The CFTC’s Proposed Prediction Markets Rule: A New Framework For Event Contract Regulation

Key Takeaways

• The CFTC has proposed significant amendments to CFTC Regulation 40.11 that would implement a three-step inquiry to determine whether an event contract is prohibited from being listed on a designated contract market (DCM) or cleared by a derivatives clearing organization (DCO):
  • First, the CFTC must determine that the instrument is an agreement, contract, transaction, or swap in an excluded commodity “based upon the occurrence, extent of an occurrence, or contingency” (other than a change in the price, rate, value, or level of a financial commodity).
  • Second, the CFTC must determine that the contract “involves” an enumerated activity such as terrorism, assassination, war, unlawful activity or gaming.
  • Third, the CFTC must determine that the contract is contrary to the public interest.
• The proposed amendments would both broaden and narrow the scope of contracts subject to review under CFTC Regulation 40.11. Excluded commodities now capture all excluded commodities other than financial commodities, an expansion of the types of instruments that can be reviewed. At the same time, the proposed "involve" standard narrows the threshold: a contract "involves" an enumerated activity only if its settlement is determined by an occurrence within that activity, replacing the existing broader "involves, relates to, or references" standard.
• For gaming contracts, which explicitly include sports-related event contracts, there is now key guidance: contracts settling on aggregate outcomes, supported by objective settlement data and established league integrity frameworks, are unlikely to be found contrary to the public interest. However, contracts settling on player injuries, officiating decisions, discrete player or team actions, physical altercations, or pre-collegiate sports are likely to be found contrary to the public interest.
• Financial commodity contracts (i.e., contracts based on changes in price, rate, value or level of a financial commodity) are not subject to prohibition pursuant to CFTC Regulation 40.11.
• Contracts settling on matters of national security, discrete player and referee actions, or random occurrences face the greatest risk of CFTC review. The CFTC must initiate review within 10 days of a contract's listing and issue any prohibition order within 90 days. If no order is issued, the contract is deemed approved.
• The comment deadline is July 27, 2026. 

Read More