Executive Summary
- What’s new: The CFTC issued a Notice of Proposed Rulemaking to address prediction markets. The proposal would amend Rule 40.11, pursuant to which the CFTC may prohibit certain event contracts from being listed on registered exchanges.
- Why it matters: The proposed rule outlines the three-step inquiry the CFTC undertakes when making a public interest determination under Rule 40.11 and provides extensive guidance and factors for assessing whether a particular event contract is contrary to the public interest.
- What to do next: Market participants may want to review the proposed rule and submit comments to the CFTC by the July 27, 2026, deadline.
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On June 10, 2026, the Commodity Futures Trading Commission (CFTC) issued a Notice of Proposed Rulemaking (NPRM) proposing amendments to Rule 40.11, which concerns the CFTC’s authority to prohibit certain event contracts from being listed on registered exchanges if the CFTC determines that the contract involves (i) terrorism, (ii) assassination, (iii) war, (iv) gaming or (v) activity that is unlawful under federal or state law and is contrary to the public interest.
Three-Step Inquiry Under 40.11
The NPRM outlines the three-step inquiry the CFTC undertakes when making a public interest determination under Rule 40.11 and proposes to amend Rule 40.11 to remove any perceived uncertainty about the CFTC’s process.
- First, the CFTC assesses whether the agreements, contracts, transactions or swaps are based upon “an occurrence, extent of an occurrence, or contingency” and therefore qualify as “event contracts.”
- Second, if the listing is an event contract, the CFTC determines whether the contract involves one of the five enumerated activities. Under the proposal, an event contract “involve[s]” an activity if the contract’s settlement is determined by an occurrence, the extent of an occurrence, or a contingency in that activity.
- Third, if the event contract involves an enumerated activity, the CFTC may prohibit the contract from being listed if the CFTC initiates a review and determines that the contract is contrary to the public interest.
General Public Interest Factors
The NPRM establishes three general factors the CFTC will apply to assess whether an event contract involving an enumerated activity is contrary to the public interest in step 3 above. The NPRM explains that no single factor is dispositive, and that the CFTC will weigh relevant public interest considerations in making the determination. The three factors are:
- Price discovery and information aggregation utility. The CFTC will consider whether the event contract (a) provides meaningful hedging or informational utility, (b) yields economically useful information or (c) promotes responsible innovation and fair competition.
- Potential threats to market integrity. The CFTC will consider whether the event contract (a) presents particular risks of manipulation or market disruption; (b) settles based on clear, objective and publicly verifiable criteria; or (c) creates incentives for misuse of material nonpublic information.
- Compliance and self-regulatory challenges. The CFTC will consider whether trading or clearing of the event contract would strain the prediction market’s self-regulatory and compliance infrastructure, including its capacity to discharge surveillance, dispute resolution and data-integrity obligations.
Category-Specific Public Interest Factors
In addition to the general public interest principles, the proposal sets out tailored factors for event contracts related to gaming; activity that is unlawful under federal or state law; and terrorism, assassination and war.
Gaming
The CFTC proposes to define “gaming” as any activity that: (a) one or more participants typically engage in for purposes of recreation or to entertain others; (b) is governed by rules; and (c) includes measurable occurrences or outcomes that depend on the participants’ luck, skill or athletic ability during the activity. The CFTC also sought comments on an alternative definition, where “gaming” would mean an activity created by its own rules, in which (x) all participants whose conduct determines the outcome operate within the game, and (y) those participants have purposes that are defined by and internal to the game.
For event contracts that involve “gaming,” under either of these definitions, the CFTC has proposed the following factors divided into positive and negative buckets:
- “Positive” factors: The CFTC will consider whether the event contract settles on the aggregate outcome of one or more professional or collegiate games — such as final scores or individual or team statistical performance — and whether settlement relies on publicly reported, league-verified or otherwise objectively determinable data. The CFTC will also assess whether the underlying sport operates within an established integrity framework, including a recognized governing body, published rules of competition and disciplinary procedures. Additionally, the CFTC will assess whether the registered entity has established formal information-sharing arrangements with the relevant league or governing body and maintains appropriate surveillance and trading prohibitions.
- “Negative” factors: The CFTC will consider whether the event contract involves a game that depends entirely on random chance (e.g., roulette) or settles solely by reference to player injuries, officiating decisions, discrete in-game actions by specific participants, or physical altercations subject to penalty or disciplinary action. The CFTC will also consider whether the event contract settles solely by reference to games or outcomes involving participants below the collegiate level
Activity That Is Unlawful Under Any Federal or State Law
The CFTC has preliminarily indicated that event contracts resolving on underlying activities that are unlawful under federal or state law raise public interest concerns. The proposal indicates that contracts that settle based on specific unlawful actions are likely to be prohibited. However, contracts that settle based on aggregate activity levels (e.g., crime rates) or the outcome of a trial are more likely to be permitted.
Terrorism, Assassination and War
The CFTC explains that event contracts involving terrorism, assassination and war are highly likely to be found contrary to the public interest. In making the determination, the CFTC will consider: national security concerns; the potential for violence or profiting from harm to human life; the potential to facilitate illicit behavior; and whether the contract incentivizes individuals to exploit sensitive national security information through trading. The NPRM also clarifies that contracts where settlement may be affected by geopolitical conditions, such as the Brent crude oil futures price, do not “involve” war within the meaning of the rule, even though contracts may be affected by war. However, if war, terrorism or assassination are potential outcomes that could trigger the settlement of a contract, such as a foreign leader being out of office by a specific date, then the contract would be deemed to “involve” war, terrorism or assassination. A similar contract where settlement based on war, terrorism or assassination is explicitly excluded would not involve those activities.
Next Steps
The NPRM is currently open for review. Market participants may want to review the proposed rule and submit comments to the CFTC by the July 27, 2026, deadline.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.