CFTC Issues Staff Advisory and Advanced Notice of Proposed Rulemaking on Prediction Markets
The proliferation of prediction markets has grown dramatically in the past year as the CFTC began regularly approving these entities as registered designated contract markets (DCMs) and has grown to an over $13 billion industry covering a broad range of topics from sports, politics, culture, and economic indicators. While litigation over sports-related event contracts with state regulators wages on, the U.S. Commodity Futures Trading Commission's (CFTC) Division of Market Oversight (DMO) issued a staff letter (Advisory) on prediction markets reminding DCMs of their regulatory obligations and considerations relating to sports-related event contracts. On March 12, 2026, the CFTC issued a more fulsome Advanced Notice of Proposed Rulemaking (ANPRM) on prediction markets (published in the Federal Register March 16) seeking comments by April 30, 2026, on how the core principles in the Commodity Exchange Act (CEA) and the CFTC's regulations apply to prediction markets and the types of event contracts that may be potentially prohibited as contrary to the public interest. Considered together, these latest missives from the CFTC further affirm the CFTC's position that it is the primary regulator with exclusive jurisdiction over prediction markets and provides much-needed guidance on how the CFTC will be regulating these markets.
Advanced Notice of Proposed Rulemaking
The CFTC's ANPRM comprises 40 separately numbered questions that contain numerous subparts seeking comments on topics covering the application of the CEA's core principles to prediction markets, determination of whether an event contact is contrary to the public interest, the listing process for event contracts, inside information, and how event contracts are different from other types of swaps and futures contracts. With the brief 45-day comment period, a final rule is likely to come sooner rather than later, especially because the CFTC currently only has one commissioner (as opposed to its usual five), CFTC Chair Selig.
DCMs registered with the CFTC must comply with the 23 core principles set forth in the CEA. The ANPRM seeks feedback on how those core principles apply to prediction markets, including the requirements that a DCM provide impartial access and prohibit abusive trade practices. As evidenced by the ambiguity that arose over recent event contracts such as whether Cardi B "performed" at the Super Bowl and the "death carveout" relating to the ouster of Iran's Supreme Leader Ayatollah Ali Khamenei, the ANPRM requests input on DCM rules relating to the resolution criteria for event contracts. Likewise, as allegations of market manipulation and insider trading on prediction markets have been raised, the ANPRM looks for insight into the factors that should be used to determine whether an event contract is readily susceptible to manipulation and asks what surveillance and compliance practices exist or should be implemented for detecting suspicious trading activity. The ANPRM also explores whether position limits should be imposed on event contracts and whether margin should be permissible. Comments on infrastructure, such as operational risk, blockchain-based prediction markets, and the clearing of event contracts (especially as to participant and product eligibility, risk management, rule enforcement, and system safeguards) are also sought.
The ANPRM also requests comment on the factors that should be considered in determining whether an event contract is contrary to the public interest. Under Section 5c(c)(5)(C)(ii) of the CEA, no contract determined by the CFTC to be contrary to the public interest may be listed or made available for clearing or trading on or through a registered entity. Areas of inquiry encompass whether an "economic purpose" test should be part of the determination and how event contracts may be used for hedging, price risk, price discovery, and price dissemination. Section 5c(c)(5)(C) of the CEA also provides that the CFTC may prohibit contracts that involve terrorism, assassination, war, gaming, any other activity that is unlawful under any federal or state law, or other similar activity determined by the CFTC, by rule or regulation, to be contrary to the public interest. The ANPRM asks whether these terms are self-evident or if there are ambiguities that need to be resolved. As litigation between state regulators and major prediction markets proceeds—over whether the CFTC has exclusive jurisdiction over sports event contracts as federally regulated "derivatives," or whether sports contracts are "gambling" subject to traditional police power—the comments regarding the term "gaming" should be informative as the CEA and CFTC's Regulations currently do not set forth a definition of "gaming."
As the ANPRM notes, DCMs listed for trading an average of approximately five event contracts annually from 2006-2020. The number rose to over 1,600 event contracts in 2025 covering a broad range of topics including financial indices, climate, politics, culture, and sports. The ANPRM asks at what point of the listing process does the public interest determination occur and whether the time limit for CFTC to make its public interest determination should be adjusted. Currently, Section 5c(c)(5)(C)(iv) provides that the CFTC must take final action regarding its public interest determination not later than 90 days from the start of its review "unless the party seeking to offer the contract or swap agrees to an extension."
Allegations of insider trading on prediction markets have increased with the popularity of these markets, with a major prediction market recently announcing its first disciplinary actions against two traders for insider trading and market manipulation leading to a CFTC enforcement advisory. The ANPRM asks whether there is a potential for misuse of inside information or is there a public interest utility if people with an asymmetric information advantage can trade, and whether these changes depending on the event. The ANPRM also seeks commentary on the likelihood of prediction markets being affected by nonpublic information available to federal government employees or officials.
Finally, the ANPRM asks how event contracts should be distinguished from other swaps or futures contracts and how small entities use prediction markets. As these event contracts extend well beyond the traditional commodities space into culture, politics, and sports, the distinctions will be especially significant for the CFTC in tailoring its rules that can accommodate these nonfinancial areas.
DMO Advisory
Given the increasing popularity with prediction markets, DMO issued its Advisory reminding DCMs of their responsibilities as frontline regulators and providing DMO staff's current views on the listing and trading of event contracts.
The Advisory reminds DCMs that they must comply with the 23 core principles for DCMs. These include: only listing for trading those derivative contracts that are not readily susceptible to manipulation; having the capacity and responsibility to prevent manipulation, price distortion, and disruptions of the delivery or cash settlement process through market surveillance, compliance, and enforcement practices and procedures; establishing and enforcing rules to protect markets and market participants from abusive practices; and promoting fair and equitable trading on the DCM. To meet their obligations under the CEA's core principles, DCMs must conduct real-time monitoring and surveillance of all trading activity to identify anomalies and disorderly trading.
The Advisory encourages DCMs to consider whether certain categories could create a heightened potential for manipulation or price distortion (e.g., contracts that resolve or settle on individual sports participants, unsportsmanlike conduct or physical altercations between sports participants, or contracts that resolve on the action of a single individual or a small group of individuals) and that DCMs should ensure that mechanisms are in place to ensure accuracy and reliability of index value. The Advisory reiterates the CFTC's enforcement authority for manipulation and misappropriation of confidential information, which had also been highlighted by the recent Enforcement Division's advisory on prediction markets.
Additionally, the Advisory reminds DCMs of their expectations regarding product submissions and that self-certified contracts must include documentation and citations to data sources that contracts comply with core principles (including that the contract is not readily susceptible to manipulation). Product submissions should include a description of the settlement methodology that accounts for differing potential permutations of the contract, identification of the specific data source on which settlement will be based, and assessment of the reliability and manipulation resistance of such sources.
For those DCMs listing sports-related event contracts, engaging with such sports governing bodies before self-certification will be expected to ensure that the contract is consistent with the relevant league's or governing body's integrity standards. DCMs should enter information and data arrangements with the relevant sports integrity monitoring organizations as data from the league or governing body will likely be relied upon as the settlement source for sports-related contracts. It is clear from the Advisory that proactive engagement and consultation with DMO staff, sports leagues, and other sports governing bodies prior to self-certification is strongly encouraged. The Advisory also notes that the CFTC is actively discussing issues of settlement integrity with sports leagues and foresees information sharing with these entities.
Conclusion
Whether through X posts, op-eds, or podcasts, CFTC Chair Selig has made clear his position that the CFTC has exclusive jurisdiction over prediction markets. State regulators have raised numerous arguments that the CFTC is ill-equipped and unqualified to regulate prediction markers in their litigation against major prediction markets. Clearly, the ANPRM and Advisory will be used to counter the state regulators' arguments as the agency puts forth much-needed clarity in this space.
The comment period for the ANPRM is brief, as comments are due April 30. Given the wide range of events that prediction markets cover from culture to sports to crypto, those currently engaged with prediction markets, as well as those potentially interested, should consider providing input and feedback to the CFTC as it formulates its regulatory framework.
Finally, prediction markets should ensure that their systems can monitor and surveil for potentially violative trading activity and that their product submissions include supporting documentation evidencing that the particular contract is not readily susceptible to manipulation. Proactive engagement with DMO staff, as well as sports leagues and governing bodies as appropriate, should be considered.
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Elizabeth Davis is a partner in the financial services group in the Washington, D.C. office of DWT. For more insights, reach out to Elizabeth or another member of our financial services team or sign up for our alerts.