The staff of the U.S. Commodity Futures Trading Commission (the “CFTC”) published on June 11 a Notice of Proposed Rulemaking – Prediction Markets; Public Interest Determinations (the “NPRM”) in which it seeks to specify, among other points, when specific types of event contracts are contrary to the public interest.
Background
Earlier this year, the staff of the CFTC, through its Division of Market Oversight (“DMO”), issued a prediction markets advisory1 (the “Advisory”) highlighting key considerations for designated contract markets (“DCMs”) in connection with the listing and trading of event contracts and emphasizing that DCMs remain subject to their existing self-regulatory and core-principle obligations under the Commodity Exchange Act (the “CEA”) and CFTC regulations.
The Advisory was followed by an advance notice of proposed rulemaking (the “ANPRM”), in which the CFTC sought public comment on a broad range of questions relating to prediction markets, including how DCM core principles and existing CFTC regulations should apply to such markets (including with respect to inside information), the types of event contracts that may be prohibited as contrary to the public interest under Section 5c(c)(5)(C) of the CEA (the “Special Rule”), and related cost-benefit and procedural considerations.2 The CFTC has now followed with the NPRM.
Comments must be received in writing by July 27, 2026.
The NPRM
The NPRM is more narrowly tailored to one aspect of the broader inquiry that was raised in the ANPRM. As described in the CFTC’s June 10, 2026 press release, the proposed rules would amend CFTC Regulation 40.11 and add Appendix F to Part 40 to establish a structured framework for evaluating whether event contracts involve an activity enumerated in the Special Rule, such as terrorism, assassination, war, gaming, conduct that is unlawful under federal or state law or other similar activity determined by the CFTC to be contrary to the public interest.3
Under the NPRM, the CFTC is proposing a more structured approach to the Special Rule analysis, including sections addressing event contracts within the scope of the Special Rule, when contracts “involve” an enumerated activity, factors for determining whether a contract is contrary to the public interest, and the process for CFTC action under Rule 40.11.4 Among other items, the NPRM also explores the term ‘gaming’ under the Special Rule and draws distinctions within that category. Under the NPRM, the CFTC indicates that games whose outcome depends on random chance (e.g., roulette) are likely gaming and contrary to the public interest because they do not advance any of the purposes of the CEA (i.e., if prediction markets function as information aggregation vehicles, games relying solely on luck lack informational value). An event contract’s information-aggregation utility is among the multitude of factors the CFTC identifies as part of the “public interest” analysis in the NPRM, which also include price-discovery, potential threats to market integrity, and compliance and self-regulatory challenges arising from a prediction market’s capacity to administer the contract.
The CFTC’s press release likewise states that the CFTC would apply public interest factors on a contract-by-contract basis. As a result, the proposal appears to preserve significant CFTC discretion and in fact states that it is not intended to establish a categorical exemption or safe harbor for contracts that satisfy any particular factor.
These developments do not displace the broader obligations that DCMs already face under the CEA and existing CFTC guidance. The Advisory underscored that DCMs remain responsible for listing only contracts that are not readily susceptible to manipulation and for maintaining appropriate surveillance, settlement-integrity and compliance controls for event contracts and their various permutations.5
Conclusion
Prediction market regulations are rapidly evolving. The NPRM provides a clearer view of how the CFTC is viewing the Special Rule and its application to an increasingly voluminous event contract pipeline. How the CFTC standardizes the listing process and what categories of event contracts will be precluded from listing on a DCM will play a significant role in shaping the scope of prediction markets. To the extent an investment adviser has exposure to event contracts, it should carefully consider its due diligence, risk disclosure and monitoring processes to adequately account for the evolving treatment of these instruments.
We will continue to monitor comments as they are submitted and further developments as these proposed rules evolve. If you have any questions regarding prediction markets or event contracts, or would like assistance in assessing how these developments may affect your business, please contact an attorney in the Investment Management Group at Seward & Kissel LLP.
