The Odds Are In: CFTC Proposes Framework For Event Contracts And Prediction Markets

On June 10, 2026, the Commodity Futures Trading Commission (the “CFTC” or the “Commission”) published a notice of proposed rulemaking (the “Proposal”) suggesting comprehensive amendments to CFTC Regulation 40.11 and adding a new Appendix F to Part 40 concerning event contracts traded on prediction markets.¹  The Proposal would further specify the types of event contracts that may be determined contrary to the public interest under Section 5c(c)(5)(C) of the Commodity Exchange Act of 1936, as amended (the “CEA”), and, therefore, may not be listed for trading or accepted for clearing on or through a CFTC-registered entity.  Public comments on the Proposal are due by July 27, 2026.

The Proposal arrives at a time of extraordinary growth in prediction markets.  The CFTC describes event contracts as potentially valuable tools for price discovery, information aggregation, and hedging in connection with events that may not be addressed by traditional financial instruments.  At the same time, the rapid proliferation of these products—spanning macroeconomics, politics, weather, sports, public health, scientific discoveries, awards, and other topics—has presented the Commission with difficult questions about where to draw the line between legitimate economic activity and activity contrary to the public interest.

BACKGROUND

CEA Section 2(a)(1)(A) grants the CFTC exclusive jurisdiction over transactions involving swaps or commodity futures traded or executed on designated contract markets (“DCMs”).  Swaps offered to persons other than eligible contract participants and all futures contracts generally must trade on a CFTC-registered DCM.  Some argue event contracts may be structured as swaps or futures contracts, because the CEA’s “swap” definition includes agreements, contracts, or transactions for which payment or delivery depends on the occurrence, nonoccurrence or extent of occurrence of an event or contingency associated with a potential financial, economic or commercial consequence.  Some event contracts have been traded on a limited basis (e.g., educational projects) for decades, but their recent explosive growth raises novel regulatory questions.

THE SPECIAL RULE

Section 5c(c)(5)(C) of the CEA (the “Special Rule”) authorizes the CFTC to determine that event contracts in excluded commodities based on occurrences or contingencies are contrary to the public interest if they involve:  (i) activity that is unlawful under any federal or state law; (ii) terrorism; (iii) assassination; (iv) war; (v) gaming; or (vi) other similar activity determined by the Commission by rule or regulation (collectively, the “Enumerated Activities”).  No contract determined contrary to the public interest under the Special Rule may be listed for trading or made available for clearing through a registered entity.

REGULATION 40.11

The CFTC adopted Regulation 40.11 in 2011 to implement the Special Rule.  However, the existing regulation has generated interpretive uncertainty that has impeded its application.  Section 40.11(a) states that a registered entity “shall not list” certain contracts involving Enumerated Activities, while Section

40.11(c) establishes a 90-day review process under which the Commission “may” subject event contracts to review, creating ambiguity as to whether the rule operates as a per se prohibition or a discretionary framework.  This tension has been central to recent litigation.

KEY REGULATORY & JUDICIAL HISTORY

The prediction market landscape has been shaped by a series of regulatory actions and judicial decisions:

• In September 2023, the CFTC disapproved a DCM’s event contracts tied to congressional control, finding they involved gaming and activity that is unlawful under state law and were contrary to the public interest.
• The DCM challenged the disapproval under the Administrative Procedure Act. In September 2024, the U.S. District Court for the District of Columbia granted summary judgment to the DCM and vacated the order, ruling the contracts did not involve unlawful activity or gaming; the court did not reach whether the contracts were contrary to the public interest.  The CFTC’s appeal was dismissed in May 2025 by the agency following a change in Presidential administration.
• In June 2024, the CFTC proposed rules to further specify the types of event contracts that fall within the scope of the Special Rule as contrary to the public interest. In February 2026, the Commission withdrew that proposal to reconsider it in light of state regulatory actions and litigation concerning the CFTC’s exclusive jurisdiction over event contract derivatives listed on DCMs and the application of the CEA’s definitions of swap and excluded commodity.
• In February 2026, the CFTC’s Division of Enforcement issued a Prediction Markets Advisory after a DCM closed two cases alleging trading on material non-public information (“MNPI”) against its own members, reflecting heightened scrutiny of insider trading, manipulation, and surveillance sufficiency in prediction markets.
• In March 2026, the CFTC issued (i) an advance notice of proposed rulemaking (“ANPRM”) in light of the increase in DCM registration applications from entities focused on prediction markets and to seek information on issues that had emerged since the 2024 proposal, and (ii) a staff advisory providing guidance to DCMs on the listing and trading of event contracts (see our Legal Update for additional information). The ANPRM comment period closed on April 30, 2026.  The Commission received approximately 3,500 comments, including approximately 300 detailed submissions.

The Proposal draws on these post-2023 developments by proposing a settlement-based definition of when event contracts “involve” an Enumerated Activity, a definition of “gaming,” public interest factors applicable to contracts within the Special Rule, and revised procedures to initiate and conduct a 90-day review.

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