Insights

CFTC Issues Prediction Market Notice of Proposed Rulemaking on Public Interest Determinations

NPRM moves from a broad prohibition toward a structured framework for evaluating whether event contracts are contrary to the public interest

By Elizabeth Lan Davis

06.15.26

On June 10, 2026, the Commodity Futures Trading Commission (CFTC) issued a notice of proposed rulemaking (NPRM) proposing amendments to the CFTC's rules regarding event contracts that are traded on CFTC-registered prediction market platforms. The CFTC previously issued an advanced notice of proposed rulemaking (ANPRM) regarding prediction markets, as we previously summarized. While the ANPRM covered a broad array of topics covering prediction markets including the application of core principles, prediction markets generally, and listing of event contracts, this 267-page NPRM focuses on public interest determinations that may be made by the CFTC with regard to trading event contract derivatives. Moving away from an approach that broadly prohibits event contracts that are contrary to the public interest, the NPRM instead proposes a framework and review process for the CFTC to make public interest determinations. Comments on the NPRM are due by July 27, 2026.

Statutory Background

Section 5c(c)(5)(C) of the Commodity Exchange Act (CEA), 7 U.S.C. 7a-2(c)(5)(C), often characterized as the "Special Rule," provides that CFTC may determine agreements, contracts, or transactions to be contrary to the public interest if they involve activity that is unlawful under any federal or state law, terrorism, assassination, war, gaming, or other similar activity determined by the CFTC to be contrary to the public interest. Current CFTC Regulation 40.11 provides that a registered entity shall not list for trading or accept for clearing any excluded commodity contracts that involve, relate to, or reference terrorism, assassination, war, gaming, unlawful activity under any state or federal law, or similar activities that the CFTC has determined are contrary to the public interest, and notably does not define the term "gaming." Current CFTC Regulation 40.11 also permits the CFTC to subject a submission to a 90-day review and request suspension of the contract during that review.

Proposed Amendments to CFTC Regulation 40.11

As noted by CFTC Chair Selig, the NPRM is intended to "modernize" CFTC Regulation 40.11 and ensure that the CFTC's "regulatory framework is fit for purpose." As an initial matter, the NPRM emphasizes that the Special Rule applies in addition to other requirements for event contracts and that the Special Rule is not the only way that a prediction market can be prohibited from listing an event contract. Prediction markets still have to comply with the CFTC's core principles including maintaining that listed contracts are not readily susceptible to manipulation. The NPRM addresses the narrower category of event contracts that otherwise comply with the Commodity Exchange Act (CEA) and CFTC regulations but nonetheless may warrant prohibition because they involve one of the enumerated activities and are contrary to the public interest.

The proposed amendments recast CFTC Regulation 40.11 into a more structured framework that "encourages responsible innovation while upholding market integrity" by requiring the CFTC to undertake a three-step inquiry in determining whether a particular event contract should be prohibited:

whether the contract is an event contract;
whether the contract involves an activity enumerated in the Special Rule; and
whether the contract is contrary to the public interest.

The enumerated activities remain activity unlawful under federal or state law, terrorism, assassination, war, gaming, and other activities the CFTC determines to be similar. Importantly, the NPRM expressly states that contracts involving enumerated activities are not prohibited per se. Instead, the CFTC would have authority to determine, on a contract-by-contract basis, whether a particular contract is contrary to the public interest if it presents "national-security harms, extraordinary information leakage risks, and perverse incentive effects that overwhelm any potential informational utility."

As part of this framework, the NPRM proposes key definitions of "involve" and "gaming." Under the NPRM, an agreement, contract, transaction, or swap "involves" an activity if settlement of the contract is determined by an occurrence, extent of an occurrence, or contingency in that activity. This is a meaningful shift from the broader current formulation—"involves, relates to, or references"—toward a more direct inquiry into whether the contract is actually settled by the underlying activity rather than merely touching on it.

Also, the NPRM, for the first time, defines "gaming," which would mean any activity that:

one or more participants typically engage in for recreation or to entertain others;
is governed by rules; and
includes measurable occurrences or outcomes that depend on the participants' luck, skill, or athletic ability during the activity.

This definition is significant because the absence of a definition has been a central point of contention in event-contract litigation and regulatory debate over the extent of federal preemption. Prediction market platforms and the CFTC will likely point to the NPRM—including its definition of "gaming" and the establishment of a federal review framework—as evidence that the federal government is actively occupying this field. State regulators, by contrast, will likely argue that the proposal's acknowledgment that these contracts fall within "gaming" does not itself establish that Congress displaced state authority over sports wagering and related gambling activity.

Public Interest Framework

The NPRM requires the CFTC to evaluate a range of public interest factors in determining whether a contract involving an enumerated activity should be prohibited. These factors include whether the contract:

provides meaningful hedging or price-basing utility;
yields economically useful or otherwise meaningful information;
promotes responsible innovation and fair competition;
presents settlement-integrity concerns;
creates risks of information leakage or misuse of material non-public information by insiders; or
would strain the platform's self-regulatory tools or compliance infrastructure.

The NPRM also identifies both positive and negative public-interest considerations. Among the negative factors are sports contracts that are tied to player injuries, officiating outcomes, player ejections, specific discrete actions or plays, physical altercations, and pre-collegiate sports events. These negative factors suggest that, although the NPRM leaves room for many sports event contracts to be traded, the CFTC remains particularly concerned with contracts that are more easily manipulated or that raise heightened integrity concerns.

The NPRM stresses that the Special Rule does not make all event contracts involving enumerated activities contrary to the public interest automatically. Rather, the CFTC "may" determine that such contracts are contrary to the public interest after applying the proposed framework. The release also looks to prior precedent and legislative history, noting that the Commission historically considered an "economic purpose" test before 2000, but characterizes that approach as controversial, difficult to administer, and of limited usefulness in determining whether a futures contract should be prohibited.

The NPRM also adds Appendix F to Part 40 of the CFTC's Regulations, which sets forth factors for determining whether event contracts involve enumerated activities and, if so, whether they are contrary to the public interest. Appendix F includes numerous examples of the types of contracts the CFTC may permit or prohibit. The NPRM makes clear that no single public-interest factor would be dispositive. Instead, the Commission would weigh multiple considerations, reinforcing that it intends to evaluate these contracts on an individualized basis.

Proposed Review Process

The NPRM formalizes a detailed review process by the CFTC once a prediction market platform certifies that an event contract complies with the CEA. The NPRM permits consolidated review of multiple contracts involving the same underlying event or substantially similar events. The proposed process would operate as follows:

The CFTC notifies the platform that a 90-day review has commenced;
By Day 15, the Division of Market Oversight (DMO) provides a written statement of concerns;
By Day 30, the platform may submit a written response, including proposed modifications or safeguards;
By Day 60, DMO, with concurrence of the CFTC's general counsel, may submit a recommendation to the CFTC and provide it to the platform; and
By Day 70, the platform may respond to that recommendation.

If the CFTC does not issue an order before the end of the 90-day review period, any agreed extension, or 100 days after listing, the contracts subject to review may continue to be listed and the review is deemed concluded. The practical effect of this compressed timeline may warrant close attention, particularly when the CFTC currently is operating with fewer than its full complement of five commissioners.

Conclusion

The NPRM has a 45-day comment period with comments due by July 27, 2026. The NPRM would make the proposed amendments effective 60 days after publication. The speed at which the CFTC is seeking to implement a federal regulatory framework over event contracts is not surprising in light of ongoing litigation with state regulators over sports event contracts, Congressional concerns, and allegations of insider trading on prediction markets. Platforms should begin tailoring their contract certifications to consider the multitude of factors raised by the NPRM for the CFTC to consider in making public interest determinations with respect to allowing trading of event contracts on prediction markets. Those engaged with prediction markets, as well as those potentially interested, should consider providing feedback to the CFTC in response to the NPRM.

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