The U.S. Commodity Futures Trading Commission (CFTC) has proposed a new regulatory framework for prediction markets, setting the stage for a broader debate over the future of event-based contracts tied to sports, elections, and other real-world outcomes.
In a 267-page Notice of Proposed Rulemaking (NPRM) published on Wednesday, the agency outlined how it would evaluate whether certain event contracts fall within categories that Congress has directed the Commission to scrutinize, including contracts involving terrorism, assassination, war, gaming, or unlawful activities.
Rather than imposing a blanket ban on prediction markets, the proposal establishes a formal review process that would assess contracts individually and determine whether they are contrary to the public interest.
New framework for event contracts
The proposal seeks to amend CFTC Regulation 40.11 and add a new appendix detailing how the Commission would evaluate event contracts listed by CFTC-regulated exchanges.
According to the agency, the number and variety of event contracts have expanded significantly in recent years, including contracts linked to sporting events. The growth has prompted calls for clearer standards governing which products can be listed on federally regulated markets.
Under the proposal, the Commission would conduct a structured review before deciding whether a contract should be prohibited under Section 5c(c)(5)(C) of the Commodity Exchange Act.
“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” said Michael S. Selig. He described the proposal as a transparent framework that would allow regulators to identify contracts Congress intended to scrutinize while permitting legitimate markets to operate.
Three-step test would guide reviews
The proposal introduces a three-part analysis for evaluating event contracts.
First, regulators would determine whether a product qualifies as an event contract. Second, they would assess whether it involves one of the activities specifically identified in federal law, such as gaming, war, terrorism, assassination, or unlawful conduct. Third, the Commission would evaluate whether the contract is contrary to the public interest.
A contract would only be subject to prohibition if all elements of the analysis are satisfied. The agency also proposes formal definitions for key statutory terms, including “gaming” and “involve,” which have been central to recent regulatory disputes.
Sports markets face case-by-case review
One of the most significant aspects of the proposal concerns sports-event contracts. The CFTC stops short of declaring sports-based prediction markets inherently unlawful. Instead, it proposes a public-interest framework under which each contract would be evaluated on its own merits.
The agency notes that while lawmakers discussed sporting events such as the Super Bowl, Kentucky Derby, and Masters Tournament during debates surrounding the Dodd-Frank Act, Congress ultimately did not enact an explicit prohibition on all sports-related contracts.
Under the proposal, regulators would consider factors such as information aggregation, price discovery benefits, commercial utility, and an exchange’s ability to monitor trading activity.
At the same time, the Commission would weigh concerns, including manipulation risks, threats to market integrity, compliance challenges, and whether a contract provides meaningful economic or informational value. The approach signals a departure from arguments that sports-event contracts should automatically be treated as prohibited gambling products.
Prediction markets gain scale as sports trading surges
The CFTC’s proposal arrives as prediction markets are experiencing growth, particularly around major sporting events. Recent data from Token Terminal showed trading volume across leading prediction platforms exceeding $24 billion in a single month, up sharply from less than $5 billion only months earlier.
The expansion has coincided with the launch of the 48-team FIFA World Cup across the United States, Mexico, and Canada, which has become one of the largest catalysts for event-contract trading to date. The rapid growth of sports-related contracts helps explain why the Commission is now seeking a formal framework to determine when such markets serve a legitimate economic purpose and when they may be contrary to the public interest.
Defining “gaming” in federal markets
The NPRM also introduces a formal definition of gaming, an issue that has become increasingly important as prediction markets expand into sports and entertainment-related events. The proposal suggests that contracts tied primarily to games of chance may face greater scrutiny under the public-interest analysis. However, the agency avoids creating a categorical rule and instead emphasizes context-specific reviews.
This distinction could prove important for exchanges seeking to list contracts linked to sporting events and other outcome-based markets.
Federal oversight takes center stage
Beyond defining permissible contracts, the proposal reinforces the Commission’s position that federally regulated derivatives markets fall under exclusive CFTC jurisdiction. The agency argues that state gambling laws should not dictate what products may trade on CFTC-regulated exchanges, citing recent court decisions that affirmed federal authority over regulated prediction markets.
The position comes amid ongoing legal disputes involving prediction-market platforms and state regulators challenging the legality of certain event contracts.
Regulatory shift extends beyond prediction markets
The prediction market proposal arrives as the CFTC is also revisiting broader aspects of its regulatory framework. On June 3, the agency rescinded a policy that had prevented defendants from publicly disputing allegations after settling enforcement cases, ending a practice that had been in place since 1998.
Under the previous rule, parties settling with the CFTC were required to refrain from publicly denying the agency’s allegations. The Commission said removing the restriction could streamline settlement negotiations, reduce litigation over settlement terms, and help return funds to affected investors more quickly.
CFTC Chairman Michael S. Selig said the change aligns the agency with other federal regulators, including the SEC, which recently adopted a similar approach. The move reflects a broader effort by regulators to focus settlement agreements on resolving enforcement actions rather than limiting post-settlement public statements. While separate from the prediction market proposal, both actions signal the Commission’s ongoing review of how it oversees rapidly evolving financial and digital asset markets.
What happens next?
The proposal follows an Advance Notice of Proposed Rulemaking issued by the Commission in March that sought broader input on prediction markets. The current NPRM focuses on a narrower set of issues but could serve as the foundation for additional rulemaking in the future.
If finalized, the rules would establish a 90-day review process for certain event contracts and provide exchanges with clearer guidance on how the Commission interprets statutory restrictions.
The outcome could shape the next phase of the prediction market industry, particularly as platforms increasingly seek to offer contracts tied to sports, economic events, and other real-world outcomes.
For market participants, the proposal’s most consequential shift may be its rejection of broad categorical bans in favor of a structured public-interest review that evaluates contracts individually. That approach could redefine how sports and other event-based markets are regulated in the United States.
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