The Commodity Futures Trading Commission (CFTC) has cleared the way for Railbird and QCEX to offer prediction markets by not enforcing specific swap reporting and recordkeeping rules on the companies.
A CFTC statement emphasized that the no-action position “applies only in narrow circumstances,” but it is further evidence of the organization’s soft stance towards the expansion of prediction markets.
The statement came in response to a request from Railbird and QC Clearing LLC (QCEX), which have both been granted licenses by the CFTC to offer event contracts.
DraftKings Considers Entering Prediction Markets Through Railbird
Railbird has yet to launch its live platform and is reportedly in talks with DraftKings, as the sports betting and gaming company explores entering the prediction markets space. The platform obtained a license from the CFTC in June and expects to launch later this year.
DraftKings CEO Jason Robins did not reveal any immediate plans in the company’s Q2 earnings call this week. However, he gave a strong indication that the company is interested in joining the space, and the no-action letter issued by the CFTC may encourage a partnership with Railbird.
Robins commented: “I do think that being an early mover in a space like this can be important. I also think that being a literal first mover may not be as important, and there are downsides to that as well.”
He added: “We need to see what will come from watching how things unfold with others that are currently offering prediction markets, and I think we’ll kind of have to see how that goes and evaluate it. It’s all happening in very fast real time.”
Polymarket Set to Re-Enter US Market Via QCEX
QCEX, meanwhile, has been acquired by Polymarket, the self-declared largest prediction markets site in the world. Polymarket agreed to pay $112 million to take over the company, which obtained its license from the CFTC last year.
Polymarket had operated in the US prior to 2022. Still, the CFTC ruled that the company did not hold an appropriate license and ordered the platform to close all US-based user accounts, in addition to issuing a $1.4 million fine.
The FBI raided founder Shayne Coplan’s home last year over allegations that it was allowing users in the United States to participate in its US presidential election markets. The investigation, however, was closed by both the FBI and CFTC last month, which cleared the way for the QCEX acquisition.
Coplan commented on the deal with QCEX by emphasizing the recent growth of prediction markets, saying: “Demand is greater than ever — not just in user growth and trading volume, but in how mainstream audiences are turning to Polymarket to separate signal from noise, bias, and speculation.”
He added: “Now, with the acquisition of QCEX, we are laying the foundation to bring Polymarket home — re-entering the US as a fully regulated and compliant platform that will allow Americans to trade their opinions.”
Legal Challenges Remain for Prediction Market Platforms
The no-action letter from the CFTC should make it easier for Railbird and QCEX to launch prediction markets, but the type of markets offered is still likely to face legal challenges.
Kalshi has been at the forefront of expanding into sports markets, but faces strong opposition from states and tribal gaming groups over claims it is operating without a valid sports betting license.
Seven states have issued cease-and-desist letters to the company, while more than 60 tribal groups, as well as the American Gaming Association (AGA), of which DraftKings is a member, have opposed the company in court.
With a working relationship with state regulators and tribal groups, DraftKings may see an opportunity to offer prediction markets, pending approval from the groups, while continuing to oppose companies such as Kalshi and Polymarket, which do not hold sports betting licenses.
Kalshi has argued in court that it does not offer sports betting, but instead allows users to predict outcomes of events with “real-world consequences.” Judges in Nevada and New Jersey granted preliminary injunctions, which allowed Kalshi to continue operations in the states.
However, a judge in Maryland rejected Kalshi’s request for an injunction, which could lead to the company withdrawing from the state or being forced to apply for a sports betting license.
With each state in America having different processes and rules regarding sports betting, requiring a sports betting license would be a significant blow to the platform that has advertised itself as offering “legal betting in all 50 states.”
Despite the opposition, Kalshi shows no signs of slowing down its expansion, as the company started 24/7 trading this week.
As Robins noted, companies are monitoring the situation. In addition to DraftKings, FanDuel has also expressed interest in entering the space and has reportedly held talks with Kalshi. In addition, CEO Peter Jackson noted that the parent company, Flutter, also owns the world’s largest betting exchange, Betfair, which could potentially start offering the markets if it receives further legal approval.
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