Prediction markets have moved from academic curiosities to regulated financial venues, but the regulatory environment that governs them is still evolving. Wealth management executives now face a new question.
If clients can legally trade contracts tied to real world events, what guardrails define acceptable market activity, and where does the line remain firmly closed?
The answer is found in three important developments: Kalshi’s approval as a CFTC Designated Contract Market shows what is possible within the regulatory perimeter, while the continuing constraints around PredictIt show the limits of academic or research exemptions, and finally, the enforcement actions involving Polymarket show the consequences of operating outside the perimeter.
Together, those cases define the emerging boundary for event-based financial products in the United States.
The Kalshi Example
Kalshi’s approval marked the first major shift. Before Kalshi, regulated U.S. exchanges did not offer event contracts tied directly to economic indicator outcomes such as the Consumer Price Index, unemployment results, or policy decisions. Futures markets could approximate some of these themes, but not with the simplicity of a binary yes or no contract. When the Commodity Futures Trading Commission approved Kalshi as a Designated Contract Market, it effectively created a new class of exchange where event contracts could be listed, traded, supervised and settled under a federal regulator.
This approval was not casual or experimental. It was the result of a detailed review process and an extensive rulebook that brought event contracts under the same supervisory architecture that governs futures markets. Kalshi must meet the same core principles that apply to long-standing derivatives exchanges. These include market integrity, financial safeguards, proper disclosures, surveillance standards and protections against manipulation. The approval showed that event contracts can live inside the U.S. regulatory perimeter if they follow the required structure. It also demonstrated that regulators are willing to allow innovation when it fits within an established framework.
Kalshi’s approval, however, did not create an open field. It simply clarified the conditions under which a prediction market can operate. The boundaries became clearer when compared with the regulatory experience of PredictIt.
PredictIt, the Courts and the Case for Supervision
PredictIt operated for years under a no-action letter granted in 2014. This no-action letter allowed the platform to run a small-scale, academic-oriented prediction market with specific limits. It capped investment amounts, limited the number of participants per contract, and restricted the markets to political forecasting for research purposes. The permission was never meant to support a commercial or large-scale market.
When the CFTC withdrew the no-action letter in 2022, it signaled that PredictIt’s operations no longer aligned with the conditions of the exemption. The withdrawal was challenged in court, which allowed the platform to continue operating during litigation. The ongoing legal process underscores a central regulatory principle. Event contracts may be allowed under narrow research conditions, but commercial prediction markets require full exchange-level supervision. The PredictIt case shows that regulators are unwilling to let academic exemptions slide into broad trading activity. It reinforces the idea that the no-action framework is not a path for building a scalable market. The only sustainable model is one that meets the full obligations of a designated contract market.
Polymarket and Enforcement-Driven Change
A third case, Polymarket, shows what happens when a platform conducts event contract trading without proper oversight. Polymarket offered crypto-based prediction markets that allowed users to trade on outcomes tied to politics, economics, and cultural events. The markets were accessible to U.S. participants and operated without registration. The CFTC brought an enforcement action in 2022. The case resulted in a civil penalty and a requirement that Polymarket restrict U.S. access to markets that fell under the CFTC’s jurisdiction.
Polymarket did not collapse. It restructured, modified its product set and continued operating in a more limited form. The enforcement action did not end prediction markets in the crypto ecosystem. It did, however, draw a bright line. Platforms that offer event contracts to U.S. users must either operate as a registered exchange or fall within a narrow exemption. They cannot operate offshore infrastructure, market to U.S. users, and claim that decentralized architecture places them beyond the regulator’s reach. The lesson is direct. Innovation is not a substitute for compliance. If the product functions like an event contract, the regulator will treat it like an event contract.
These three cases now define the landscape. Kalshi shows that a compliant, fully supervised event contract exchange can operate legally. PredictIt shows that limited academic exemptions can exist, but they will be strictly interpreted and are not a substitute for formal registration. Polymarket shows that the CFTC will pursue unregistered platforms that serve U.S. participants, whether the platform uses blockchain technology or not.
Wealth Management Takeaways and Insights for Wealth Managers
For wealth management executives, the regulatory environment matters for two reasons. First, clients are using these platforms. Younger investors are drawn to the clarity and directness of event contracts. They prefer trading on the outcome they care about rather than navigating complex derivatives. Advisors need to understand which platforms are regulated, which are restricted, and which operate outside permissible boundaries. Second, the regulatory outcomes provide insight into how the next generation of financial products may evolve. Event contracts are not a passing trend. They are becoming part of the broader market structure. The regulatory framework that governs them will shape how innovation reaches the retail investor.
Prediction markets are gaining traction, but the rules surrounding them are clear. Platforms must operate within the regulatory perimeter, or they must limit their activity to the boundaries of specific exemptions. Wealth management firms should understand this landscape, not to offer these products, but to advise clients responsibly and to anticipate how event-based trading will influence future market behavior.
John O’Connell is founder and CEO of The Oasis Group, a wealth management consultancy specializing in technology, research, and on-demand training for wealth management firms and the service providers who serve the wealth management industry.
Editor’s Note: In early December after this piece was submitted and edited, the CFTC announced it had approved a plan submitted by Polymarket to resume limited U.S. operations through a registered intermediary, which permits the platform to offer select real money event contracts within a federally supervised structure.
