CME's Duffy and CFTC's Selig Clash Over Prediction Market Self-Certification at Advisory Committee

A Commodity Futures Trading Commission advisory committee meeting on Thursday laid bare the fracture lines between traditional derivatives exchanges and the newer prediction market platforms operating under the agency's oversight. The CFTC Innovation Advisory Committee convened to discuss event contracts, artificial intelligence, and cryptocurrency. The prediction market segment produced the sharpest exchange. CME Group chief executive Terrence Duffy used his time to argue that the self-certification process has allowed contracts vulnerable to manipulation onto designated contract markets without adequate review. Duffy said approximately 2,500 products have been submitted through self-certification since 2025 and that the CFTC has not objected to a single filing. He singled out contracts tied to what President Donald Trump would say during his State of the Union address and when Venezuelan President Nicolás Maduro would be ousted as examples of products that may violate the core principle requiring contracts not be readily susceptible to manipulation. Selig interrupted Duffy to say the products mentioned had not been listed in the United States. The chairman maintained that the CFTC has exclusive jurisdiction over prediction markets, including sports-related contracts, and noted the agency has sued nine states to defend that authority. Selig added he expects the commission to propose more amendments to its rules on how designated contract markets list event contracts and put in place additional consumer protection standards. The tension resurfaced later when Kalshi chief operating officer Luana Lopes Lara turned to Duffy and asked whether CME had ever faced problems with market manipulation. Duffy responded that he has more people in his regulatory department than Kalshi has in its entire company. Lopes Lara replied that perhaps Duffy should learn about efficiency. Duffy countered that perhaps she should learn about credible markets. CME has embraced event contracts, launching more than 100 million such contracts since entering the space last year. Kalshi operates as a CFTC-regulated designated contract market and has been at the center of the jurisdictional fights with states including New York, where the CFTC invoked emergency authority to keep the platform operating after the state attorney general sued to shut it down. A Washington state judge separately ordered Kalshi to block several market categories, including mention markets, sports, and elections. The CFTC's March advisory (Letter 26-08) reminded designated contract markets of their obligations under Core Principles 3, 4, and 12, listing only contracts not readily susceptible to manipulation, preventing price distortion, and protecting against abusive practices. The advisory flagged overly broad contract specifications and recommended proactive engagement with staff and relevant sports governing bodies. Separately, the commission proposed rules in August to address affiliated trading arms at prediction market exchanges. The CFTC identified at least six exchanges with affiliate relationships it views as inherently conflicted. The proposal requires independent oversight, separate systems and staff, and third-party financial surveillance with periodic compliance reports to the agency. The comment period closes October 5. The jurisdictional battle with states continues in parallel. The CFTC argues Congress did not intend derivatives exchanges to be regulated under a patchwork of state gaming laws. New York contends Kalshi operates an illegal gambling business and seeks a temporary restraining order that would bar event contracts nationwide. The CFTC's emergency order asserts that a single state cannot effectively become the nationwide regulator of event-contract swaps on designated contract markets.

Self-certification under scrutiny

The self-certification mechanism allows designated contract markets to list new contracts without prior CFTC approval, provided they certify compliance with the Commodity Exchange Act and commission regulations. Duffy's claim that 2,500 products have cleared this way without objection raises questions about whether the process is functioning as a meaningful gatekeeper or simply a rubber stamp. The CFTC retains authority to stay a self-certified contract pending proceedings for a false certification or to alter or amend contract terms under Section 8a(7) of the CEA. The March advisory signaled staff concern that overly broad specifications may affect a market's ability to analyze compliance across permutations, particularly on manipulation risk.

Affiliated trading arms and conflict rules

The affiliate trading proposal marks the CFTC's first attempt to codify standards for exchange-affiliate relationships since soliciting comments in 2023. CME's 2023 comment criticized affiliates engaging in principal trading as vulnerable to strong business pressure to favor affiliated entities, particularly in times of market stress. Kalshi has stated its trading affiliate exists to add liquidity in thin markets, though its rulebook describes the affiliate's business purpose as profitability. The proposed rules would mandate separate software systems, separate staff except for limited shared functions, separate office space, and an independent third-party auditor. Public disclosure of affiliate presence in plain language would be required alongside every market. The next 90 days will test whether the CFTC tightens self-certification review, finalizes affiliate conflict rules, and prevails in its state jurisdiction lawsuits. The answers will shape whether prediction markets remain a lightly supervised innovation sandbox or migrate toward the stricter oversight regime that governs traditional futures.