Lawyer Says CLARITY Act Could Enable CFTC Oversight of Prediction Markets

US lawmakers used a House Agriculture Subcommittee hearing this week to press the Commodity Futures Trading Commission (CFTC) on oversight of sports event prediction market platforms—while also pointing to a pending Senate effort, the Digital Asset Market Clarity (CLARITY) Act, as a potential source of clearer authority and funding.

At the hearing titled “Examining Customer Protections and Market Integrity in Sports Event Prediction Markets,” Carl Kennedy, a partner at law firm Katten Muchin Rosenman, argued that the CFTC may be unable to fully regulate and enforce rules for rapidly expanding prediction markets, citing staffing constraints. Kennedy said the CLARITY Act could expand the agency’s jurisdiction beyond digital assets and help it address the “explosive growth” of prediction markets.

Key takeaways

• Carl Kennedy told the House Agriculture Subcommittee that the CFTC is likely “short-staffed” to effectively oversee prediction market platforms.
• Kennedy said the CLARITY Act could grant the CFTC additional authority covering not only digital assets but also the fast-growing prediction market sector.
• CFTC Chair Michael Selig has argued the agency has “exclusive jurisdiction” over event contracts on major prediction platforms, treating them as “swaps.”
• State regulators have increasingly challenged that federal position, including through lawsuits and court disputes involving platforms such as Kalshi and Polymarket.
• Senate supporters of the CLARITY Act expect the bill text to be released soon, but details on prediction market provisions were not publicly available as of Tuesday.

Why lawmakers are focusing on prediction market oversight

The hearing, chaired around customer protections and market integrity in sports event prediction markets, highlighted how the legal and regulatory question has shifted from whether prediction platforms can operate to who is responsible for regulating them.

Kennedy’s core point was that even if the CFTC has jurisdiction, it may not have the resources to supervise new and complex markets at the pace they are growing. He suggested that an expanded mandate under the CLARITY Act would need to be paired with additional capacity so the agency can handle oversight and enforcement across cash markets and crypto as well as prediction markets.

“With additional resources… to address these new asset classes in the cash markets and crypto… as well as to deal with the explosive growth of prediction markets, I think that the CFTC certainly should receive additional resources,” Kennedy said during the Tuesday hearing.

The subcommittee discussion also reflected that prediction markets—often built on event contracts linked to real-world outcomes—have become a regulatory stress test for existing derivatives rules, especially as platforms attract broader participation.

The CFTC’s “exclusive jurisdiction” position under scrutiny

Legal and regulatory experts at the hearing referenced the CFTC’s approach under Chair Michael Selig, who was confirmed by the Senate in December and is the only Senate-confirmed member heading the commission in a leadership panel that would normally include five commissioners.

Since taking the role, Selig has taken the position that the CFTC has “exclusive jurisdiction” over prediction market companies. The argument is that the event contracts on these platforms fall under the CFTC’s authority because they can be classified as “swaps.”

This stance has drawn criticism—particularly from Democratic senators—who have described it as an “assault” on state authority to regulate prediction markets.

That federal-versus-state tension has produced a growing body of litigation. Some states have pursued lawsuits against platforms including Kalshi and Polymarket over what they see as state-level sports betting concerns.

State court clashes and the path toward the Supreme Court

One recent flashpoint involved a dispute where the CFTC chair’s position came into direct conflict with a state court ruling. Last week, Selig ordered Kalshi to ignore a Michigan court decision, according to prior coverage, with Kalshi arguing that the directive placed it in an “impossible position” between federal and state authorities.

More broadly, experts have suggested that the legal conflict between state regulators and the CFTC could eventually end up before the US Supreme Court. That possibility centers on the same foundational question raised by lawmakers: whether the CFTC’s reading of its jurisdiction leaves room for states to regulate event contracting tied to sports and related forms of wagering.

For market participants, this matters because jurisdiction affects compliance obligations, product design decisions, and the legal risk profile of operating in different states. For consumers, it affects who sets the rules for customer protections and how those rules are enforced—particularly when the platforms operate nationwide.

What the CLARITY Act could change—and what remains unclear

Much of Tuesday’s discussion pointed toward the CLARITY Act as the most significant potential legislative change on the horizon. Republican senators pushing for a vote before August recess have indicated they expect to release the bill’s text soon.

As of Tuesday, details of how the CLARITY Act would address prediction markets, ethics provisions, and other concerns raised by lawyers were not yet public.

However, earlier reporting indicates there is active political pressure to shape the bill’s scope. In June, gambling industry groups petitioned the Senate to add language to CLARITY that would explicitly prohibit event contracts tied to sports and casino-style gaming. Separately, reports cited by earlier coverage said the White House had confirmed that the Trump administration agreed to ethics provisions described as comprehensive, while also accommodating Democrats’ concerns.

That mix—requests for tighter boundaries around wagering-linked event contracts alongside broader ethics requirements—underscores that CLARITY is not only about regulatory authority for digital assets. Kennedy’s remarks at the hearing framed the bill as potentially relevant to prediction markets as a category, particularly in relation to customer protections and market integrity.

For traders, platform operators, and state regulators, the immediate watch item is the CLARITY Act’s released text and how it addresses the core jurisdiction conflict: whether it expands and clarifies federal oversight for event contracts, and whether it limits or displaces state enforcement where prediction markets intersect with sports wagering. Until the bill language is published, the questions raised in court and in Congress—about who regulates, who enforces, and how resources match the scale of these markets—are likely to keep escalating.