Prediction Markets allow you to “trade on anything” but does “anything” really mean anything? There is certainly some truth to their claim. Extraterrestrial enthusiasts can purchase a contract on Kalshi that will pay out if the government confirms aliens exist. Polymarket caters to the more spiritual among us, offering trades on whether Jesus Christ will return before 2027 (about a 4% chance at the time of writing). While providing a platform to trade on these events seems innocuous, other prediction market offerings may be cause for concern.

In January, news outlets placed a spotlight on suspicious Polymarket activity in which one trader made over $400,000 by correctly predicting the downfall of Venezuelan President Nicolás Maduro shortly before his capture. This prompted many to question whether such activity constituted “insider trading” and should be prohibited. Such a question is difficult to answer, as prediction markets like Polymarket and Kalshi are swaps markets rather than securities markets. Prediction markets are thus subject to the Commodities Exchange Act (CEA) and are regulated by the Commodity Futures Trading Commission (CFTC). While the CEA contains anti-manipulation provisions and the “Eddie Murphy” rule (prohibiting trading on material non-public government information), neither the CEA nor CFTC regulations contain clear general “insider trading” prohibitions.

The media focus on insider trading has caused us to overlook a much more basic question. Are these contract offerings legal? Trades on whether a world leader will still be in power at a future date or when the United States will strike Iran certainly feel morally dubious. When there was over $100 million in trading volume for contracts predicting whether Ayatollah Khamenei will be out as the supreme leader of Iran by the end of February, one might’ve questioned whether such contracts create financial incentives for harmful actions with significant geopolitical ramifications.

It turns out, the CEA and CFTC regulations are fairly clear on this issue. 7 U.S.C. §7a-2(c)(5)(c) empowers the agency to conclude certain event contracts are “contrary to the public interest,” and 17 CFR §40.11 expressly prohibits contracts from being offered on events that involve:

• activity that is unlawful under any Federal or State law
• terrorism
• assassination
• war
• gaming, or
• other similar activity determined by the [CFTC], by rule or regulation, to be contrary to the public interest.

Contracts on whether President Maduro would still be in power likely involved war. Even if the law requires an official declaration of war, capturing a foreign world-leader is a violation of the UN charter to which the United States is a signatory, likely making it unlawful under federal law. Contracts on when the US will officially declare war on Iran necessarily involve war, and trades on whether Ayatollah Khamenei would be out as the supreme leader of Iran almost certainly involved assassination (Kalshi has decided against resolving these contracts to “yes” and has refunded their fees for fear of creating a “death market”). Nevertheless, these contracts (among others) continue to be listed on exchanges like Polymarket for public trading.

The CEA contains other express prohibitions on trading, for instance, against onions and box office receipts as in 7 U.S.C. §13-1. While you won’t find onion futures on Polymarket (for now), you can trade on how much box office revenue a given movie will earn over a specific weekend. The ramifications of box office contracts may appear benign compared to contracts on geopolitical conflicts, but they are no less illegal. The question is then, why do these seemingly illegal contracts continue to be offered?

Currently, prediction markets “self-certify” their offerings by submitting them to the CFTC (17 CFR §40.2). The CFTC can then halt or suspend the offering should they so choose, but the agency has so far remained silent.

While the CFTC has declined to take enforcement action, the agency’s newly appointed chairman, Mike Selig has vowed to guide the CFTC in drafting rules for prediction markets. In January, Chairman Selig stated, “For too long, the CFTC’s existing framework has proven difficult to apply and has failed our market participants. That is something I intend to fix by establishing clear standards for event contracts that provide certainty to market participants.” Selig has also been outspoken against the practice of “regulation by enforcement” but for now it appears as if the agency is opposed to enforcement in any form.

No rulemaking has yet been released by the CFTC, but the agency has withdrawn prior proposals to prohibit political and sports-related event contracts and has defended its exclusive jurisdiction over prediction markets in court. Until the CFTC works out a comprehensive regulatory framework that addresses these illegal event contracts, prediction markets will be happy to let the public continue to trade on anything.

Oren Stern is a 1L at Yale Law School.