-26.

[3] Prediction Markets; Public Interest Determinations, 91 Fed. Reg. 35,806 (proposed June 12, 2026) (to be codified at 17 C.F.R. pt. 40).

[4] Id. at 35,818, 35,821-23.

[5] Id. at 35,859. The language says the CFTC may determine a contract is contrary to public interest.

[6] Press Release, CFTC, CFTC Enforcement Division Issues Prediction Markets Advisory (Feb. 25, 2026), https://www.cftc.gov/PressRoom/PressReleases/9185-26.

[7] Stop Trading on Congressional Knowledge (STOCK) Act of 2012, Pub. L. No. 112-105, 126 Stat. 291 (2012).

[8] KalshiEX, LLC v. Flaherty, No. 25-1922 (3d Cir. Apr. 6, 2026).

[9] See, e.g., N. Am. Derivatives Exch., Inc. v. Nev. ex rel. Nev. Gaming Control Bd., No. 2:25-cv-00978 (D. Nev. Oct. 14, 2025); KalshiEX, LLC v. Schuler, No. 2:25-cv-1165 (S.D. Ohio Mar. 9, 2026).

[10] KalshiEX, LLC v. Martin, No. 25-1892 (4th Cir. argued May 7, 2026); N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir. argued Apr. 16, 2026) (consolidated with KalshiEX, LLC v. Hendrick, No. 25-7516).

[11] S.Res. 708, 119th Cong. (2026), https://www.congress.gov/bill/119th-congress/senate-resolution/708.

[12] H.R.9367: Stop Lawmakers From Predicting Act, 119th Cong. (2026), https://www.congress.gov/bill/119th-congress/house-bill/9367.

[13] 5 C.F.R. §§ 2635.101 et seq.

[14] See, e.g., Skilling v. United States, 561 U.S. 358 (2010) (holding that honest services fraud only covers schemes to defraud that involve bribes or kickbacks); see also United States v. Sun-Diamond Growers of Cal., 526 U.S. 398 (1999) (holding that a bribery conviction requires a quid pro quo link between a gratuity and an official act).

[15] See supra n.6.

[16] 52 U.S.C. § 30111(a)(4).