CFTC Chairman Michael Selig Talks Prediction Markets
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What is the main topic discussed in this episode?
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What is unique about this moment in time?
Well, I think we're really at this unique, pivotal moment in our history where Many have lost faith in traditional news media and traditional information sources. People are trusting and relying on social media, prediction markets, Twitter, all sorts of new media sources. And that's not a bad thing. I think as Americans, we need to explore different avenues for getting our information. But prediction markets aren't new. They've been around for a long time. New exchanges are offering all manner of new informational products from predicting sports to political events to the price of oil with all the activity going on in the Gulf. So I think that's a good thing for society.
You wrote this interesting op-ed in the Wall Street Journal last month about how event contracts serve legitimate economic functions. They allow businesses and individuals to hedge event-driven risks, enable investors to manage portfolio exposure, provide the public with information about the outcome of future events. I think that makes a lot of sense for people when they look at certain elements of prediction markets, when they look at the price of oil or they look at interest rates. But things that are sort of more consumables, more entertainment, like who's going to win season 15, 50 of this survivor, for example, like what's the legitimate economic function of a contract like that?
Well, people are hedging all sorts of different risks as a regulator. It's not my job to tell them what to hedge and what not to hedge. That said, some of these products maybe are more for speculation, more for entertainment. The markets aren't designed just for hedgers or just for certain things that have a risk management aspect to them. Derivatives are derivatives. We have broad authority over derivatives, and we regulate the markets for derivatives. Each exchange as an SRO has the responsibility to evaluate the products that it lists. It has to ensure that those products are not readily susceptible to manipulation. It certifies that to us as a regulator, and we review that application to go and list and self-certify a product.
What are prediction markets and why are they gaining attention?
So a lot of the responsibility, of course, is on the exchanges to evaluate products. We're not doing that as a kind of merit-based regulator where we're picking winners and losers. But it is important that each product has integrity and that they're not susceptible to insider trading and manipulation.
Are there certain products or certain contracts that could be more susceptible to insider trading and manipulation?
Well, certainly. There's a range of different products out there, right? And certain products we just saw with Kalshi listing a product related to Mr. Beast and it brought an enforcement action against an employee of Mr. Beast who had information about when the videos would be posted and contents of the videos and was able to predict certain things and trade ahead of that. And insider trading is certainly a crime under our authority. That said, other products, right, you have controls and you ensure that there's not the ability to misappropriate insider information and trade on it. You block certain, for example, players from trading in their own contracts or people with information about an employer that they can trade ahead on.
So it's important to enforce that in our markets.
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