CFTC Proposes New Framework for Regulating Prediction Markets

On June 10, 2026, the Commodity Futures Trading Commission issued a Notice of Proposed Rulemaking that fundamentally restructures how prediction markets will be regulated under the Commodity Exchange Act. The proposal amends Regulation 40.11 and adds a new Appendix F to Part 40, moving away from categorical prohibitions and toward individualized contract review. Currently, Regulation 40.11 imposes blanket bans on all event contracts involving gaming, war, terrorism, assassination, or unlawful activity. The Proposed Rule replaces this binary approach with a more granular, three-step analytical framework that evaluates each contract's public interest implications separately.

Under the new framework, the CFTC would first determine whether an instrument qualifies as an event contract. Second, it would assess whether the contract "involves" a prohibited activity—a determination based on whether the settlement mechanism itself turns on the occurrence of that activity. For example, a contract whose payout depends on whether a football player scores a certain number of touchdowns would involve gaming because settlement hinges on in-game action, whereas a contract on stadium attendance would not because settlement depends on ticket-purchasing decisions outside the game itself. Similarly, a contract on oil prices would not involve war merely because geopolitical conflicts affect commodity markets, but a contract on military strikes would involve war because the settlement trigger is the belligerent activity itself. Third, if a contract involves an enumerated activity, the CFTC would determine whether it is contrary to the public interest by applying specified factors including hedging utility, market information value, manipulation risk, settlement integrity, and operational feasibility for registered entities.

The Proposed Rule formally defines "gaming" for the first time as any activity typically engaged in for recreation or entertainment, governed by rules, with measurable outcomes depending on participant luck, skill, or athletic ability. This definition captures sports, athletic competitions, and e-sports while explicitly excluding elections and awards. The regulation signals differential treatment for sports contracts: those based on aggregate outcomes such as final scores, point differentials, win-loss records, tournament advancement, individual or team statistical performance, and season-long metrics—settled on objectively determinable, league-verified data—are likely to be permissible. By contrast, contracts determined by chance, player injury, officiating outcomes, discrete in-game actions (individual pitches or points), or physical altercations are likely to be prohibited. Contracts involving terrorism, assassination, and war are presumed highly likely to be contrary to the public interest.

The Proposed Rule preserves the existing self-certification framework while formalizing the CFTC's review timeline: a 90-day review period begins within ten days of listing, with written CFTC concerns issued by day 15, exchange response by day 30, staff recommendation by day 60, and final exchange response by day 70. If the Commission does not issue a prohibitory order within 90 days, the contract may continue trading and the review concludes. Notably, trading is not suspended during the review period, meaning contracts ultimately deemed contrary to the public interest could be traded before an adverse determination requires position closeout. The CFTC may also consolidate reviews of similar contracts across multiple prediction market platforms.

The rulemaking demonstrates the CFTC's accelerated movement toward formalizing prediction market regulation following recent enforcement actions and reflects the agency's recognition of these markets' potential value for generating market-based pricing information and hedging strategies. However, significant uncertainty remains: ongoing litigation across multiple jurisdictions—potentially reaching the Supreme Court—will likely affect the scope of CFTC authority over gaming-based contracts and state regulatory jurisdiction. The Proposed Rule deliberately does not address numerous other regulatory questions raised in the CFTC's March 2026 Advance Notice of Proposed Rulemaking, including DCM Core Principles, swap classification, and blockchain-based prediction markets. Market participants, including institutional investors and public companies, are advised to assess compliance frameworks for prediction market trading, including employee policies, training, surveillance, and controls, before the July 27, 2026 comment deadline.