On June 10, 2026, the Commodity Futures Trading Commission (CFTC) issued a Notice of Proposed Rulemaking (NPRM) proposing comprehensive amendments to Rule 40.11 to clarify the regulatory treatment of event contracts on designated contract markets (DCMs), particularly those involving sports, elections and entertainment. The proposal addresses ambiguities that have fueled litigation over whether prediction market contracts constitute illegal gambling under state laws and the preemptive scope of the CFTC’s exclusive jurisdiction under the Commodity Exchange Act.
Key Clarifications
- No Categorical Ban: The NPRM confirms that Rule 40.11(a) does not impose a blanket prohibition on contracts involving enumerated activities. Instead, the CFTC must engage in a three-step inquiry: (i) confirm the contract is an event contract, (ii) determine it involves an enumerated activity, and (iii) assess whether it is contrary to the public interest. The proposal revises the rule text to align with the statute’s discretionary language (“may determine”).
- Definition of “Involves” and “Gaming”: An event contract “involves” an activity if its settlement is based on occurrences within that activity. “Gaming” is defined as an activity that (i) participants engage in for recreation or entertainment, (ii) is governed by rules, and (iii) features measurable outcomes dependent on luck, skill or athletic ability. Political elections, Nobel Prizes and Academy Awards are explicitly excluded as they serve non-recreational purposes.
- Sports Event Contracts: Contracts on aggregate outcomes of professional or collegiate sports (e.g., final scores, win-loss records, season statistics) with objective criteria, robust surveillance and coordination with sports bodies are generally viewed favorably. Contracts tied to discrete in-game events, player injuries, officiating, youth sports or pure chance are likely contrary to the public interest.
- Public Interest Framework: The NPRM introduces a multi-factor analysis weighing hedging/price-discovery potential, informational value and risk of perverse incentives. Contracts involving terrorism, assassination or war are highly likely to be prohibited. The Commission may review self-certified contracts within 10 days and can consolidate reviews.
- Process and Next Steps: The proposal enhances procedural protections during 90-day reviews. Comments are due 45 days after Federal Register publication. Final rules would take effect 60 days after publication.
