Hickenlooper, Reed Call on CFTC to Prohibit Margin Trading on Prediction Markets

WASHINGTON - This week, U.S. Senators John Hickenlooper and Jack Reed sent a letter to Commodity Futures Trading Commission (CFTC) Chairman Michael Selig to prohibit prediction markets from allowing margin trading in connection with event contracts, particularly for retail lending.

"Margin trading allows trading without full collateral. In other words,

it allows a bettor or investor to essentially borrow from the house and lose or gain more money than they bet or invest. If the CFTC permits prediction markets like Kalshi to allow margin trading, it would expose investors and the economy to significant risk and undermine the longstanding restrictions placed on betting by state gaming commissions," wrote Hickenlooper and Reed.

For years, state gaming commissions, including Colorado, have prohibited or significantly limited gaming facilities from providing credit to consumers to finance sports betting through margin trading. The vast majority of trades on prediction markets are for sports and other betting, allowing prediction markets to circumvent state regulations and offer margin trading.

Margin trading can lead to customers being trapped in a cycle of debt with interest quickly occurring and balances compounding, resulting in customers losing even more money than they bet.

Hickenlooper and Reed continued: "The CFTC should prohibit prediction market platforms from providing margin loans to their users because it would undermine the credit limitations imposed by states, resulting in harm to consumers and the economy. Even if the CFTC limits margin trading, any amount of permissible margin trading would supersede decisions made by states with more restrictive limitations. The CFTC should leave it to state governments to continue to determine the appropriate amount of credit, if any, that consumers may receive when engaging in sports betting and other gaming activities on prediction markets or in casinos."

In March, Hickenlooper and Reed called on the CFTC to prohibit gambling contracts on events tied to U.S. military operations after reports of users on Polymarket profiting off the timing of U.S. strikes in Iran and the death of Iranian Ayatollah, Ali Khamenei. Hickenlooper previously demanded the Trump administration provide a plan to combat manipulation and fraud in prediction markets.

Hickenlooper also introduced the Banning Event Trading on Sensitive Operations and Federal Functions (BETS OFF) Act, bicameral legislation to ban wagering on government actions, terrorism, war, assassination, and events where an individual knows or controls the outcome.

For the full text of the letter, click HERE.

###