CFTC Says Prediction Markets Are Derivatives, Not Gambling - and Insider Trading Laws Apply

The U.S. Commodity Futures Trading Commission (CFTC) has made its position clear: prediction market contracts are financial derivatives, not gambling, and insider trading laws apply accordingly.

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In his first public remarks as Enforcement Director, David Miller addressed what he described as a persistent misconception that insider trading rules do not apply to prediction markets.

"Unfortunately, there’s a myth in mainstream media and social media that insider trading doesn’t apply in the prediction markets," Miller said at a panel at New York University. "That is wrong."

A key CFTC official said the agency will use its powers to root out insider trading in prediction markets https://t.co/UillsoQ2f2

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The remarks come after a series of trades ahead of major geopolitical events, including the U.S. capture of Venezuelan leader Nicolás Maduro and the recent conflict in Iran.

"Misappropriated Information"

Miller was careful to draw a distinction between legitimate informational advantages and illegal activity. He noted that market participants are allowed to use their own knowledge.

For example, a farmer may use what he observes about his own harvest to trade. However, he made it clear that the CFTC will prosecute cases involving "misappropriated information."

"We will only be prosecuting cases against those who tip or trade with misappropriated information," Miller stated. He defined the clear legal standard that the agency will apply, and added that the CFTC will use its discretion and not pursue "trivial" cases.

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Not Gambling, but Derivatives

Miller also addressed the agency’s position in its ongoing disagreement with state regulators. Several states have argued that prediction markets constitute gambling and fall under their oversight.

Miller framed the issue in direct terms: "Our position is that event contracts are not gaming. The event contracts at issue are swaps. Insider trading law applies."

This distinction is central to the CFTC’s position. If event contracts are treated as derivatives, they fall under federal market rules, including insider trading restrictions.

This statement provides a degree of federal cover for the industry and for brokers and institutional players looking to enter the space, as it reinforces the classification of these products as financial derivatives rather than gambling.

A New Enforcement Philosophy

Miller also pointed to a shift in the CFTC’s approach under the new administration, moving away from reliance on enforcement actions alone. He said the agency plans to offer stronger incentives for companies and individuals to cooperate with investigations, including the possibility of reduced penalties.

For brokers and fintech firms, the implication is practical. If prediction markets are treated as derivatives, existing compliance expectations - including insider trading controls - apply in full.