CFTC Proposes Public Interest Standard for Prediction-Market Event Contracts
Commentary by Steven Lofchie
The CFTC proposed rules to establish how it will determine whether prediction-market event contracts are contrary to the public interest - a finding that would bar such contracts from being listed or cleared.
The proposal would amend CFTC Rule 40.11 ("Review of event contracts based upon certain excluded commodities") which covers event contracts involving unlawful activity, terrorism, assassination, war or gaming.
The CFTC proposed to define when a contract "involves" one of those activities, tying it to whether the contract's settlement turns on an occurrence within the activity. It also proposed a definition of "gaming" as an activity engaged in for recreation or entertainment, governed by rules, whose measurable outcomes depend on luck, skill, or athletic ability. Under that reading, the CFTC said elections and awards were contests rather than gaming. Contests are viewed more favorably by regulators because they can serve a legitimate economic function (price discovery, hedging).
The proposal said event contracts involving terrorism, assassination, or war, and games of pure chance, were highly likely to be contrary to the public interest. For sports, it said contracts settling on aggregate outcomes such as final scores, point differentials, and statistics were unlikely to be barred, while contracts on player injuries, officiating calls, single discrete plays, physical altercations, and pre-collegiate events were likely contrary to the public interest. The CFTC set out public-interest factors weighing hedging and information value against manipulation, settlement, and insider-information risks, and proposed a 90-day review process for contracts under examination.
Comments are due by July 27, 2026.
Commentary
In this proposal, the CFTC seems to be conceding some fairly significant ground, although how much ground is not at all clear. There are a lot of contracts that are wholly unrelated to sports whose status is quite unclear under the proposal.
Besides the question of what is in the public interest, there are two other questions that are worthy of consideration, one retrospective, one prospective.
The retrospective question is what did Congress intend by "gaming" when it adopted Dodd-Frank?
It is the prospective questions that are far more important, however. Is it good public policy for the regulation of contracts on sports events and entertainment awards to be nationalized? Does it make sense for the CFTC to be a regulator of contracts on point differentials and entertainment awards?
These seem to be appropriate questions for Congress to answer. It will likely have to do so at some point.