The Commodity Futures Trading Commission (CFTC) has presented a comprehensive regulatory proposal to define which event contracts can be traded on US prediction markets and which ones could be banned for being contrary to the public interest.
The CFTC is the federal agency responsible for overseeing US futures, options, and derivatives markets. The text published on June 10 proposes amending Rule 40.11 and adding a new Appendix F to Part 40 of its regulations.
This is not yet a definitive regulation. The proposal must undergo a 45-day public comment period following its publication in the Federal Register.
A New Definition of Gaming
The Commission proposes defining "gaming" as any activity that participants normally engage in for recreational purposes or to entertain others, which is subject to rules and includes measurable outcomes dependent on luck, skill, or athletic ability.
This definition includes sports, athletic competitions, recreational games, and games of chance. However, the CFTC does not plan to automatically ban all contracts related to these activities.
The regulator intends to analyze each product using a factor-based system to determine if it provides useful information, if it can be manipulated, if it uses objective data for settlement, and if the market features adequate surveillance and control systems.
The proposal also applies to contracts related to illegal activities, terrorism, assassinations, and wars—matters expressly mentioned in the Commodity Exchange Act.
Sports Outcomes Find a Better Fit
The CFTC adopts a favorable stance toward certain contracts related to the overall outcome of a sporting competition.
Among the products least likely to be considered contrary to the public interest are those based on:
- Final scores.
- Point spreads.
- Wins and losses.
- Standings and tournament advancement.
- Statistical performance of players or teams.
- Cumulative seasonal results.
The Commission considers that these markets can generate relevant information regarding the probability of an outcome occurring and contribute to price discovery.
It also notes that contracts on aggregated results usually depend on the collective performance of numerous participants. This circumstance reduces the ability of a single person to determine the outcome and facilitates the detection of potential anomalies through surveillance systems.
Settlement must rely on objective, public, and verifiable information, preferably originating from recognized leagues, federations, or sports bodies.
Injuries and Referee Decisions Under Scrutiny
The proposal identifies several types of sports contracts that would likely be declared contrary to the public interest.
The first includes products whose settlement depends exclusively on the occurrence, severity, duration, or medical diagnosis of an injury to a specific athlete.
The CFTC believes that these contracts could generate improper economic incentives, encourage the use of non-public medical information, and present difficulties in establishing sufficiently objective settlement criteria.
The regulator also questions contracts based solely on refereeing decisions, such as fouls, penalties, ejections, video reviews, or disciplinary rulings.
The Commission warns that these situations depend on rapid, specific decisions made by identifiable individuals, which increases risks to the integrity of the competition and reduces its utility as a predictive tool.
Limits on Isolated Plays
The text likewise establishes a restrictive position regarding contracts that depend on a single action executed by a player or team.
Examples cited include the type of play chosen, the outcome of a specific pitch or shot, or the commission of a particular foul or penalty.
The CFTC considers that these actions can be controlled by a very small number of individuals and are more vulnerable to manipulation or insider information.
Contracts exclusively linked to fights, altercations, or sanctionable conduct among participants would also remain under special scrutiny. This limitation would not affect combat sports where physical contact constitutes a legal and essential part of the competition.
Youth Sports Practically Excluded
The proposal points out that contracts on sporting competitions below the collegiate level present special risks.
The regulator mentions the lesser existence of integrity structures, data fragmentation, the high number of individuals with potential access to insider information, and the commercial utilization of information related to minors.
For these reasons, the CFTC considers it likely that contracts linked to youth or pre-university sports will be declared contrary to the public interest.
The category would not automatically include professional or international competitions organized by recognized bodies, even if athletes of various ages participate.
Pure Games of Chance Out of the Framework
The Commission also proposes considering contracts whose outcome depends exclusively on luck to be contrary to the public interest.
According to the document, this type of product lacks informative value and does not fulfill the functions of price discovery, information aggregation, or risk management attributed to derivatives markets.
The assessment could differ in games where skill plays a significant role and sufficient information exists to formulate forecasts about the participants.
Up to 90-Day Reviews
The new Rule 40.11 would establish a structured procedure to review contracts that may involve any of the sensitive activities specified by law.
The Commission could initiate the review within ten days following the submission or listing of the contract. The analysis would last for a maximum of 90 days, unless the affected market agrees to an extension.
To block a product, the CFTC would have to issue a written ruling, identify the factors utilized, and justify why the contract is contrary to the public interest.
The chairman of the agency, Michael S. Selig, maintains that the new framework will protect the integrity of regulated markets without blocking legitimate innovation.
The initiative responds to the rapid growth of the sector. During 2025, trading volume in prediction markets registered with the CFTC exceeded $25 billion.
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