U.S. Senator Richard Blumenthal has unveiled new legislation aimed at enhancing the regulation of prediction markets, which have seen rapid growth online. The proposed law seeks to implement safeguards against fraud, insider trading, and underage participation.
Alongside Senator Andy Kim, Blumenthal introduced the “Prediction Markets Security and Integrity Act.” This legislation would make it illegal for individuals and platform operators to utilize “material, nonpublic information” when placing bets on event-based contracts. Additionally, it aims to prohibit listings that present conflicts of interest and to restrict contracts that are vulnerable to manipulation or fraud, particularly those involving war, death, or military actions.
The bill mandates that operators verify the identities, ages, and locations of their users. It also forbids platforms from marketing to individuals under 21 or those suffering from gambling disorders. Furthermore, the use of artificial intelligence for tracking individual bets or targeting users with promotional offers would be limited.
Blumenthal expressed concerns stating, “Prediction markets have become a haven for insider trading, market manipulation, and underage gambling. These billion-dollar businesses are turning war into a casino game and creating a market for national security leaks.”
He emphasized that his legislation aims to impose necessary regulations on this unchecked industry, banning unethical betting practices and safeguarding consumers from fraud.
The bill characterizes prediction markets as offering services akin to betting, which challenges the industry's claim that these platforms operate like derivatives exchanges. Additionally, it would require prediction markets to obtain authorization under a state wagering program approved by the attorney general, thereby restoring regulatory authority to the states.
This stance is likely to conflict with the Commodity Futures Trading Commission (CFTC), which currently oversees derivatives markets and claims authority over prediction markets. CFTC Chairman Mike Selig recently stated that his agency holds “exclusive jurisdiction over these derivative markets.”
Interest in regulating prediction markets has surged in Washington, particularly due to concerns over insider trading and wagers linked to geopolitical events, such as potential U.S. military actions in Iran. Other lawmakers have introduced measures to limit contracts associated with events like terrorism and war, while one proposal seeks to prevent federal officials from trading event contracts.
Senator Chris Murphy has also voiced concerns regarding bets placed just before U.S. military actions in Iran, suggesting that individuals with insider knowledge may have gained an unfair advantage. “Nobody should be making bets on whether the United States is going to war or what words President Trump will use in a speech,” Murphy stated. “These are fundamentally corrupt markets, as insiders know the outcomes, which distorts the decision-making process.”