CLARITY Act could help CFTC deal with prediction markets: Lawyer According to one lawyer testifying before a House subcommittee hearing, the CLARITY Act could grant the CFTC the authority it needs to address the “explosive growth of prediction markets.”

During a recent hearing held by the US House Committee on Agriculture’s Subcommittee on Commodity Markets, Digital Assets, and Rural Development, legal experts discussed how the Commodity Futures Trading Commission (CFTC) might effectively regulate prediction market companies such as Kalshi and Polymarket. Carl Kennedy, a partner at Katten Muchin Rosenman law firm, testified that the CFTC is likely under-resourced to fully manage the oversight and enforcement required for these platforms. Kennedy suggested that the Digital Asset Market Clarity (CLARITY) Act, currently under consideration in the US Senate, could provide the CFTC with broader authority and additional resources to better address prediction markets amid their rapid growth.

The hearing also highlighted the ongoing tension between federal and state regulators over jurisdiction. Since his confirmation as CFTC chair in December, Michael Selig has asserted that the CFTC holds exclusive jurisdiction over event contracts on prediction platforms, as these are classified as “swaps” within the commission’s remit. This stance has prompted criticism from Democratic senators and conflicts with state authorities, some of whom have filed lawsuits against market operators like Kalshi and Polymarket on sports betting grounds. Notably, Selig recently ordered Kalshi to disregard a Michigan court ruling, placing the company in a difficult position navigating conflicting federal and state demands.

The text of the CLARITY Act, which Republican senators hope to advance before August recess, is expected to be released soon. While specific provisions regarding prediction markets and related ethics concerns have not been publicly disclosed, industry stakeholders have already engaged with the legislative process. For example, gambling industry groups petitioned the Senate to explicitly prohibit event contracts linked to sports and casino gambling. The White House has acknowledged efforts to include comprehensive ethics measures aimed at addressing bipartisan concerns.

Overall, the discussion underscores the challenges facing regulators in adapting to novel financial instruments like prediction markets, where rapid industry growth and jurisdictional disputes complicate oversight. The CLARITY Act is seen by some legal experts as a potential tool to clarify regulatory authority and provide the CFTC with the means necessary to manage these emerging markets effectively. However, uncertainty remains, especially as some cases involving prediction market platforms may eventually be decided by the US Supreme Court.