Executive Summary
On June 10, 2026, the Commodity Futures Trading Commission (Commission) issued a Notice of Proposed Rulemaking (Proposal) that would substantially revise the regulatory framework governing certain event contracts traded on regulated prediction markets. The Proposal amends current Rule 40.11 of the Commodity Exchange Act, as amended (CEA) to determine whether certain event contracts are contrary to public interest and should therefore be prohibited.
Key Proposal Points:
- Three-Step Inquiry: The Commission proposes a three-step sequential analysis under the Proposal: (1) whether it is an event contract in an excluded commodity; (2) whether it “involves” an enumerated activity (unlawful activity, terrorism, assassination, war, gaming, or similar activity); and (3) whether the contract is contrary to the public interest.
- Broad Outcome Sports Contracts Largely Permitted Under Proposal: Event contracts based on sporting event outcomes (final scores, point differentials, season-long statistics, tournament advancement) settled on objective league-verified data are likely not contrary to the public interest.
- Specific Sports Categories Disfavored: Event contracts on player injuries, officiating decisions, discrete in-game actions, physical altercations, and pre-collegiate sports are likely contrary to the public interest.
- Prohibition for National Security Contracts: Event contracts involving terrorism, assassination, and war are highly likely to be contrary to the public interest.
- New Definition of “Gaming”: “Gaming” is an activity (i) typically engaged in for recreation or to entertain others, (ii) governed by rules, and (iii) with measurable occurrences or outcomes that depend on participants’ luck, skill, or athletic ability during the activity. This excludes elections, awards (e.g., Nobel Prize, Academy Awards), and similar contests.
- Multi-Factor Public Interest Test: The Commission would apply general public interest factors (price discovery utility, market integrity, compliance capacity) plus activity-specific factors in analyzing these types of event contracts.
- Revised 90-Day Review Process: The Proposal establishes defined timelines for Commission review, with extensions permitted only at the prediction market’s request. If the Commission does not issue an order within 90 days (or any agreed extension), the event contract may be listed or continue trading and the review is deemed concluded.
- Specific Exclusions: Event contracts based on economic indicators (CPI, GDP, unemployment), financial indicators (interest rates, stock indices), foreign exchange rates, election outcomes, and award contests generally fall outside the scope of the Proposal.
Background
Prediction markets – markets on which event contracts are traded – have grown rapidly, with total trading volume across CFTC-designated contract markets exceeding $25 billion in 2025. Event contracts allow participants to take positions on whether specified events will occur, ranging from macroeconomic indicators to political outcomes, weather, and sporting events.
The Dodd-Frank Act in 2010 prohibits (1) events contracts relating to activity unlawful under federal or state law, terrorism, assassination, war, gaming, or similar activity, and (2) similar events contracts if the Commission determines such contracts are contrary to the public interest (Special Rule).
Key Elements of the Proposal
1. Scope of the Special Rule
The Proposal seeks to clarify that the Special Rule applies to event contracts in all excluded commodities ((with the exception of certain contracts generally relating to interest rates, exchange rates, securities, security indices, macroeconomic measures). The Proposal broadens the scope of event contracts potentially subject to public interest review compared to current Rule 40.11.
2. New Definition of “Involves”
Under §40.11(a)(3) of the Proposal, event contracts "involve" an activity only if their settlement is determined by an occurrence, the extent of an occurrence, or a contingency in that activity. This approach contrasts with prior Commission enforcement actions, which examined whether the trading itself constituted an enumerated activity. The Proposal instead focuses on the underlying triggering event and includes illustrative examples:
- An event contract that settles on whether a specified terrorist attack occurs involves terrorism.
- An event contract that settles on whether a specified volume of crude oil transits the Strait of Hormuz does not involve war even if oil flows could be affected by military conditions.
- An event contract on whether an individual is convicted of securities fraud does not involve unlawful activity, because settlement turns on a lawful judicial act, rather than the alleged underlying wrongdoing.
The Proposal notes that even if settlement of an event contract appears to be facially neutral, if the settlement condition is reached through pathways which include an enumerated activity, it will be treated as involving that activity unless the contract terms specifically exclude the enumerated-activity pathway.
3. Definition of “Gaming”
The Proposal defines “gaming” as any activity that:
(i) one or more participants typically engage in for recreation or to entertain others; (ii) is governed by rules; and (iii) includes measurable occurrences or outcomes that depend on participants' luck, skill, or athletic ability during the activity. (Section §40.11(b))
Under this framework:
- Political elections are contests, not gaming, because outcomes turn on voters' judgment about leadership selection rather than participants' luck or skill in the activity.
- Awards contests (Nobel Prize, Academy Awards, Cy Young Award) are not gaming because they turn on evaluative judgments by external panels.
- Games of pure chance (roulette), skill-based games (chess), and mixed games (poker) qualify as gaming.
- Professional and amateur sports, including e-sports and sports where judges rank participants, are gaming.
The Proposal also includes for public comment an alternative structural definition of “gaming” to distinguish games from other activities. Under this alternative definition, “gaming” would mean that (1) the activity is created by its rules, (2) all participants operate within the activity, and (3) participants' have purposes defined by the activity.
4. Public Interest Factors
The Proposal adopts a multi-factor framework instead of the economic purpose test previously used by the Commission.
General Factors Applicable to All Enumerated Activities (proposed §40.11(a)(5)):
- Price discovery and information aggregation utility: Whether the event contract provides hedging or price-basing utility; yields economically, financially, or commercially useful information; or promotes responsible innovation and fair competition.
- Market integrity: Whether the contract presents particular risks of manipulation, settlement integrity deficits, or information leakage by insiders.
- Compliance and self-regulatory capacity: Whether the prediction market can administer the contract using its existing surveillance and compliance infrastructure.
Activity-Specific Factors (proposed §40.11(a)(6)):
The Proposal articulates distinct factors for each enumerated activity, with particularly detailed treatment of gaming.
5. Treatment of Sports Event Contracts
The Proposal sets forth a bifurcated approach to sports contracts:
Generally Permitted (favorable factors):
- Final scores, point differentials, win-loss results
- Tournament advancement
- Aggregate individual or team statistical performance
- Season-long performance metrics
- Settlement based on objective, league-verified data
- Contracts listed by markets coordinating with relevant governing bodies (e.g., professional leagues, NCAA)
Likely Contrary to Public Interest (unfavorable factors):
- Player injury contracts: Create perverse financial incentives, raise medical confidentiality concerns, and lacks objective settlement criteria.
- Officiating outcome contracts: Risks inappropriate contact with officials and threatens game integrity.
- Discrete-action contracts: Subject to manipulation by individual participants.
- Physical altercation contracts: Could incentivize misconduct.
- Pre-collegiate sports contracts: Lacks established integrity infrastructure and raises concerns about minors.
Combat sports outcomes (e.g., MMA, boxing) are not included in the physical altercation category because physical contact is a sanctioned element of competition.
6. 90-Day Review
Self-certification allows a prediction market to list an event contract for trading prior to Commission review. The Proposal gives the Commission:
- 10 days after listing to initiate a public interest review,
- 15 days after listing for the Director of the Division of Market Oversight (DMO) to provide a statement of DMO’s concerns.
- 30 days after listing for the e prediction market to submit a response
- 60 days after listing for DMO to submit a recommendation to the Commission
- 90 days after listing for the Commission to issue an order (or end of any extension requested or agreed by the prediction market), or the contract may be listed or continue trading and the review is deemed concluded.
During the review process:
- Suspension of Trading: The Commission may request suspension of trading during review, but prediction markets are not required to comply. Trading may continue during review absent voluntary suspension.
- Consolidation: The Commission may consolidate review of multiple submissions involving the same or substantially similar events, including across multiple prediction markets.
- Required Findings: Any prohibition order must include written findings addressing each relevant factor, weighing the factors, and explaining consistency with prior Commission decisions or providing reasoned justification for any departure from prior Commission decisions.
7. Limitations on Categorical Determinations
The Proposal preliminarily concludes that the Special Rule does not authorize categorical determinations applicable to classes of contracts not yet certified. The Commission believes that such determinations would constitute rulemaking subject to the Administrative Procedures Act’s notice-and-comment requirements. However, the Commission's reasoning in prior determinations will inform analysis of substantially similar contracts going forward.
8. Delegation of Authority
The Commission proposes to delegate to the Director of the Division of Market Oversight authority for ministerial and record-development functions under Rule 40.11. The Commission expressly retains authority over (i) the determination to initiate review, (ii) submission of recommendations to the Commission, and (iii) issuance of final determinations.
Categories of Event Contracts Outside the Special Rule's Scope
The Proposal identifies categories of event contracts that generally fall outside the Special Rule:
- Economic indicators (CPI, GDP, jobless claims, unemployment, new home sales, trade deficits)
- Financial indicators (Federal Funds rate, credit card debt totals, mortgage rates, broad-based stock indices)
- Foreign exchange rates and currencies
These contracts remain subject to other statutory and regulatory requirements, including the prohibition on listing contracts readily susceptible to manipulation.
Comment Period and Final Rule
The Commission has requested comment on numerous specific aspects of the Proposal, including:
- Whether the Commission should consider issuing categorical determinations or using its exemptive authority for defined classes of event contracts;
- The proposed definition of "gaming," including the proposed alternative definition ;
- Application of public interest factors to specific sports event contract categories;
- Treatment of game shows, reality competitions, and similar events;
- Whether additional general public interest factors should be considered.
The Proposal was published in the Federal Register on June 12. Comments must be received before July 27. The Commission anticipates that the final rules would become effective 60 days after publication of the final rule.