CFTC Proposes Prediction Markets Rules Excluding War, Terrorism, Assassination, Illegal Activity, Gaming

The U.S. Commodity Futures Trading Commission (CFTC) released a rules proposal for prediction markets on Wednesday that would set a framework to determine whether event contracts are “contrary to the public interest.”

The proposal would treat contracts involving war, terrorism, assassination, illegal activity and gaming as potentially outside the public interest, while also clarifying that election contracts are not considered “gaming” under the relevant federal laws.

Better Markets

CFTC Chairman Michael Selig said in a statement, “This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”

The draft is open for public comment for 45 days, and the CFTC would weigh contracts through a process that first checks whether the contract is based on an event happening, then whether it falls within categories defined in the Commodity Exchange Act, and finally conducts a public interest analysis.

The CFTC’s proposal distinguishes sports event contracts from games of pure chance by saying markets based on final scores and win-loss records can aid price discovery, while contracts tied to player injuries or officiating decisions are “likely” impermissible because they are contrary to the public’s interest.

Sportico described the NPRM as stopping short of hard bans on specific sports wagers but advising that areas such as player injuries and officiating are “likely” impermissible, and it said casino games are “highly unlikely” to be allowed.

CNBC

In the CFTC’s own framing, the rule says “When an outcome is dictated solely by luck and cannot be meaningfully predicted, participants have no insight to contribute,” and Sportico tied that to the agency’s view that such games lack informational value.

The proposal also defines “gaming” as “a physical or mental competition conducted according to rules with the participants in direct opposition to each other” and “activity engaged in for diversion or amusement,” which Sportico said would encompass most sports wagers currently being offered by exchanges.

The proposal is positioned as a way to preserve some sports and election markets while limiting contracts tied to terrorism, assassinations, war, gaming or illegal conduct, and CNBC said the commission did not outright ban any type of event contract based on the category of the trade.

“Prediction markets get first U”

CoinDesk

Better Markets’ Benjamin Schiffrin said the action “cements the CFTC’s role as the prediction market industry’s biggest cheerleader,” arguing that the rules would allow prediction markets to continue offering event contracts on sporting events “under the guise that they are financial derivatives.”

In contrast, CoinDesk quoted Selig saying, “This proposal gives the commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”

The stakes for platforms and market participants are tied to how the CFTC will apply the public-interest analysis to individual contracts, with the draft describing a 90-day review process for public-interest determinations for individual contracts.