Prediction Markets; Public Interest Determinations

Federal RegisterJun 12, 2026

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 40

RIN 3038-AF65

Prediction Markets; Public Interest Determinations

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Commodity Futures Trading Commission (Commission or CFTC) is proposing amendments to its rules concerning event contract derivatives. The markets for these event contracts are commonly referred to as “prediction markets.” In particular, the Commission is proposing amendments to further specify the types of event contracts that may be subject to a determination that they are contrary to the public interest, such that they may not be listed for trading or accepted for clearing on or through a CFTC-registered entity, as provided in the Commodity Exchange Act (CEA). The proposed amendments set out factors the Commission would apply in that determination and conform the process by which the determination would be made to the CEA. The Commission also is proposing amendments to the procedure for the Commission's determination to enhance clarity and organization, as well as a definition of the term “gaming” and a rule regarding when event contracts “involve” an underlying activity.

DATES:

Comments must be in writing and received by July 27, 2026.

ADDRESSES:

You may submit comments, identified by “Prediction Markets; Public Interest Determinations” and RIN 3038-AF65, by any of the following methods:

•

Regulations.gov:

Go to

https://www.regulations.gov

and press the “Search” button, then proceed as follows:

1. Under Refine Documents Results—check the box to “Only show documents open for comment”;

2. Under Agency—select “See More” and check the box for “Commodity Futures Trading Commission,” then press the Apply button;

3. Identify this proposal in the list of CFTC documents open for comment, press the “Comment” button to open the submission form, and follow the instructions on the form.

Alternatively, if you are viewing this proposal on

www.federalregister.gov,

click the “Submit A Public Comment” button at the top of the page to open the comment form. Follow the instructions on the form to submit your comment to

Regulations.gov

•

Mail:

Send to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

•

Hand Delivery/Courier:

Address to—CFTC Comment Submission, Attn: Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

Please submit your comments using only one of these methods. To avoid possible delays with mail or in-person deliveries, submissions through

Regulations.gov

are encouraged.

All comments must be submitted in English, or if not, accompanied by an English translation. Do not include in your comment text or attachments any personal identifying information or business information that you do not want published online. Comments (regardless of submission method) will be published without review for, and without removal of, any personal identifying information or information your business may consider confidential.

If you wish to submit confidential information for the Commission's consideration, please contact the CFTC personnel listed in this document under

FOR FURTHER INFORMATION CONTACT

before making any submission. Please also carefully review the Commission's procedures in 17 CFR 145.9 for requesting confidential treatment under the Freedom of Information Act (FOIA) of information submitted to the Commission.

The CFTC reserves the right, but shall have no obligation, to review, pre-screen, filter, or redact all or any part of your comment submission. The CFTC also reserves the right, without further notification, to refuse to publish or to remove from public view all or any part of your submission to the extent it contains content inappropriate for publication in a comment file, such as—without limitation—obscene language, threats of violence, solicitations for commercial sales or illegal activity, or obvious spam. If a submission that is refused for or withdrawn from publication because of inappropriate content also contains comments on the merits of this proposal, such submission will be retained in the record for the matter and will be considered as required under the Administrative Procedure Act (APA) and other applicable laws, and may be accessible under the FOIA.

Pursuant to the APA, 5 U.S.C. 553(b)(4), a plain language summary of the proposed rule is available at

regulations.gov.

FOR FURTHER INFORMATION CONTACT:

Stephen Andrews, Deputy General Counsel for Regulation, 771-210-7915,

rulemaking@cftc.gov,

or Mark Fajfar, Senior Assistant General Counsel, Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Prediction Markets

B. Statutory Authority

1. CFTC Jurisdiction Over Prediction Markets

2. CEA Section 5c(c)(5)(C)

3. Past Provisions for Contract Approval and History of the Current Text of the Special Rule

C. Commission History With Prediction Markets

1. Staff Actions

2. 2008 Concept Release

3. 2010 Approval of Event Contracts on Box Office Receipts

4. 2011 Adoption of § 40.11

5. 2012 Nadex Disapproval

6. 2021 ErisX Withdrawal

7. 2023 Kalshi Disapproval and Court Decision

8. 2024 Event Contract Proposal and 2026 Withdrawal

9. 2026 ANPRM

II. Proposed Amendments to Part 40

A. Overview of Proposed Changes to Part 40

B. Event Contracts Within the Scope of the Special Rule

C. Contracts That “Involve” an Enumerated Activity

D. Determining the Scope of Enumerated Activities

1. Activity That Is Unlawful Under Any Federal or State law

2. Terrorism, Assassination, and War

3. Gaming

4. Illustrative Examples of Event Contracts Not Within Scope

E. Adoption of Factors To Determine Whether Contrary To Public Interest

1. Overview of Proposed Amendments

2. Public Interest Factors Applicable to All Enumerated Activities

(a) Price Discovery and Information Aggregation Utility

(b) Potential Threats to Market Integrity

3. Public Interest Factors Specific to the Enumerated Activities

(a) Activity That Is Unlawful Under Any Federal or State Law

(b) Terrorism, Assassination, and War

(i) Games of Random Chance Are Likely Contrary to the Public Interest

(ii) Factors Indicating When Event Contracts Involving Sports Activities Are Not Contrary to the Public Interest

(iii) Factors Indicating That the Commission Would Find Event Contracts Involving Sports Activities To Be Contrary to the Public Interest

F. The Commission's Authority To Identify Additional Activities Similar to the Enumerated Activities

G. Process Under § 40.11 and Technical Amendments

1. The Process for Commission Action Under § 40.11

2. Information Required for Commission Action Under § 40.11

3. Amendments to § 40.11(c) and New § 40.11(d)-(f)

4. Delegation of Authority to Director of Division of Market Oversight

H. Implementation Timeline and Severability

III. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Consideration of Costs and Benefits

1. Introduction

2. Baseline

3. Proposed Amendments

(a) Proposed § 40.11(a)(3): Event-Focused “Involves” Standard

(i) Benefits

(ii) Cost

(b) Proposed Amendment: Revised Definition of “Gaming”

(i) Benefits

(ii) Cost

(i) Benefits

(ii) Cost

(d) Public Interest Factors Relating to Potential Threats to Market Integrity

(i) Benefits

(ii) Cost

(e) Public Interest Factors Relating to Compliance and Self-Regulatory Challenges

(i) Benefits

(ii) Cost

(f) Public Interest Factors Specific to Unlawful Activity

(i) Benefits

(ii) Cost

(g) Public Interest Factors Specific to Terrorism, Assassination, and War

(i) Benefits

(ii) Cost

(h) Public Interest Factors Specific to Gaming

(i) Benefits

(ii) Cost

(i) Additional Activities Similar to the Enumerated Activities

(i) Benefits

(ii) Cost

(j) Procedural Amendments and Delegations

(i) Benefits

(ii) Cost

4. Section 15(a) Factors

(a) Protection of Market Participants and the Public

(b) Efficiency, Competitiveness and Financial Integrity

(d) Sound Risk Management Practices

(e) Other Public Interest Considerations

D. Antitrust Considerations

E. Executive Orders 12866, 13563, and 14192

F. Indian Tribal Consultation

I. Background

A. Prediction Markets

Prediction markets, on which “event contract” derivatives are traded, are rapidly increasing in popularity with the American public both as a financial asset class and as a source of reliable information for news media, sports leagues, financial institutions, and everyday Americans.

Participants may buy or sell event contracts to manage price risks around whether events stated in the contracts will occur. The Commission preliminarily believes that event contracts also provide economically useful or otherwise meaningful information and are a source of responsible financial innovation.

While the term “event contract” is not a defined term in the CEA or the Commission regulations thereunder, the CFTC has used this term to describe commodity derivative contracts, often with a binary payoff structure, based on the outcome of an underlying occurrence or event since at least 2008.

See

Concept Release on Appropriate Regulatory Treatment of Event Contracts, 73 FR 25669 (May 7, 2008) (2008 Concept Release);

See also

Snowberg et al.,

Prediction Markets for Economic Forecasting,

National Bureau of Economic Research (2012), available at

https://www.nber.org/papers/w18222.

In addition to their information aggregation, price discovery, and price dissemination functions, prediction markets allow market participants to hedge exposure to a wide array of events for which no traditional financial instrument otherwise exists, ranging from events concerning macroeconomics,

politics, weather, and climate conditions, to cultural trends and “sporting events . . . that generate billions of dollars in economic activity

and materially affect both regional and national markets.”

See id.

Brief of CFTC as Amicus Curiae in Support of Appellant,

North American Derivatives Exchange, Inc. D/B/A Crypto.com

State of Nevada,

No. 25-7187 (9th Cir. 2026), available at

https://www.cftc.gov/media/13261/amicusbrief_02172026/download.

As explained further in the next section, Congress vested the Commission with “exclusive jurisdiction” over “transactions involving swaps” and “contracts of sale of a commodity for future delivery,” or futures contracts.

The statutory definition of commodity under the CEA is extremely broad and includes practically all goods, articles, services, rights, and interests, except onions and motion picture box-office receipts.

The specific, enumerated definitional exclusions from the broad statutory definition demonstrate that when Congress sought to limit the Commission's exclusive jurisdiction over commodity futures (other than security futures) and swaps,

it did so expressly, and not by inviting courts or states to create implied carve-outs from the CEA.

See

CEA sec. 2a(1)(A), 7 U.S.C. 2(a)(1)(A) (expressly extending the CFTC's “exclusive jurisdiction” to encompass “transactions involving swaps or contracts of sale of a commodity for future delivery . . . traded or executed on a contract market designated pursuant to [CEA sec. 5, 7 U.S.C. 7] . . . .”).

See

CEA sec. 1a(9), 7 U.S.C. 1a(9).

The CEA includes a savings clause providing that the CFTC's jurisdiction does not apply to securities, other than security futures.

See, e.g.,

CEA sec. 2a(1)(A) and (H), 7 U.S.C. 2(a)(1)(A) and (H). Thus, the CFTC's exclusive jurisdiction does not extend to security-based swaps or other securities, and the CFTC shares jurisdiction with the Securities and Exchange Commission (SEC) over security futures.

Under the plain language of the CEA, certain event contracts are implicated by the “swap” definition.

An event contract may also be structured in other ways, including as a futures contract.

A prediction market that offers event contracts in the form of swaps or futures contracts for trading by the general public must register with the CFTC as a DCM and comply with the substantive and procedural requirements that apply to the listing for trading of the event contracts.

CEA sec. 1a(47)(A)(i), 7 U.S.C. 1a(47)(A)(i) defines the term “swap,” in relevant part, to include “any agreement, contract, or transaction . . . that is a[n] . . . option of any kind that is for the purchase or sale, or based on the value, of 1 or more . . . quantitative measures, or other financial or economic interests or property of any kind,” and CEA sec. 1a(47)(A)(ii), 7 U.S.C. 1a(47)(A)(ii) defines swap to include “any agreement, contract, or transaction . . . that provides for any purchase, sale, payment, or delivery . . . that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”

See

CEA sec. 2a(1)(A), 7 U.S.C. 2(a)(1)(A) (CFTC exclusive jurisdiction over commodity futures contracts).

See infra,

notes 41 to 45 and accompanying text. With respect to security futures, such offerings are also subject to registration with and regulation by the SEC.

B. Statutory Authority

1. CFTC Jurisdiction Over Prediction Markets

The CFTC is charged with administering and enforcing the CEA. Congress created the CFTC in 1974 to establish a uniform national system for regulating trading of futures contracts after concluding that the existing patchwork of state-by-state regulation had critically impaired the development and functioning of national commodities markets.

“[T]ransactions subject to [the CEA] are entered into regularly in interstate and international commerce and are affected with a national public interest,” including in “liquid, fair and financially secure trading facilities.”

See

H.R. Rep. No. 93-975, at 51 (1974); S. Rep. No. 93-1131, at 36 (1974), reprinted in 1974 U.S.C.C.A.N. 5843, 5885.

See also

Letter from Erik Sirri, Director of Trading and Markets, SEC (Sept. 3, 2008), available at

https://www.cftc.gov/sites/default/files/idc/groups/public/@lrfederalregister/documents/frcomment/08-004c028.pdf.

The other no-action position, issued in 2014, involves an online electronic market for political and economic indicator event contracts called

PredictIt.org

, “a project of Prediction Market Research Consortium, a not-for-profit organization, for educational purposes.”

The staff no-action position limits the maximum amount any single trader can risk, and states that the market “is restricted to political events, such as contracts related to the outcomes of elections and other significant political questions not involving war, terrorism, or assassination,” and also economic indicator contracts.

See

“What is PredictIt?” available at

https://www.predictit.org/support/what-is-predictit

(last visited May 18, 2026).

See

CFTC Staff Letter No. 25-20 issued to Victoria University of Wellington, New Zealand (Victoria University) and the Prediction Market Research Consortium, Inc. (PMRC) (Jul. 14, 2025) at 2, available at

https://www.cftc.gov/csl/25-20/download.

The 2025 letter amended CFTC Staff Letter 14-130 issued to Victoria University (Oct. 29, 2014), available at

https://www.cftc.gov/csl/14-130/download,

to allow Victoria University to transfer operation of the market to PMRC, a US-based not-for-profit corporation.

2. 2008 Concept Release

Prompted by the Commission's receipt of a substantial number of requests for guidance related to application of the CEA to prediction markets, in 2008 the Commission published a concept release (2008 Concept Release) requesting input from interested persons, and those with expertise, on the appropriate regulatory treatment of prediction markets.

In the 2008 Concept Release, the Commission acknowledged that event contracts may not have a direct price basing or hedging purpose; rather, it described event contracts as “information aggregation vehicles.”

Specifically, the Commission stated that “[i]n general, event contracts are neither dependent on, nor do they necessarily relate to, market prices or broad-based measures of economic or commercial activity.”

The Commission elaborated as follows:

“Since 2005, the Commission's staff has received a substantial number of requests for guidance on the propriety of offering and trading financial agreements that may primarily function as information aggregation vehicles. These event contracts generally take the form of financial agreements linked to eventualities or measures that neither derive from, nor correlate with, market prices or broad economic or commercial measures.”

2008 Concept Release,

supra

note 1, 73 FR at 25670, 25673.

Id.

at 25670.

Id.

at 25669.

Id.

at 25670. More specifically, the 2008 Concept Release noted that: (1) event contracts based on environmental measures (such as the volatility of precipitation or temperature levels) or environmental events (such as a specific type of storm within an identifiable geographic region) will “not predictably correlate to commodity market prices or other measures of broad economic or commercial activity;” and (2) event contracts based on general measures (such as the number of hours that U.S. residents spend in traffic annually or the vote-share of a particular candidate) “do not quantify the rate, value, or level of any commercial or environmental activity,” and that contracts on general events (such as whether a Constitutional amendment will be adopted) “do not reflect the occurrence of any commercial or environmental event.”

Id.

at 25671.

Because event contracts differ from other derivatives in this regard, the 2008 Concept Release sought comment on “[w]hat public interests are served by event contracts that are designed and will principally be traded for information aggregation purposes and not for commercial risk management or pricing purposes?”

Id.

at 25673. The Commission received 31 comments in response to the 2008 Concept Release but ultimately did not take further action at that time. The comments are available at

https://www.cftc.gov/LawRegulation/PublicComments/08-004.html.

3. 2010 Approval of Event Contracts on Box Office Receipts

In March 2010, prior to enactment of the Dodd-Frank Act, Media Derivatives, Inc. (MDEX), a DCM, requested prior Commission approval under CEA section 5c(c)(2) and § 40.3 of Opening Weekend Motion Picture Revenue futures and binary option contracts on the motion picture “Takers.”

100

In June 2010, the Commission approved the contracts, finding that “the contracts are based on commodities, are not readily susceptible to manipulation and serve an economic hedging purpose.”

101

100

See

Statement of the Commission approving certain MDEX contracts (June 14, 2010) (MDEX Statement) at 1, available at

https://www.cftc.gov/idc/groups/public/@otherif/documents/ifdocs/mdexcommissionstatement061410.pdf.

MDEX later changed its name to Trend Exchange, Inc.

Two weeks after approving the MDEX futures and binary option contracts, the Commission also approved an application by the Cantor Futures Exchange to list a futures contract on Domestic Box Office Receipts of the motion picture “The Expendables.” The approval is available at

https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/19296.

101

MDEX Statement at 2. Regarding an economic hedging purpose, the Commission noted that it had not found that a contract is required to serve an economic hedging purpose in order to be approved. Rather, the Commission staff undertook a review of the contracts' economic hedging purpose due to concerns raised by the public about the contracts.

Id.

at note 2.

In finding that box office receipts are a commodity, the Commission reasoned that DCMs list for trading many contracts “where the underlying commodity is a non-price-based measure of an economic activity, commercial activity or environmental event.”

102

Moreover, where “there is no cash market for the commodity, but the commodity reflects some measure of economic activity or event that can be used for a hedging purpose when incorporated into a futures or options contract[,] . . . [t]he Commission has found that such commodity is a right or interest” within the CEA definition of the term “commodity.”

103

The Commission also noted that while the “term `event' contract has no meaning under the [CEA]” the “statutory definition of `commodity' does not suggest that an `event' cannot underlie a futures or options contract.”

104

102

Id.

at 3.

103

Id.

The Commission cited as examples “Company-Specific Earnings Per Share; Eurozone Index of Consumer Prices; Consumer Price Index; Nonfarm Payrolls; Retail Sales Data; Unemployment Claims; Company-Specific Merger and Acquisitions; State-Specific and National Crop Yields; Location-Specific Heating and Cooling Degree Days; Location-Specific Snowfall; and Regional Wind Indices.”

Id.

104

Id.

In finding that the contracts are not readily susceptible to manipulation, the Commission noted that the data on box office receipts underlying the contracts would be collected by an independent third party with an incentive to maintain accurate data.

105

In order to address fair and equitable trading and false reporting concerns, MDEX's rules provided that entities and individuals that hold a large position in contracts on a particular film's box office receipts and also control the film's marketing budget, release date or opening screen number must inform MDEX regarding such decisions.

106

Also, movie studios and distributors that trade contracts on their films' box office receipts were required to adopt and enforce firewall procedures, and their employees involved with compiling box office receipt data were prohibited from trading.

107

105

Id.

at 5-7.

106

Id.

at 7.

107

Id.

at 8.

Noting that the earlier economic purpose test had been repealed by the CFMA, the Commission did not apply an economic purpose test to the contracts on movie box office receipts. However, “in light of the comments raised by the studios, the Commission evaluated MDEX's proposed contracts to determine whether they would provide some reasonable means for managing risks associated with box office revenues” and “found that the contracts can perform hedging and price discovery purposes” because movie industry “profit and losses have a clear and direct relationship to box office revenues.”

108

Id.

at 10.

Even before the Commission had approved the futures and binary option contracts on box office receipts that MDEX had submitted, MDEX's application had drawn the attention of Congress.

109

The Dodd-Frank Act, adopted one month after the Commission approved the contracts, amended the CEA definition of the term “commodity” to explicitly exclude “motion picture box office receipts (or any index, measure, value, or data related to such receipts).”

110

Congress thus recognized that the CFTC correctly determined these to be a commodity and that the economic purpose test was not required. Accordingly, the MDEX box office receipts contracts were never traded.

109

See

Hearing to Review Proposals to Establish Exchanges Trading “Movie Futures”: Hearing before the Subcomm. on Gen. Farm Commodities and Risk Mgmt. of the H. Comm. on Agric., 111th Cong., 2d Sess. (2010), available at

https://www.govinfo.gov/content/pkg/CHRG-111hhrg56431/html/CHRG-111hhrg56431.htm.

110

CEA sec. 1a(9), 7 U.S.C. 1a(9). The Dodd-Frank Act also amended 7 U.S.C. 13-1 to prohibit DCMs from listing futures contracts based on motion picture box office receipts (or any index, measure, value, or data related to such receipts).

4. 2011 Adoption of § 40.11

In 2011, the Commission adopted § 40.11 to implement the Special Rule as part of broader changes to the Commission's part 40 regulations.

111

Rule 40.11(a)(l) provides that a registered entity shall not list for trading or accept for clearing on or through the registered entity an agreement, contract, transaction, or swap based upon “an excluded commodity, as defined in Section 1a(19)(iv) of the Act, that involves, relates to, or references terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law.”

112

111

Part 40 of the Commission's regulations, more generally, implements the contract and rule submission requirements for registered entities set forth in CEA sec. 5c(c). For example, § 40.2 sets forth the general process by which a DCM or SEF may list a new derivative contract for trading by providing the Commission with a written certification—a “self-certification”—that the contract complies with the CEA, including the CFTC's regulations thereunder.

See also

CEA sec. 5c(c)(1), 7 U.S.C. 7a-2(c)(1). The Commission must receive the DCM's or SEF's self-certified submission at least one business day before the contract's listing. 17 CFR 40.2(a)(2). Rule 40.3 sets forth the general process by which a DCM or SEF may elect voluntarily to seek prior Commission approval of a derivative contract that the DCM or SEF seeks to list for trading.

See also

112

17 CFR 40.11(a)(1). Notably, the current text of § 40.11(a)(1) does not explicitly refer to a finding that the contract is contrary to the public interest.

The Special Rule applies with respect to agreements, contracts, transactions, or swaps in excluded commodities that are based upon the occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or levels of a commodity described in section 1a(2)(i)). There is no “section 1a(2)(i)” in the CEA, and the Commission believes the reference to this provision in the Special Rule is a typographical or drafting error. In adopting § 40.11(a)(1) and (2), as well as § 40.11(c), the Commission interpreted the Special rule to apply with respect to the excluded commodities defined in CEA sec. 1a(19)(iv).

See

discussion in section II.B.,

infra.

Rule 40.11(a)(2) provides that a registered entity shall not list for trading or accept for clearing on or through the registered entity an agreement, contract, transaction, or swap based upon an excluded commodity, as defined in CEA section 1a(19)(iv), that involves, relates to, or references an activity that is similar to an activity enumerated in § 40.11(a)(1), and that the Commission determines, by rule or regulation, to be contrary to the public interest.

113

To date, the Commission has not made any such determinations regarding any similar activity.

113

17 CFR 40.11(a)(2).

Pursuant to § 40.11(c), when a contract submitted to the Commission by a registered entity may involve, relate to, or reference an activity enumerated in § 40.11(a)(1) or (2), the Commission is authorized to commence a 90-day review of the contract.

114

If the Commission opts to undertake a public interest review, the Commission must issue an order approving or disapproving the contract by the end of the 90-day review period or, if applicable, at the conclusion of any extended period agreed to or requested by the registered entity.

115

Rule 40.11(c)(1) requires the Commission to request that the registered entity suspend the listing or trading of the contract during the 90-day review period.

116

The Commission also must post on its website a notification of the intent to carry out a 90-day review.

117

114

17 CFR 40.11(c). Rule 40.11(c) states that the 90-day review period shall commence from the date the Commission notifies the registered entity of a potential violation of § 40.11(a).

115

17 CFR 40.11(c)(2).

116

17 CFR 40.11(c)(1).

117

Id.

The adopting release for § 40.11 does not specifically discuss the public interest standard in the Special Rule. It bases § 40.11 on the Dodd-Frank Act's amendment of CEA section 5c to include the Special Rule, stating that “the Commission has determined to prohibit contracts based upon the activities enumerated in Section 745 of the Dodd-Frank Act and to consider individual product submissions on a case-by-case basis under § 40.2 or § 40.3.”

118

Provisions Common to Registered Entities, 76 FR 44776, 44785 (July 27, 2011).

The Commission also did not define any of the Enumerated Activities.

119

The Commission acknowledged, in the adopting release, a comment on the rule proposal that stated that the term “gaming,” in particular, should be further defined in order to enhance clarity regarding the scope of the prohibition set forth in § 40.11(a)(1).

120

The Commission expressed agreement with the interest to further define “gaming” for purposes of the prohibition, and noted that the 2008 Concept Release discussed the issue.

121

The Commission stated that it might issue a future event contracts rulemaking that, among other things, addressed the appropriate treatment of event contracts involving gaming.

122

119

The Commission noted that a registered entity could receive a definitive resolution of any questions concerning the applicability of § 40.11(a)(1) by submitting a particular contract for Commission approval under § 40.3: if the submitted contract was approved by the Commission, the registered entity would have assurance that the Commission had reviewed and did not object to the submission based on the prohibitions in § 40.11(a).

Id.

at 44785-86. The Commission noted that, alternatively, a registered entity could self-certify a contract under § 40.2 and, if the Commission determined during its review of the contract “that the submission may violate the prohibitions in § 40.11(a)(1)-(2), the Commission may request that the registered entity suspend the trading or clearing of the contract pending the completion of a 90-day . . . review.”

Id.

at 44786. The Commission stated that, upon completion of that review, the Commission would be required to issue an order finding either that the contract violated, or did not violate, the prohibitions in § 40.11(a)(1)-(2).

Id.

120

Id.

at 44785.

121

Id.

122

Id.

The Commission has consistently applied § 40.11 to operate a discretionary review framework rather than a self-executing

per se

prohibition, because the opposite interpretation would violate the statute.

123

As discussed in the next section and further below, when the Commission applied the Special Rule and § 40.11 to prohibit certain event contracts, the Commission made an explicit, affirmative finding that the specific event contracts were contrary to the public interest; it did not simply apply a self-executing

per se

prohibition.

124

123

See supra

text accompanying notes 55 to 56.

124

See infra

sections I.C.5. and I.C.7.

The 2011 adopting release contemplated that registered entities could receive a definitive resolution of any questions concerning the applicability of § 40.11(a)(1) by submitting a contract for Commission approval under § 40.3, and that, upon completion of a § 40.11(c) review, the Commission would be required to issue an order finding either that the contract violated, or did not violate, the prohibitions in § 40.11(a)(1)-(2). The text of § 40.11(c) reflects the same understanding. It provides for review of contracts that “may involve” an enumerated activity, which presupposes that whether a particular contract involves such an activity is a question the Commission resolves through review rather than a determination made on the face of § 40.11(a)(1). This understanding is necessary to keep § 40.11(a) within the bounds of the Commission's statutory authority. The Special Rule provides that the Commission “may determine” that an event contract involving an Enumerated Activity is contrary to the public interest. That language confers discretion to determine that a particular event contract is, or is not, contrary to the public interest. Interpreting that “may” as a

per se

prohibition would conflict with the requirements of the statute.

5. 2012 Nadex Disapproval

In 2012, the Commission commenced a 90-day review, under § 40.11(c), of certain event contracts on election outcomes (the Nadex Contracts) that had been self-certified by the North American Derivatives Exchange (Nadex).

125

On April 2, 2012, the Commission issued an order (the Nadex Order) prohibiting the contracts from

being listed or made available for clearing or trading, finding that the contracts involved the Enumerated Activity of gaming and were contrary to the public interest.

126

125

See

CFTC Press Release No. 6163-12, CFTC Commences 90-day Review of NADEX's Proposed Political Event Derivatives Contracts (Jan. 5, 2012), available at

https://www.cftc.gov/PressRoom/PressReleases/6163-12.

Nadex self-certified cash-settled, binary contracts on whether there would be a Democratic majority in the U.S. House of Representatives (House); whether there would be a Republican majority in the House; whether there would be a Democratic majority in the U.S. Senate (Senate); and whether there would be a Republican majority in the Senate. The contracts settled based on whether the named party held the majority of seats in the identified chamber of Congress on the expiration date. Nadex also self-certified ten cash-settled, binary contracts on the upcoming Presidential election. Each contract was based on one of the leading candidates for President and paid according to whether that candidate won the Presidency.

126

See

Order Prohibiting the Listing or Trading of Political Event Contracts (Apr. 2, 2012), available at

https://www.cftc.gov/stellent/groups/public/@rulesandproducts/documents/ifdocs/nadexorder040212.pdf.

In the Nadex Order, the Commission interpreted the Special Rule. First, the Commission stated that the legislative history of the Special Rule “indicates that the relevant question for the Commission in determining whether a contract involves one of the activities enumerated in [the Special Rule] is whether the contract, considered as a whole, involves one of those activities.”

127

Second, the Commission said that the legislative history indicated that Congress intended “to restore, for the purposes of that provision, the economic purpose test that was used by the Commission to determine whether a contract was contrary to the public interest” prior to the CFMA.

128

127

Nadex Order at 2.

128

Id.

at 3.

The Commission also analyzed the Nadex Contracts. The Commission reasoned that the terms “gaming”—which it equated with the term “gambling”—is linked to betting on elections which, in turn, is analogous to taking a position in the Nadex Contracts, and that the Nadex Contracts are premised on the outcome of a contest between electoral candidates.

129

The Commission also stated that the unpredictability of the specific economic consequences of an election mean that the Nadex Contracts cannot reasonably be expected to be used for hedging and that the Nadex Contracts have no price basing utility.

130

Last, the Commission believed that the Nadex Contracts could be used in a way that could potentially adversely affect the integrity of elections.

131

On these bases, the Commission found that the Nadex Contracts involve gaming and are contrary to the public interest, as contemplated by the Special Rule.

132

129

Id.

130

Id.

131

Id.

at 4.

132

Id.

6. 2021 ErisX Withdrawal

On December 15, 2020, the CFTC received a self-certification filed by ErisX under § 40.2 for the listing of event contracts based on National Football League (NFL) games which would track the moneyline, point spread, and total points sports bets offered by sports bookmakers (NFL Contracts).

133

ErisX proposed to limit trading in the NFL Contracts to certain eligible contract participants with a commercial connection to NFL games.

134

133

ErisX, CFTC Regulation 40.2(a) Certification (Dec. 14, 2020) (ErisX Certification), available at

https://www.cftc.gov/sites/default/files/filings/ptc/20/12/ptc121520erisdcmdcm005.pdf.

The ErisX Certification described the NFL Contracts as event contracts, and like many event contracts the NFL Contracts had a binary payoff structure.

Id.

at 4-6.

134

Id.

at 4.

According to ErisX, the NFL Contracts would “permit Licensed Sportsbooks to manage commercial risk by hedging their exposure [to imbalances in their books],” and are “tailored to address the unique risks of Licensed Sportsbooks.”

135

ErisX also claimed that stadium owners and vendors would be able “to hedge the commercial risk associated with lower game attendance or fewer home games resulting from poor performance of the team that plays at the sports stadium or arena.”

136

135

Id.

at 6.

136

Id.

On December 23, 2020, the Commission informed ErisX that it had determined that the NFL Contracts “ `may involve, relate to, or reference an activity enumerated in [Rule] 40.11(a)' including but not limited to `gaming, or an activity that is unlawful under any Federal or State law' ” and it would begin a review under § 40.11(c).

137

On March 22, 2021, one day before the expiration of the 90-day review period, ErisX withdrew its certification.

138

One Commissioner later said in a statement that the Commission staff had prepared a draft order that would have prohibited the NFL Contracts because they involved gaming and were contrary to the public interest.

139

137

Letter from Christopher Kirkpatrick, Secretary of the Commission, to Chief Executive Officer, ErisX (Dec. 23, 2020), available at

https://www.cftc.gov/sites/default/files/filings/documents/2020/orgdcmerissignedletter201223.pdf.

The CFTC requested that ErisX suspend any listing and trading of the contracts during the pendency of a 90-day review period beginning on that date.

The CFTC sought public comments on a number of questions related to the certification and received 25 comment letters in response.

See

Questions on the Eris Exchange, LLC (ErisX) RSBIX NFL Futures Contracts for Public Comment (Dec. 23, 2020), available at

https://www.cftc.gov/sites/default/files/filings/documents/2020/orgdcmerisquestionsre201223.pdf.

Comments in response are available at

https://comments.cftc.gov/PublicComments/CommentList.aspx?id=5203.

138

See

notation of withdrawal, available at

https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/45226.

139

See

Statement of Commissioner Brian D. Quintenz on ErisX RSBIX NFL Contracts and Certain Event Contracts (Mar. 25, 2021), available at

https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement032521. See also

Statement of Commissioner Dan M. Berkovitz Related to Review of ErisX Certification of NFL Futures Contracts (Apr. 7, 2021), available at

https://www.cftc.gov/PressRoom/SpeechesTestimony/berkovitzstatement040721.

7. 2023 Kalshi Disapproval and Court Decision

In June 2023, KalshiEX LLC (Kalshi) filed a certification of congressional control political event contracts (the Kalshi Contracts) under § 40.2.

140

The Commission determined that the Kalshi Contracts may involve, relate to, or reference an Enumerated Activity, requested that Kalshi suspend the listing and trading of the Kalshi Contracts during the review period, and opened a public comment period.

141

On September 22, 2023, the Commission issued an order (the Kalshi Order) prohibiting the Kalshi Contracts from being listed or made available for trading or clearing, finding that the contracts involved the Enumerated Activities of gaming and activity that is unlawful under State law, and were contrary to the public interest.

142

140

See

Order In the Matter of the Certification by KalshiEX LLC of Derivatives Contracts with Respect to Political Control of the United States Senate and United States House of Representatives (Sept. 22, 2023) available at

https://www.cftc.gov/sites/default/files/filings/documents/2023/orgkexkalshiordersig230922.pdf

(Kalshi Order). The Congressional Control Contracts are cash-settled, binary (yes/no) contracts based on the question: “Will <chamber of Congress> be controlled by <party> for <term>?”

Id.

at 2.

141

Id.

at 1.

142

Id.

at 23.

Similar to the Nadex Order, the Kalshi Order interpreted the Special Rule. The Commission found that the “choice of the broader term ‘involve’ means that [the Special Rule] can capture both contracts whose underlying activity

one of the Enumerated Activities, and contracts with a different connection to one of the Enumerated Activities,” and that “the question for the Commission in determining whether a contract ‘involves’ one of the [Enumerated Activities] . . . is whether the contract, considered as a whole, involves one of those activities.”

143

Id.

at 7 (emphasis in original).

The Commission also found that “gaming” includes wagering on elections, reasoning that (i) “gaming” means gambling; (ii) gambling involves “a person staking something of value upon the outcome of a game, contest, or contingent event;” and (iii) to wager on elections is to “stake something of value upon the outcome of contests of others.”

144

Similarly, the Commission found that the Kalshi Contracts involved activity that is unlawful under State law because taking a position in the Kalshi Contracts would constitute wagering on

election results, which is contrary to many State laws.

145

144

Id.

at 8-9.

145

Id.

at 11-13.

Regarding the public interest test under the Special Rule, the Commission found that the legislative history of the Special Rule indicates Congressional intent for the Commission to consider, among other factors, a form of the economic purpose test that was applied prior to the CFMA.

146

The Commission also found that while control of a chamber of Congress may have economic effects, it does not, in and of itself, have sufficiently direct economic consequences such that the Kalshi Contracts have hedging utility, and the hedging utility of the Kalshi Contracts is also undermined by their binary payoff structure and infrequent settlement every two years.

147

146

Id.

at 13 (citing the Feinstein-Lincoln Colloquy and CEA sec. 3, 7 U.S.C. 5).

147

Kalshi Order at 15-18. For similar reasons, the Commission also found that the Kalshi Contracts do not serve a price-basing function.

Id.

at 18-19.

Last, the Commission found that the Kalshi Contracts “could potentially be used in ways that would have an adverse effect on the integrity of elections, or the perception of integrity of elections,” and “conduct designed to artificially affect the electoral process could also, intentionally or otherwise, manipulate the market in the [Kalshi Contracts], or that [that market] . . . could be manipulated to influence elections or electoral perceptions. In particular, . . . [the Kalshi Contracts] could incentivize the spread of misinformation by individuals or groups seeking to influence perceptions of a political party or a party candidate's success.”

148

Id.

at 20-22. The Commission also noted that it was not equipped or well-suited to investigate election-related activities.

Id.

at 22-23.

Following issuance of the Kalshi Order, Kalshi filed suit challenging the Commission's decision as arbitrary, capricious, and otherwise not in accordance with the law under the Administrative Procedure Act (APA).

149

In September 2024, the Honorable Jia M. Cobb of the U.S. District Court for the District of Columbia (D.D.C.) granted summary judgment to Kalshi and vacated the Kalshi Order, ruling that the Kalshi Contracts “d[id] not involve activity that is unlawful under any Federal or State law, nor do they involve gaming.”

150

In May 2025, the CFTC's motion to dismiss its appeal of the District Court's decision was granted and the case was closed.

151

149

See KalshiEX LLC

CFTC,

No. 23-cv-3257, 2024 WL 4164694, 2024 U.S. Dist. LEXIS 163925, at *18 (D.D.C. Sept. 12, 2024),

appeal dismissed by KalshiEX LLC

CFTC,

No. 24-5205, 2025 U.S. App. LEXIS 11094 (D.C. Cir. May 7, 2025).

150

Id.

at *39. The court did not consider whether the Kalshi Contracts were contrary to the public interest.

Id.

151

See KalshiEX LLC

CFTC,

No. 24-5205, 2025 U.S. App. LEXIS 11094 (D.C. Cir. May 7, 2025).

8. 2024 Event Contract Proposal and 2026 Withdrawal

In 2024, the Commission proposed rules to further specify the types of event contracts that fall within the scope of CEA section 5c(c)(5)(C) and are contrary to the public interest.

152

In 2026, the Commission withdrew the proposed rules to reconsider them “in light of various forms of state regulatory actions and litigation concerning the Commission's exclusive jurisdiction over event contract derivatives listed on [DCMs] and the proper application of the swap and excluded commodity definitions under the [CEA].”

153

152

Event Contracts; Proposed Rule, 89 FR 48968 (June 10, 2024).

153

Event Contracts; Withdrawal of Proposed Regulatory Action, 91 FR 5386 (Feb. 6, 2026).

9. 2026 ANPRM

To assist the Commission in considering issues, and potentially adopting regulations, related to prediction markets the Commission published an advance notice of proposed rulemaking (ANPRM) in the

Federal Register

on March 16, 2026.

154

The Commission explained that the ANPRM was issued in light of the recent increase in the number of applications for DCM registration, largely from entities that are interested primarily, or exclusively, in operating prediction markets, and to seek information about significant issues that have come to light since the 2024 proposal. The comment period for the ANPRM closed on April 30, 2026.

154

See

Prediction Markets; Advance Notice of Proposed Rulemaking, 91 FR 12516 (Mar. 16, 2026).

In response to the ANPRM, the Commission received approximately 3,500 comments addressing issues relevant to prediction markets and potential rulemakings from a wide range of commenters.

155

Of these, approximately 300 submissions provided detailed comments and recommendations. The remaining submissions were either duplicative of points made in other submissions or non-substantive. The comments came from individuals, prediction markets and firms applying for designation as a prediction market, firms using event contracts, trade associations, public advocacy organizations, academics and researchers, members of Congress, federal agencies, tribal governments, state governments and others. Relevant commenter feedback is interwoven throughout this proposed rule.

155

Copies of all comments received by the CFTC on the ANPRM are available on the CFTC's website, located at

https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7654.

The comments expressed varying views on a wide variety of topics, including the proper scope of the Special Rule, whether § 40.11 properly effects the Special Rule, the scope of activities that are encompassed in the Enumerated Activities, when an event contract should be considered to “involve” an Enumerated Activity, the role that an economic purpose test should play in the Special Rule, and the public interest factors that the Commission should consider in applying the Special Rule. The Commission has reviewed the comments received, and the staff of the Commission has met with market participants and other interested parties to discuss prediction markets.

156

Information about meetings that CFTC staff have had with outside organizations regarding prediction markets is included in the list of comments on the ANPRM at the link in the previous note. The views expressed in the comments in response to the ANPRM and at such meetings are collectively referred to as the views of “commenters.”

II. Proposed Amendments to Part 40

The statutory text of the Special Rule provides that “[i]n connection with the listing” of certain event contracts, “the Commission may determine” that the event contracts are contrary to the public interest.

157

The Commission preliminarily interprets this provision to mean that the Commission's public interest determination must follow the submission of one or more event contracts for listing. The Commission also preliminarily believes that it would be helpful for prediction markets and the general public to know which factors the Commission will apply in determining whether particular event contracts are subject to the Special Rule, and the factors it will apply in its public interest determination. Therefore, the Commission is proposing to amend part 40 to, among other things, lay out these factors and the process by which the Commission may determine that specified event contracts are contrary to the public interest (the Proposal).

157

CEA sec. 5c(c)(5)(C)(i), 7 U.S.C. 7a-2(c)(5)(C)(i).

As discussed below, the Commission preliminarily believes that the Proposal's explanation of the factors the Commission would apply in its public interest determinations would support efforts by prediction markets to ensure compliance with the CEA and to make more informed decisions about event contract design, thereby supporting responsible innovation. By clearly identifying the factors the Commission

will apply in its public interest determination, the Proposal is also expected to reduce the frequency of submissions that raise potential public interest concerns, improving the efficiency of Commission and staff resources by reducing the need to conduct individualized event contract reviews.

158

Greater clarity may also help prediction markets avoid expending resources on event contracts that the Commission may ultimately determine cannot be listed or cleared.

158

Due to the high volume of event contract submissions and the wide potential scope of the public interest review, the Commission has attempted to propose factors that are clear and direct, along with various illustrative examples. The Commission preliminarily believes that prediction markets will be guided by the factors, and by any early determinations that event contracts are contrary to the public interest, in understanding the boundaries around which event contracts may be listed for trading and thereby limit the number of public interest reviews.

The Commission acknowledges that, if the Special Rule is interpreted to require the Commission's public interest determination to follow the submission of event contracts for listing, and does not require the prediction market to suspend trading of the event contracts while the Commission conducts its review, it is likely that the Commission would find that event contracts are contrary to the public interest and cannot be traded or cleared

after

trading of the event contracts has begun.

159

The Commission preliminarily believes that this is the inevitable result of the statutory structure, and acknowledges that this means that some event contracts that are contrary to the public interest may be traded during the period of time required for the Commission's review. The Proposal, like existing § 40.11(c)(1), includes a provision for the Commission to request that the prediction market suspend listing or trading of event contracts under review, and the Commission anticipates that some prediction markets will abide by such requests, but there is no statutory provision requiring the prediction market to do so.

159

Thus, market participants who transacted in the event contracts would have their positions closed out. Since the event contracts are contrary to the public interest, the Commission preliminarily believes this is the appropriate result.

The Commission believes that the Proposal is authorized by its authority in the CEA, and, in particular, CEA sections 3, 5, 5c(c), 5h and 8a(5).

160

In describing the Proposal, the discussions in this document of “commercial utility,” “derivatives,” “gaming,” “price discovery,” and “public interest” are for purposes specific to the CEA and the CFTC's jurisdiction, as described herein. Therefore, the Proposal and the discussion herein have no bearing on any statutory regime other than the CEA, including without limitation the treatment of any contract, activity, receipt, or expense under the Internal Revenue Code.

160

7 U.S.C. 5, 7, 7a-2(c), 7b-3 and 12a(5).

The Commission requests comment on all aspects of the Proposal.

A. Overview of Proposed Changes to Part 40

As noted above, the principal difference between the current § 40.11 and the Proposal is that § 40.11(a) would more clearly follow the plain language of the Special Rule by stating that “[t]he Commission may determine” that event contracts subject to the Special Rule are contrary to the public interest.

161

Correspondingly, proposed § 40.11(e)(1) provides for the Commission to issue an order finding that certain event contracts are contrary to the public interest prior to the end of the review period established in clause (iv) of the Special Rule. The Commission preliminarily believes that this change will remove uncertainty under the current text of § 40.11(a) regarding whether a finding that event contracts are contrary to the public interest is necessary to prohibit the trading and clearing of the event contracts.

162

161

The Commission notes that the Nadex Order and the Kalshi Order both included specific findings that the event contracts in question were contrary to the public interest.

See

Nadex Order at 4, Kalshi Order at 23.

162

Commenters on the ANPRM expressed varying views on what the Special Rule requires in this regard and what the Commission's regulations should require.

Compare

Letter from the Pechenga Band of Indians 7 (Apr. 29, 2026) (CEA expressly bars listing of event contracts that involve Enumerated Activities, current § 40.11 implements this statutory mandate and should not be amended) and Letter from eight U.S. Senators including Senator Jeffrey A. Merkley 2 (Apr. 30, 2026) (event contracts involving elections, war, military actions, terrorism, and sports should be categorically prohibited pursuant to the CFTC's existing authority)

with

Letter from Susquehanna International Group, LLP 3 (Apr. 30, 2026) (Commission should revise § 40.11 to replace categorical “shall not” with a provision for authority to prohibit event contracts that are contrary to the public interest while avoiding blanket prohibitions) and Letter from the Coalition for Prediction Markets 2 (Apr. 30, 2026) (to interpret § 40.11(a) to categorically prohibit event contracts involving Enumerated Activities is overly prescriptive and beyond the authorization of the Special Rule, which requires a specific public interest determination).

As explained above, the Commission preliminarily interprets the Special Rule to require that the Commission determine that event contracts may involve an Enumerated Activity to begin the 90-day review process. The Commission is therefore proposing to add § 40.11(a)(4) which sets out the factors that the Commission will apply in determining whether event contracts involve an Enumerated Activity and are therefore within the scope of the Special Rule.

The Commission preliminarily believes that two terms in the Special Rule—“involve” and “gaming”—are particularly important. Therefore, the Commission is proposing to adopt in § 40.11(a)(3) a statement of when event contracts “involve” an activity, and in § 40.11(b) a definition of the term “gaming.” The Proposal states that event contracts “involve an activity if their settlement is determined by an occurrence, extent of an occurrence, or contingency in the activity.” The Proposal defines gaming as “any activity that: (i) one or more participants typically engage in for purposes of recreation or to entertain others; (ii) is governed by rules; and (iii) includes measurable occurrences or outcomes that depend on the participants' luck, skill, or athletic ability during the activity.”

The Proposal states that in determining whether event contracts within the scope of the Special Rule are contrary to the public interest, the Commission will apply the factors set out in proposed §§ 40.11(a)(5) and 40.11(a)(6). That is, these are the factors that the Commission would apply prior to issuing an order under proposed § 40.11(e)(1) finding that certain event contracts are contrary to the public interest. The Commission notes that it preliminarily interprets the Special Rule to apply

after

the prediction market certifies that the event contract complies with the CEA (notably, the Core Principles in CEA sections 5 and 5h) and the Commission's regulations thereunder. Proposed §§ 40.11(a)(5) and 40.11(a)(6) therefore include factors that may raise public interest concerns particularly relevant to the types of event contracts that are subject to the Special Rule.

The Commission preliminarily believes that its public interest determination should be focused and understandable to prediction markets in designing event contracts and to the general public. The Commission also notes that the 90-day deadline for Commission action in clause (iv) of the Special Rule does not allow for a wide-ranging inquiry into the public good, but rather a focused inquiry subject to set processes. And, as noted above, the Commission preliminarily believes that the legislative history of the Special Rule does not indicate Congressional intent for the Commission to apply the economic purpose test that was applied prior to the CFMA. Therefore, the

Commission has included in proposed §§ 40.11(a)(5) and 40.11(a)(6) factors that relate to specific public interest concerns that would support a finding that event contracts within the scope of the Special Rule are contrary to the public interest.

The Commission has observed a marked increase in the number of event contracts that prediction markets have self-certified for listing under § 40.2. The Commission preliminarily believes that in some circumstances (i) it would be impractical to review separately each submission of similar event contracts; and (ii) if the Commission finds that a number of similar event contracts are contrary to the public interest, prediction markets and the general public would benefit from the issuance of a single order (rather than multiple orders) covering all such similar event contracts. Therefore, proposed § 40.11(c)(4) provides that the Commission may consolidate review of multiple event contracts that involve the same underlying event or a substantially similar set of underlying events, in which case the determination to begin the review would include a description of the consolidated group. Correspondingly, proposed § 40.11(e)(1)(i) provides that the Commission may issue an order finding that a group of event contracts that are subject to review are contrary to the public interest. The Commission preliminarily anticipates that issuing an order covering a group of event contracts would reduce the number of future submissions, as prediction markets would better understand which types of event contracts the Commission is likely to find contrary to the public interest.

The Commission is also proposing to amend § 40.11 to establish a procedural framework governing the Commission's exercise of its discretionary authority under the Special Rule to determine that agreements, contracts, transactions, or swaps involving an Enumerated Activity are contrary to the public interest. Under the proposed framework, the Commission may commence a review by making a written determination that there is a basis to believe event contract(s) that are self-certified or submitted for Commission approval both involve an Enumerated Activity and may be contrary to the public interest under the factors in proposed §§ 40.11(a)(5) and 40.11(a)(6). A written determination initiating the review identifying the event contract(s), the Enumerated Activity(ies), the contract terms at issue, and the factors warranting review must be provided to the prediction market(s) making the submission(s). Issuance of the determination commences the 90-day review.

163

The review must commence within 10 days of the date of the event contract's listing.

163

Under the proposed framework, within the 90 days, the Director of the Division of Market Oversight shall provide to the prediction market a written statement of concerns by day 15. By day 30, the prediction market may then submit a written response, including proposed contract modifications and/or mitigating safeguards. The Director of the Division of Market Oversight, with the concurrence of the General Counsel, may submit a recommendation to the Commission by day 60, provided simultaneously to the prediction market. The prediction market may submit a response to the recommendation by day 70. Under the proposed framework, extensions are available only at the request of, or with the agreement of, the prediction market.

Under the proposed framework, by day 90, the Commission may issue an order finding the contract contrary to the public interest. Such an order must be supported by written findings that identify and analyze the factors in proposed §§ 40.11(a)(5) and 40.11(a)(6) on which the Commission relied, weigh the relevant factors, and explain the determination's consistency with prior Commission decisions or provide a reasoned justification for any departure. Proposed § 40.11(e)(1)(ii) includes a specific statement that if the Commission does not issue an order at the end of a review period, the event contracts subject to review may be, or continue to be, listed for trading and accepted for clearing and the review shall be deemed concluded. The Commission preliminarily believes that this provision would allow for a more streamlined process by not requiring that the Commission issue an order of approval and provide certainty in cases where the Commission does not take any action at the end of the review period.

This proposed framework reflects the Commission's preliminary view that a determination under the Special Rule that event contracts are contrary to the public interest has significant consequences, and that the Commission's procedures should be calibrated accordingly. Such a determination forecloses listing, trading, and clearing of the event contracts, imposes sunk compliance costs on the submitting prediction market, and eliminates the hedging, price-discovery, and information-aggregation functions the event contracts might have served, along with the reliance interests of market participants. In light of these consequences, the proposed framework establishes procedural rights designed to ensure that the prediction market's position is fully presented and considered before the Commission acts. The Commission also preliminarily believes that these procedures will also enhance the quality of decision-making by ensuring that the record before the Commission includes the prediction market's substantive response, if any, to the Commission's reasoning.

In addition, the Commission is proposing to make certain amendments to § 40.11 to further align the language of the regulation with the statutory text of the Special Rule, and to make certain technical amendments to the regulation to enhance clarity and organization. Proposed § 40.11(a)(2) includes a reference to CEA section 1a(19)(i) because the Commission preliminarily believes this is the correct cross reference to describe event contracts that are not subject to the Special Rule. Proposed § 40.11(a)(2) also uses the word “involve” to reference the Enumerated Activities, to more closely track the text of the Special Rule. Proposed § 40.11(a)(2)(vi) reflects how the Commission preliminarily believes it may determine that activities are similar to the Enumerated Activities. For clarity, proposed § 40.11(c)(3) specifically provides for the Commission to notify the prediction market of the commencement of a 90-day review. Throughout proposed § 40.11, the text refers to agreements, contracts, transactions, or swaps in the plural to match the text of the Special Rule.

Finally, the Commission is proposing to add a provision to § 40.7(a) that delegates to the Director of the Division of Market Oversight, or the Director's designee, the authority to perform ministerial and record-development functions under § 40.11, including service of notices, written determinations, and statements and the development of staff recommendations.

The Commission requests comment on all aspects of its proposed amendments to §§ 40.7 and 40.11.

B. Event Contracts Within the Scope of the Special Rule

The text of the Special Rule states that it applies with respect to “agreements, contracts, transactions, or swaps in excluded commodities that are based upon the occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or levels of a commodity described in section 1a(2)(i) of [the CEA]).”

164

The Commission preliminarily believes in understanding the scope of the Special Rule, it is helpful to understand the

origin and scope of the term “excluded commodity.”

164

CEA sec. 5c(c)(5)(C)(i); 7 U.S.C. 7a-2(c)(5)(C)(i).

The definition of “excluded commodity” was adopted in the CFMA as part of provisions to permit off-exchange trading of swaps based on financial commodities or commodities with an infinite supply.

165

The reasoning behind this change in the CFMA was that trading should not be permitted in swaps based on agricultural commodities, certain metals which had historically been subject to price manipulation, and physical commodities for which the cash market is dependent on the futures market for price discovery.

166

But apart from these categories, swap trading should be permitted for institutional investors within the definition of “eligible contract participant,” which was also adopted in the CFMA.

165

While the CFMA does not have any official legislative history, commentators generally agree that the excluded commodity definition adopted in the CFMA was intended to implement a recommendation in the Report of The President's Working Group on Financial Markets, Over-the-Counter Derivatives Markets and the Commodity Exchange Act,

supra

note 27 (PWG Report).

See

Derivatives Regulation § 2.02[7.C.ii].

166

See

PWG Report at 16-17 (recommending that large financial market participants be permitted to engage in bilateral swaps, so long as the swap does not involve “a non-financial commodity with a finite supply”).

The definition of “excluded commodity” in CEA section 1a(19) has four clauses. Clause (i) includes rates, instruments, indices and measures commonly understood to be financial commodities.

167

Clause (ii) includes any other index or measure of economic or commercial risk, return, or value that is based on such financial commodities; based on the value of a broad group of physical commodities; or based on a commodity with no cash market.

168

Clause (iii) includes any index that qualifies as “economic or commercial” and is beyond the control of any party to the relevant derivatives contract.

169

Last, clause (iv) includes any “occurrence, extent of an occurrence, or contingency” of financial, commercial, or economic consequence that is beyond the control of any party to the relevant derivatives contract and is not based on a change in the price, rate, value, or level of a “commodity not described in clause (i).”

170

The effect of the cross-reference to clause (i) is that, for example, a change in crude oil prices is not an occurrence which constitutes an excluded commodity because crude oil is not described in clause (i); on the other hand, clause (iv) means that a change in exchange rates is an occurrence which constitutes an excluded commodity because exchange rates are listed in clause (i).

167

CEA sec. 1a(19)(i), 7 U.S.C. 1a(19)(i) (“an interest rate, exchange rate, currency, security, security index, credit risk or measure, debt or equity instrument, index or measure of inflation, or other macroeconomic index or measure”).

168

CEA sec. 1a(19)(ii), 7 U.S.C. 1a(19)(ii) (“(ii) any other rate, differential, index, or measure of economic or commercial risk, return, or value that is—(I) not based in substantial part on the value of a narrow group of commodities not described in clause (i); or (II) based solely on one or more commodities that have no cash market;”).

169

CEA sec. 1a(19)(iii), 7 U.S.C. 1a(19)(iii) (“any economic or commercial index based on prices, rates, values, or levels that are not within the control of any party to the relevant contract, agreement, or transaction”).

170

CEA sec. 1a(19)(iv), 7 U.S.C. 1a(19)(iv) (“an occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or level of a commodity not described in clause (i)) that is—(I) beyond the control of the parties to the relevant contract, agreement, or transaction; and (II) associated with a financial, commercial, or economic consequence.”). “[C]lause (i)” refers to CEA sec. 1a(19)(i).

The Commission preliminarily believes that the increasing generality of clauses (i) to (iv) of the excluded commodity definition indicates a Congressional intent to include a very wide variety of measures and occurrences in the definition. Clause (i) starts with financial commodities, clause (ii) adds “any other rate, differential, index, or measure of economic or commercial risk, return, or value” that is not based in substantial part on a “narrow group” of physical (

i.e.,

non-financial) commodities, clause (iii) adds any “economic or commercial index” that is not under the control of a party to the relevant derivatives contract, and clause (iv) brings in any event that is beyond the control of any party to the relevant derivatives contract and has financial, commercial or economic consequence (with the exception for physical commodity price changes noted above). In particular, the Commission notes that clauses (ii) and (iii) of the definition are limited to “economic or commercial” measures or indices, but clause (iv) uses the broader phrase “financial, commercial or economic consequence.” Thus, the definition of excluded commodity is clearly not limited to economic or commercial indices.

In adopting § 40.11 in 2011, the Commission interpreted the “excluded commodities” falling within the scope of the Special Rule to be those set forth in CEA section 1a(19)(iv), and accordingly referenced CEA section 1a(19)(iv) in § 40.11(a)(1)-(2) and § 40.11(c).

171

The Commission preliminarily does not see any reason to limit the scope of the Special Rule in this way, as the statutory text is not limited to only clause (iv) of CEA section 1a(19).

171

While the adopting release did not discuss the basis for this interpretation, it is likely that the Commission assumed that Congress intended to incorporate the statutory language of the “excluded commodity” definition set forth in CEA sec. 1a(19)(iv), since the Special Rule tracks the language of CEA sec. 1a(19)(iv) to a large extent.

Instead, proposed § 40.11(a)(2) refers to all excluded commodities based upon the occurrence, extent of an occurrence, or contingency, with the exception of any change in the price, rate, value, or levels of a commodity described in CEA section 1a(19)(i). The Commission preliminarily believes that this exception gives effect to the language in the Special Rule which excepts “a change in the price, rate, value, or levels of a commodity described in section 1a(2)(i) of [the CEA]).”

172

There is no “section 1a(2)(i)” in the CEA, and the Commission preliminarily believes the reference to this provision in the Special Rule is a typographical or drafting error.

173

Rather, the Commission preliminarily believes that the reference to “section 1a(2)(i)” was intended by Congress to refer to the excluded commodities described in CEA section 1a(19)(i), namely, an interest rate, exchange rate, currency, security, security index, credit risk or measure, debt or equity instrument, index or measure of inflation, or other macroeconomic index or measure. This interpretation carves out from the scope of the Special Rule event contracts based on a change in the price, rate, value, or levels of these measures, indices, and instruments.

174

172

CEA sec. 5c(c)(5)(C)(i); 7 U.S.C. 7a-2(c)(5)(C)(i).

173

CEA sec. 1a(2), 7 U.S.C. 1a(2), defines an “appropriate Federal banking agency,” which is not relevant to the excluded commodity definition.

174

The Commission understands that the phrasing in CEA sec. 1a(19)(iv), which removes from the excluded commodity definition any “change in the price, rate, value, or level of a commodity

not

described in clause (i)” introduces some confusion. The point, as noted above, is that changes in prices of commodities described in clause (i)

are

excluded commodities, while changes in prices of other commodities (

e.g.,

physical commodities)

are not

excluded commodities. Since physical commodity price changes are not excluded commodities, they did not have to be excluded from the scope of the Special Rule. On the other hand, because financial commodity price changes are excluded commodities, it was necessary to exclude them from the scope of the Special Rule. That is why it is appropriate for the exception in the Special Rule to refer to changes to prices that

are

described in the cross-referenced clause.

The measures, indices, and instruments described in CEA section 1a(19)(i) served as underliers for a range of derivative contracts that were broadly traded on CFTC-registered exchanges at the time of enactment of the Special Rule.

175

As such, the Commission believes that it is unlikely that Congress

intended the heightened authority granted to the Commission in the Special Rule to apply with respect to event contracts based on changes in the price, rate, value or levels of these measures, indices, and instruments.

176

175

See supra

notes 67 to 71.

176

Consistent with the Commission's view that the reference to “section 1a(2)(i)” in the Special Rule was intended by Congress to refer to the excluded commodities described in CEA section 1a(19)(i), section 201(b) of the proposed CFTC Reauthorization Act of 2019 included, as a technical correction to the CEA, the replacement of the reference to “section 1a(2)(i)” with a reference to “section 1a(19)(i).” CFTC Reauthorization Act of 2019, H.R. 6197, 116th Cong. (2d Sess. 2020).

Last, the Commission notes two aspects of the Special Rule that relate to its scope. First, the Special Rule encompasses “agreements, contracts, transactions, or swaps,” meaning that it includes event contracts that are listed as futures contracts, as well as event contracts that are listed as swaps. Second, the Special Rule covers such event contracts that are “based upon the occurrence, extent of an occurrence, or contingency.” Since an event is the definitive characteristic of a contract that is subject to the Special Rule, the Commission preliminarily believes that in determining the scope of the Special Rule, the focus should be on the event that underlies the event contract, as will be discussed in the next section.

The Commission requests comment on all aspects of its preliminary views on the scope of event contracts that are subject to the Special Rule.

C. Contracts That “Involve” an Enumerated Activity

The Special Rule applies to agreements, contracts, or transactions “that are based upon the occurrence, extent of an occurrence, or contingency” and that “involve” any of the Enumerated Activities. The Commission preliminarily interprets the term “involve” in the Special Rule to require that the settlement of the event contracts be determined by an occurrence, the extent of an occurrence, or a contingency in one of the Enumerated Activities.

177

Therefore, the Proposal includes the following text in proposed § 40.11(a)(3): “For purposes of paragraph (a)(2) of this section, agreements, contracts, transactions, or swaps involve an activity if their settlement is determined by an occurrence, extent of an occurrence, or contingency in the activity.”

177

For the avoidance of doubt, and as discussed in this section, the Commission preliminarily believes that the Nadex Order and Kalshi Order were incorrect in reasoning that event contracts involve an Enumerated Activity when the event contracts viewed as a whole relate to, or equate to, an Enumerated Activity.

This interpretation follows from the three-step sequence set out in the Special Rule that must occur before agreements, contracts, transactions, or swaps are prohibited:

1. As discussed above, the agreements, contracts, transactions, or swaps must be “based upon the occurrence, extent of an occurrence, or contingency;”

2. As discussed in this section, the agreements, contracts, transactions, or swaps must “involve” any of the Enumerated Activities; and

3. As discussed below, the Commission must determine that the agreements, contracts, transactions, or swaps are contrary to the public interest.

The role of the Enumerated Activities in this sequence is to filter which event contracts are potentially subject to a public interest determination. The Special Rule does not require the Commission to determine whether the contract itself is or equates to an Enumerated Activity. As noted earlier, it is the underlying activity that is the subject of “involve.”

The application of this test can be illustrated through several examples. An event contract that settles on whether a specified terrorist attack occurs at a specified location during a specified period involves terrorism within the meaning of the Special Rule, because the event contract's settlement is determined by an occurrence within the terrorism activity. An event contract that settles on whether a particular foreign head of state is killed during a specified period involves assassination for the same reason. An event contract that settles on whether Iran initiates armed conflict in the Strait of Hormuz, or whether a specified non-state actor conducts an attack on shipping in the Strait, would involve war or terrorism, because in those event contracts the settlement-determining occurrence is within the Enumerated Activity itself. By contrast, an event contract that settles on whether a specified volume of crude oil transits the Strait of Hormuz during a specified period does not involve war or terrorism, even though the amount of oil flows through the Strait could change based on military conditions, because the settlement-determining occurrence is a measurement of commercial shipping activity rather than an occurrence within a war or terrorism activity.

The Commission's proposed reading avoids surplusage. The Special Rule's “based upon” and “involve” language describe complementary aspects of a single event-focused concept: the event contract is based upon an occurrence, and that occurrence must be in an Enumerated Activity. An interpretation that treats “involve” as applying to the event contract itself (as distinct from the underlying occurrence) would render “based upon” superfluous.

The Commission's proposed interpretation is also consistent with the reasoning of the District Court for the District of Columbia, which held that the term “involve” in the Special Rule refers to “the event being offered and traded” under an event contract, not the event contract itself.

178

KalshiEX,

2024 U.S. Dist. LEXIS 163925, at *29.

The Commission preliminarily believes that the Nadex Order erred in this regard. Rather than examining whether the underlying event fell within the Enumerated Activity, the Nadex Order interpreted the Special Rule to apply when “the contract, considered as a whole, involves one of those [the enumerated] activities” and therefore considered whether the contract itself was gaming.

179

The Nadex Order concluded that trading in the contract constituted gaming, but it did not find that the event on which the contract was based was an occurrence within a gaming activity. In doing so, the Nadex Order reasoned that “taking a position in a Political Event Contract fits the plain meaning of a person staking `something of value upon a contest of others,' ” which is an element of what the Nadex Order considered to be gaming.

180

But that reasoning examines the nature of the trading—not the nature of the underlying event. Therefore, the Commission preliminarily believes that the Nadex Order misapplied the Special Rule, which, by its terms, requires the Commission to determine whether the event contracts

involve

an Enumerated Activity, not whether trading in the event contracts

an Enumerated Activity.

179

See

Nadex Order at 2.

180

Id.

at 3.

The approach in the Nadex Order is contrary to the structure of the Special Rule. Consider especially the Enumerated Activities of terrorism, assassination and war. If the statute's “involve” requirement were satisfied only when trading in the event contracts

equates to

terrorism, assassination or war, then the Special Rule would never apply to contracts involving those activities, because trading in event contracts does not constitute terrorism, assassination, or war.

181

As a corollary,

if one asserted that the Special Rule applied because the event contract

itself

was “gaming,” then the terrorism, assassination and war categories would be surplusage. The only coherent question—and the only question the statute asks—is whether the occurrence, extent of an occurrence, or contingency on which the contract is based is an occurrence, extent of an occurrence, or contingency

terrorism, assassination, or war activities.

181

See KalshiEX,

2024 U.S. Dist. LEXIS 163925, at *30 (“`[S]tandard principle[s] of statutory construction provide[ ] that identical words and

phrases within the same statute should normally be given the same meaning' and effect”; citing

Powerex Corp.

Reliant Energy Servs., Inc.,

551 U.S. 224 (2007)).

The Nadex Order's approach also leads to illogical results. As discussed below in relation to the definition of the term “gaming,” if the Special Rule's application were interpreted to depend on whether trading in an event contract

equates to

gaming, the Special Rule could potentially apply to any event contract because gaming could be interpreted to include the staking of money on a contingency.

182

Similarly, because some states prohibit the staking of money on a contingency,

183

trading in the event contract would appear to be illegal under those laws—except that such state laws are preempted by the CEA as applied to event contracts traded on CFTC-registered entities.

182

As discussed in connection with the proposed definition of “gaming,” the Commission preliminarily believes that gaming does not include all activities that constitute the staking of money on a contingency, but rather only such activities that are games—

i.e.,

have a recreational or entertainment purpose.

See infra

notes 199 to 202 and accompanying text.

183

See, e.g.,

N.H. Rev. Stat. Ann. sec. 647:2(II)(d), available at

https://www.gencourt.state.nh.us/rsa/html/lxii/647/647-2.htm

(last visited May 19, 2026) (banning gambling and defining it as, “to risk something of value upon a future contingent event not under one's control or influence . . .”).

Last, a wide-ranging inquiry into whether anything about event contracts “involves” one of the Enumerated Activities (as opposed to an inquiry focused on the event underlying the contract) would greatly expand the inquiry under the Special Rule and be vulnerable to arbitrary and inconsistent application.

The Commission preliminarily believes that the better approach is to avoid an interpretation of the statute that is inconsistent with its structure and would produce overbroad or illogical results. Interpreting the Special Rule to apply when the event contracts' settlement is determined by an occurrence, extent of an occurrence, or contingency within an Enumerated Activity aligns with the structure of the statute and properly limits scope for the Special Rule to the circumstances Congress intended it to govern.

The Commission requests comment on all aspects of its preliminary views on the scope of activities that event contracts “involve.”

D. Determining the Scope of Enumerated Activities

The Commission preliminarily believes that it would be helpful for prediction markets and the general public to know which factors the Commission will apply in determining whether particular event contracts are subject to the Special Rule. In other words, these factors would describe the scope of activities that are encompassed within each of the Enumerated Activities. The Commission is therefore proposing to add § 40.11(a)(4) which sets out the factors that the Commission will apply in determining whether event contracts involve any Enumerated Activity and are therefore within the scope of the Special Rule. The Commission notes that event contracts involving more than one Enumerated Activity would also be within the scope of the Special Rule.

In the case of the Enumerated Activity of “gaming,” the Commission also preliminarily believes it would be useful to adopt a rule to define the term “gaming” because it requires further clarification.

The Commission notes that a prediction market would be able to receive a definitive resolution of any questions concerning the applicability of § 40.11(a)(1) by submitting a contract for Commission approval under § 40.3. CFTC staff also may, at its discretion and upon a request from a prediction market, review a draft contract submission or proposal and provide guidance concerning the contract's compliance with the CEA and CFTC regulations, including § 40.11(a)(1).

184

The Commission notes, however, that staff's guidance concerning drafts and proposals is preliminary and non-binding. CFTC staff formally reviews contracts only at such time as a compliant submission is provided to the Commission pursuant to § 40.2 or § 40.3.

1. Activity That Is Unlawful Under any Federal or State Law

The Commission preliminarily does not believe that it is necessary to adopt a rule to define “activity that is unlawful under any Federal or State law” at this time. Instead, proposed § 40.11(a)(4)(i) provides that the Commission would consider the relevant laws and whether the occurrence, extent of an occurrence, or contingency on which an event contract is based occurs in an activity that is unlawful under any Federal or State law. Additionally, proposed appendix F to part 40 describes how the Commission would consider the relevant factors in determining whether event contracts involve this Enumerated Activity.

The proposed factors explain that in circumstances where there is a question regarding whether an event contract submitted to the Commission involves activity that is unlawful under any Federal or State law, the Commission would survey the relevant law. Where an activity is illegal under the laws of some States, but not others, the Commission would consider whether the discrepancy relates to any of the factors that would apply in determining if the event contract is contrary to the public interest. For example, if an activity is illegal under the laws of some States, and the relevant factors suggest that event contracts involving that activity would be found to be contrary to the public interest, then the Commission would be more likely to find that the event contract involves unlawful activity and is within the scope of the Special Rule.

185

The Commission acknowledges that many state codes include laws prohibiting certain activity that, while not repealed, are generally considered archaic and are not enforced. The Commission believes that it is unlikely that a prediction market would seek to list for trading or accept for clearing an event contract involving such a law. To the extent that a prediction market does make a submission to the Commission regarding a contract that may involve such a law, the Commission believes that it may be appropriate to commence a review of the contract pursuant to § 40.11(c) to evaluate whether, in light of the relevant facts and circumstances, it is appropriate to recognize the contract as involving “activity that is unlawful under any . . . State law” for purposes of § 40.11(a)(1).

The Commission notes that the Kalshi Order evaluated whether the subject event contracts involved an activity that is unlawful under Federal or State law, and found that betting or wagering on elections is prohibited by statute or common law in many states.

186

For the reasons discussed above, the Commission preliminarily believes that the Kalshi Order's reasoning on this point was incorrect. The Kalshi Order asked whether the act of trading the event contract equated to an activity unlawful under State law. The Commission believes that the relevant question under the Special Rule, however, is whether the occurrence, extent of an occurrence, or contingency on which an event contract is based occurs in an Enumerated Activity. Under that reading, the event contracts at issue in the Kalshi Order would not involve activity that is unlawful under Federal or State law, because the occurrence, extent of an occurrence, or

contingency on which the subject event contracts were based (outcomes of political elections) did not occur in an Enumerated Activity (activity unlawful under State law).

186

Kalshi Order at 11-12.

The application of this interpretation can be illustrated through several examples. An event contract that settles on whether an individual will murder someone involves an activity that is unlawful under State law, because the settlement-determining occurrence—the murder—is itself within unlawful activity. Such an event contract presents the precise concerns that animate the Special Rule's inclusion of unlawful activity. By contrast, an event contract that settles on whether Bernard Madoff is convicted of securities fraud by a specified date does not involve activity that is unlawful within the meaning of the Special Rule. The settlement-determining occurrence is the entry of a judgment of conviction by the court, which is a lawful judicial act. Although the underlying conduct alleged in the indictment—the operation of a multi-decade Ponzi scheme that caused tens of billions of dollars in investor loss—would, if proven, constitute unlawful activity, the event contract's settlement is determined by the court's judgment rather than by the underlying conduct itself. The same analysis applies to an event contract settling on whether a defendant in a specified federal securities-fraud prosecution is sentenced to a term of imprisonment exceeding a specified threshold, or whether a specified judgment of conviction is affirmed on appeal by a specified court. Such event contracts may have meaningful commercial and informational utility, including for participants seeking to hedge price exposure to the resolution of large financial-fraud proceedings that affect counterparty risk, claims against bankruptcy estates, and the timing of recovery distributions to victims.

2. Terrorism, Assassination, and War

The Commission preliminarily does not believe that it is necessary to adopt a rule to define “terrorism,” “assassination,” or “war” at this time. Instead, proposed § 40.11(a)(4)(ii) provides that the Commission would consider the extent to which the event contracts involve violent or destructive activities occurring outside the United States with an element of coercion or intimidation and some relationship to political or social groups or ideologies, intentional killing of an individual outside the United States, or belligerent military activities and violent activities by organized groups, respectively. Additionally, proposed appendix F to part 40 describes how the Commission would consider these factors in determining whether event contracts involve these Enumerated Activities.

Generally, the Commission preliminarily intends to interpret these terms broadly and without making distinctions based on criteria under international law, such as whether a war has been formally declared. The Commission also notes that terrorism and assassination would be unlawful under Federal or State law, and the Commission generally interprets these Enumerated Activities to encompass events occurring outside the United States, including against non-U.S. persons.

187

For clarity, the Commission notes that event contracts involving more than one Enumerated Activity would be subject to the Special Rule.

The Commission notes that common definitions of terrorism include the use of violence to coerce or intimidate in order to obtain demands or with political aims.

188

The proposed factors to define terrorism would not require identification of a specific aim or demand, or identification of a specific responsible group. Rather terrorism would include all violent or destructive activities occurring outside the United States with an element of coercion or intimidation and some relationship to political or social groups or ideologies. The Commission preliminarily believes that terrorism encompasses cyberterrorism and other forms of attack that cause substantial destruction or disruption through non-physical means, where the attack is conducted with an element of coercion or intimidation and bears a relationship to political or social group or ideologies. Since unlawful activity inside the United States is an Enumerated Activity, it is irrelevant whether a particular unlawful activity in the United States constitutes domestic terrorism.

188

See

Oxford English Dictionary, “terrorism” (n.) (“The unofficial or unauthorized use of violence and intimidation in the pursuit of political aims; . . . (now usually) such practices used by a clandestine or expatriate organization as a means of furthering its aims.”) (last modified Sept. 2025), available at

https://doi.org/10.1093/OED/7593421629; Merriam-Webster.com Dictionary

, “terrorism” (n.) (“the systematic use of terror especially as a means of coercion”) and “terror” (“violence or the threat of violence used as a weapon of intimidation or coercion”), available at

https://www.merriam-webster.com/dictionary/terrorism

(last visited May 17, 2026).

Accordingly, an event contract that settles on whether the Islamic State conducts an armed attack causing more than ten civilian deaths in Baghdad during June 2026 involves terrorism within the meaning of the Special Rule. The settlement-determining occurrence is the attack itself, which is within the terrorism activity. An event contract that settles on whether a coordinated cyberattack attributed by the United States Cybersecurity and Infrastructure Security Agency to a state-sponsored or politically motivated actor causes the operational shutdown of electricity transmission in New York for more than twenty-four hours sometime in 2026 involves terrorism. By contrast, an event contract that settled on whether the Transportation Security Administration implements enhanced screening procedures at certain airports does not involve terrorism, because the settlement-determining occurrence is a governmental administrative action, which is a lawful exercise of agency authority, rather than any act of terrorism.

The factors to define assassination focus on whether the target of the attack is a prominent person and whether there is some relationship to a political or social motive.

189

The Commission preliminarily believes that any person who is the subject of an event contract should be considered to be prominent, and that the relationship to a political or social motive should be interpreted broadly. Therefore, the Commission proposes that event contracts involving any intentional killing of an individual outside the United States would involve assassination.

189

See

Oxford English Dictionary, “assassination” (n.) (“murder of a person (esp. a prominent public figure) in a planned attack, typically with a political or ideological motive, sometimes carried out by a hired or professional killer”) (last modified Sept. 2025), available at

https://doi.org/10.1093/OED/5671820672; Merriam-Webster.com Dictionary

, “assassination” (n.) (“murder by sudden or secret attack often for political reasons”), available at

https://www.merriam-webster.com/dictionary/assassination

(last visited May 17, 2026).

Examples illustrate this definition. An event contract that settles on whether Nicolás Maduro dies as a result of an attack by an organized political or military faction by December 31, 2026, involves assassination. The settlement-determining event—his death—is an occurrence within the assassination activity. By contrast, an event contract that settles on whether Maduro will lose an election does not involve assassination, war, or any other Enumerated Activity.

The Commission preliminarily intends that the factors to define war would encompass all belligerent military activities and violent activities by organized groups.

190

That is, this Enumerated Activity is not limited to declared wars and would include the

belligerent activities of both government and civil militias. It would also include civil wars and civil unrest by organized groups. Because the Special Rule is applied to particular event contracts, the Commission preliminarily believes that it is not appropriate to apply a temporal or quantitative threshold to determine if belligerent military or violent activities constitute “war.” For example, if event contracts were certified about a single belligerent military activity, it would not be appropriate to examine whether that activity was isolated or rather a part of a campaign over a certain time.

191

Instead, the proposed factors explain that event contracts about a single belligerent military or organized violent activity would involve war.

190

By referring to belligerent military activity, the Commission does not intend to include any non-belligerent military activities, such as routine deployments, training or disaster relief assistance.

191

The Commission notes that some definitions of “war” refer to a series of actions over time.

See, e.g.,

Oxford English Dictionary, “war” (n.) (“Armed conflict . . . typically characterized by a campaign or series of campaigns conducted over a period of time”) (last modified Mar. 2026), available at

https://doi.org/10.1093/OED/1011940408.

However, at the time an event contract is certified it may not be clear whether the underlying event relates to a military campaign (

e.g.,

it may be the first event in a campaign).

Several examples again illustrate this definition. An event contract that settles on whether the Russian Federation conducts a missile or drone strike against a target within the city limits of Kyiv during the second quarter of 2026 involves war within the meaning of the Special Rule, because the settlement-determining occurrence is itself a military activity within the war activity. An event contract that settles on whether the People's Republic of China conducts a naval or amphibious military action against the territory of Taiwan likewise involves war, regardless of whether such action is characterized as a declared war or a more limited military operation, because the event contract's settlement turns on the occurrence of a belligerent military activity by an organized armed force.

By contrast, an event contract that settles on whether the front-month Brent crude oil futures contract on the Intercontinental Exchange closes above $120 per barrel on any trading day during the second quarter of 2026 does not involve war within the meaning of the Special Rule, even though oil prices are sensitive to military and geopolitical conditions. The settlement-determining occurrence is the published settlement price of an exchange-traded futures contract, which is a measurement produced by a registered futures exchange.

The foregoing analysis addresses event contracts whose settlement-determining occurrence falls within an Enumerated Activity on the face of the event contract's terms. A separate question arises when an event contract's settlement-determining occurrence is facially neutral—that is, when the occurrence on which settlement turns can be reached through multiple causal pathways, at least one of which falls within terrorism, war, or assassination. In such cases, the Commission would understand the event contract to involve the Enumerated Activity unless the event contract's terms specify the qualifying settlement pathways with sufficient detail to exclude the Enumerated-Activity pathway. An event contract drafted at a level of generality that permits settlement on the basis of an act of terrorism, war, or assassination would be treated as involving that activity. This approach reflects the Commission's preliminary view that the Special Rule's protective purpose would be undermined if prediction markets could avoid its application by drafting settlement conditions broadly enough to encompass Enumerated-Activity pathways alongside non-Enumerated ones.

A few examples again illustrate the principle. An event contract that settles on whether Maduro is out of office by a certain date, without further specification of the qualifying mechanisms, involves assassination within the meaning of the Special Rule because assassination is among the pathways by which the settlement condition can be satisfied. The same event contract, redrafted to settle only on whether the named individual ceases to hold office “by reason of electoral defeat, resignation, constitutional removal, negotiated departure, or natural death,” would not involve assassination, because the event contract's terms specify the qualifying pathways and exclude the Enumerated Activity pathway. Similarly, an event contract that settles on whether Iran's uranium enrichment facilities remain functional as of a certain date would involve war, because an activity of war is among the pathways by which the facility could cease to remain standing; the same event contract, redrafted to settle only on whether the facility is demolished pursuant to a government order, or to negotiated terms of a diplomatic deal, would not.

3. Gaming

Neither the CEA nor the Commission's rules define the term “gaming.” In the preamble to the adoption of § 40.11, the Commission acknowledged that “the term `gaming' requires further clarification,” and said that the Commission may issue a future rulemaking concerning event contracts that involve “gaming.”

192

See

Provisions Common to Registered Entities, 76 FR 44776, 44785 (July 27, 2011).

The Commission preliminarily agrees with the District Court for the District of Columbia that “the word `gaming' in the statute carries its ordinary, plain meaning and involves playing a game.”

193

“ `When a term goes undefined in a statute, [courts] give the term its ordinary meaning.'

. . .

To discern that meaning, courts often begin with a survey of dictionaries.

. . .

Dictionaries define gaming' as `the practice or activity of playing games for stakes' and `the practice or activity of playing games.' . . . [There is] no reason to stray from the ordinary definitions of `gaming,' which are `the practice or activity of playing games' and `playing games for stakes.' ”

194

193

KalshiEX,

2024 U.S. Dist. LEXIS 163925, at *20.

194

Id.

at *22 (citations omitted).