On June 10, 2026, the Commodity Futures Trading Commission (CFTC) released a significant Notice of Proposed Rulemaking (Proposed Rule) that would reshape the regulatory treatment of prediction markets under the Commodity Exchange Act (CEA). The Proposed Rule would amend CFTC Regulation 40.11 and add a new Appendix F to Part 40 of the CFTC’s regulations, establishing a more structured framework for determining when event contracts may be prohibited as contrary to the public interest. Among other things, it would define “gaming,” clarify when an event contract “involves” certain underlying activities, identify general and activity-specific public interest factors and formalize the CFTC’s review process for self-certified event contracts. The CFTC is seeking public comment on all issues described in the Proposed Rule, which must be submitted by July 27, 2026.

Key Takeaways

• Regulation 40.11, in its current form, prohibits all event contracts that involve gaming, war, terrorism, assassination or unlawful activity. The Proposed Rule would replace these blanket prohibitions with a contract-by-contract review framework.
• Under the new framework, the CFTC would ask first whether a contract is an event contract; second, whether it “involves” gaming, war, terrorism, assassination or unlawful activity and third, whether it is contrary to the public interest after application of specified factors.
• The Proposed Rule provides a formal definition of “gaming” that includes sports and other games in their ordinary sense, while excluding elections, awards and other contests.
• Sports contracts based on aggregate outcomes (e.g., final scores, standings, and performance metrics) are generally more likely to be permissible, while contracts tied to player injuries, officiating decisions or discrete in-game actions are likely to be disallowed.
• Contracts involving terrorism, assassination, and war are highly likely to be found to be contrary to the public interest.

Background: Section 5c(c)(5)(C) of the Commodity Exchange Act and Regulation 40.11

Section 5c(c)(5)(C) of the CEA—often referred to as the “Special Rule”—authorizes the CFTC to determine that certain event contracts are contrary to the public interest if they involve unlawful activity, terrorism, assassination, war, gaming or another similar activity identified by rule or regulation. If the CFTC determines that an event is contrary to the public interest, the contract may not be listed or made available for clearing or trading on or through a registered entity.

The Commission adopted Regulation 40.11 in 2011 to implement its authority under the Special Rule. In its current form, Regulation 40.11 provides that a registered entity “shall not” list for trading event contracts that involve the enumerated activities above. Regulation 40.11 thus appears to impose a blanket ban on all event contracts that involve unlawful activity, terrorism, assassination, war or gaming. The CFTC has not yet identified any “other similar activity” that could also be contrary to the public interest.

The CFTC’s New Proposed Analytical Framework

The Proposed Rule aligns Regulation 40.11 more closely with the text of the Special Rule by requiring a contract-by-contract analysis of the public interest. The Commission would apply a three-step analysis. First, the Commission would determine whether the instrument is an event contract. Second, it would determine whether the contract “involves” an activity enumerated in the Special Rule. Third, if the contract is an event contract and involves an enumerated activity, the Commission would assess whether the contract is contrary to the public interest. Thus, under the Proposed Rule, event contracts involving enumerated activities are not automatically deemed contrary to the public interest per se; the Commission must instead make an affirmative, contract-specific determination.

Under the Proposed Rule, a contract “involves” an enumerated activity if its settlement is determined by an occurrence, extent of an occurrence or contingency in the enumerated activity itself. For example, “gaming” is an enumerated activity, and the Commission has suggested that an event contract predicated on whether a football player will score a certain number of touchdowns in a game would likely be determined to involve gaming because the settlement turns on an occurrence in the game itself. By contrast, a contract on the attendance at the same game would not involve gaming because settlement turns on ticket-purchasing decisions outside the game. The same logic appears in the Commission’s war examples: a contract on whether Brent crude settles above a certain price would not involve war merely because war affects oil prices, whereas a contract on whether a military force conducts a strike would involve war because the settlement-triggering occurrence is itself belligerent military activity.

“Gaming” and Sports

The Proposed Rule would, for the first time, define “gaming” in Regulation 40.11. The Commission proposes to define gaming as any activity that one or more participants typically engage in for recreation or to entertain others, that is governed by rules, and that includes measurable occurrences or outcomes that depend on the participants’ luck, skill or athletic ability during the activity. This definition is intended to capture games in the ordinary sense, including sports, athletic competitions, e-sports and games of chance. The Proposed Rule seeks comment on whether certain entertainment categories, including game shows, reality-show competitions and pageants, fall within the definition of “gaming.”

Public Interest Factors and Likely Permissible vs. Impermissible Contracts

The Proposed Rule describes several factors the Commission would consider in assessing whether an event contract that involves an enumerated activity would be deemed contrary to the public interest. These include whether a contract provides meaningful hedging or price-basing utility, yields economically useful or otherwise meaningful information or promotes responsible innovation and fair competition. The Commission would also consider whether the contract presents risks of manipulation, market disruption, settlement-integrity deficits, information leakage or insider misuse. It would further consider whether trading or clearing the contract would challenge a registered entity’s compliance infrastructure.

The Proposed Rule also provides specific factors relevant to assessing whether a contract that involves gaming is contrary to the public interest. Event contracts are less likely to be deemed contrary to the public interest if they are tied to aggregate sports outcomes—such as final scores, point differentials, win-loss results, tournament advancement, individual or team statistical performance or season-long metrics—and settle based on objectively determinable data, such as league-verified data. Gaming contracts determined by chance, player injury, officiating outcomes, discrete in-game actions (e.g., individual pitches or points), the occurrence or duration of physical altercations or games involving pre-collegiate athletes are more likely to be deemed contrary to the public interest and disallowed.

Commission Review Process

The Proposed Rule would preserve the existing self-certification framework for event contracts, while providing additional detail on the timing of the Commission’s review of self-certified contracts. A 90-day review would begin within ten days of a self-certified listing. The process would include the issuance of a written statement detailing CFTC concerns and issues by day 15, a response opportunity for the exchange by day 30, a staff recommendation by day 60 and a final exchange response by day 70. If the Commission does not issue an order by the end of the 90-day period, the contract may be or continue to be listed, and the review would be deemed concluded.

Notably, the statute does not require a suspension of trading during the review period. Thus, the Proposed Rule acknowledges that event contracts that are contrary to the public interest could be traded during the pendency of the Commission’s review and that an adverse determination could require exchanges to close out open positions.

Under the Proposed Rule, the Commission may consolidate review of groups of similar contracts, including contracts submitted by multiple prediction markets. The Commission does not believe, however, that the CEA allows for prospective public interest determinations. Thus, the Commission does not believe it has the authority (for example) to prohibit prospectively all event contracts that involve war.

What This Means for Market Participants

The Proposed Rule—in conjunction with other recent developments, including recent enforcement actions—demonstrates that the CFTC is moving quickly to establish a more formal regulatory framework for the nascent prediction market industry. If adopted, the Proposed Rule would bring substantial clarity to the Commission’s review of event contracts and the scope of permissible and impermissible event contracts. Among other things, it would formalize the CFTC’s proposed framework for evaluating sports-related event contracts. That issue, however, is the subject of dozens of lawsuits across the country, and the outcome of those cases may affect the scope of the CFTC’s authority. The issuance of any final rule would also likely be subject to litigation. In particular, the Proposed Rule’s broad definition of “gaming” brings the question of state regulatory authority into sharp focus. Depending on the outcome of current litigation, which will likely be resolved by the Supreme Court, event contracts based on “gaming” could potentially be subject to concurrent state and federal regulation.

Many open questions remain. While the Special Rule grants the CFTC the authority to identify “other similar activities” that may be contrary to the public interest, the Proposed Rule does not designate any additional activity to be included in the enumerated categories of contracts that might be contrary to the public interest. For example, the Proposed Rule would not allow the CFTC to prohibit event contracts based on a person’s injury or death (unless such contracts involve another enumerated category in Regulation 40.11). It remains to be seen whether the agency will identify any such activities in future rulemaking.

According to the CFTC, the Proposed Rule is “narrowly tailored” to Regulation 40.11 and is therefore not intended to resolve every open issue regarding the CFTC’s regulation of prediction markets. The agency’s March 2026 Advance Notice of Proposed Rulemaking asked a broad range of questions relating to numerous other regulatory issues affecting prediction markets, such as DCM Core Principles, swap classification and the application of the CEA and CFTC regulations to blockchain-based prediction markets. The Proposed Rule leaves these and many other issues unaddressed, and the timing of future rulemaking is unclear.

Prediction markets are moving from the periphery toward a more formal role within regulated financial markets. The Commission has repeatedly emphasized the important role prediction markets can play in generating market-based information that can be used to develop hedging strategies. As market participants consider approaches and strategies to the burgeoning marketplace of event contracts, including sports event contracts, they will need to focus not just on trading opportunities, but also on the underlying compliance considerations. Institutional investors, public companies and other market participants should assess whether existing compliance frameworks adequately address prediction-market trading, including employee trading policies, training, surveillance, and controls designed to address emerging enforcement approaches.