# 91 FR 35806: Prediction Markets; Public Interest Determinations

> Federal · Regulations · In force

URL: https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2026-11854

## Section

- **Citation:** 91 FR 35806
- **Heading:** Prediction Markets; Public Interest Determinations
- **Jurisdiction:** Federal
- **Kind:** Regulations
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Federal Register / Vol. 91 / 91 FR 35806

## Text

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 (c) Compliance and Self-Regulatory Challenges Arising From the Prediction Market's Capacity To Administer the Contracts 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 (c) Gaming (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 (c) Public Interest Factors Relating to Price Discovery and Information Aggregation Utility (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 (c) Price Discovery (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. 1 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.
1 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 CFTC, Contracts & Products: Event Contracts, available at https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm.
Parties have sought CFTC staff guidance concerning prediction markets since the early 1990s, and the Commission first designated a prediction market as a designated contract market (DCM) in 2004. 2 The Commission has recently observed a significant increase in the number of event contracts listed for trading on prediction markets, as well as in the diversity of events underlying such contracts. And, in 2025, the total trading volume across CFTC-registered prediction markets exceeded $25 billion. While growing, this is still a small share of the overall futures market regulated by the Commission, which had a notional value of around $31 trillion in 2025. 3 As a result, the Commission and its staff have taken affirmative steps to address this proliferation and growth of prediction markets.
2 See CFTC Press Release No. 4894-04, CFTC Designates HedgeStreet as a Contract Market and as a Registered Clearing Organization (Feb. 20, 2004) and the related DCM Order of Designation for HedgeStreet, Inc. (Feb. 18, 2004), available at https://www.cftc.gov/sites/default/files/opa/press04/opa4894-04.htm. See also infra section I.C.1 (discussion of early staff actions).
3 See CFTC, FY 2025 Agency Financial Report 4 (2026), available at https://www.cftc.gov/media/13096/2025AFR/download.
The CEA identifies derivatives transactions as affecting a national public interest by “providing a means for managing and assuming price risks, discovering prices, or disseminating pricing information,” which requires a comprehensive federal regulatory scheme. 4 The CEA directs the CFTC to execute that regulatory scheme. Prediction markets and event contracts are but one example of such derivatives transactions.
4 CEA sec. 3, 7 U.S.C. 5.
The underlying price for an event contract is determined by market participants' continuous buying and selling reaching an equilibrium through a quote-based system. 5 The market-established prices therefore offer informational value as to the probability of the event underlying the contract occurring, 6 yielding forecasts ( i.e., event contract prices) that may rapidly incorporate new information and “allocate probability mass in ways that may reflect the range of plausible . . . outcomes better than traditional financial derivative or survey-based forecasts.” 7 These findings conform with research that highlights the informational value of retail trading behavior. 8
5 Karl E. Schneider and Rena S. Miller, Cong. Research Serv., IF13187, Prediction Markets: Policy Issues for Congress (2026), available at https://www.congress.gov/crs-product/IF13187.
6 This market structure is inapposite to that of legalized sports gambling, where the gaming company typically controls and adjusts the gambling odds.
7 Anthony M. Diercks, Jared Dean Katz, and Jonathan H. Wright, Kalshi and the Rise of Macro Markets, Finance and Economics Discussion Series No. 2026-010, Washington: Board of Governors of the Federal Reserve System, available at https://doi.org/10.17016/FEDS.2026.010.
8 Id. at 6 (“While early research often emphasized behavioral biases, recent studies show that retail trading can enhance market efficiency.”). 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, 9 politics, weather, and climate conditions, to cultural trends and “sporting events . . . that generate billions of dollars in economic activity 10
9 See id.
10 Brief of CFTC as Amicus Curiae in Support of Appellant, North American Derivatives Exchange, Inc. D/B/A Crypto.com v. 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. 11 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. 12 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, 13 it did so expressly, and not by inviting courts or states to create implied carve-outs from the CEA.
11 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] . . . .”).
12 See CEA sec. 1a(9), 7 U.S.C. 1a(9).
13 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. 14 An event contract may also be structured in other ways, including as a futures contract. 15 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. 16
14 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.”
15 See CEA sec. 2a(1)(A), 7 U.S.C. 2(a)(1)(A) (CFTC exclusive jurisdiction over commodity futures contracts).
16 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. 17 “[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.” 18
17 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 KalshiEX, LLC v. Flaherty, 172 F.4th 220, 230 (3d Cir. 2026) (“Congress created the CFTC and amended the Act to do away with the patchwork of state regulations and bring futures trading on DCMs under the exclusive jurisdiction of the CFTC.”).
18 CEA sec. 3, 7 U.S.C. 5.
Congress vested the CFTC with “exclusive jurisdiction” to protect that national interest by overseeing the regulation of futures contracts and options on futures contracts on federally regulated exchanges. 19 An exchange on which futures contracts and options on futures contracts are traded is formally known as a board of trade, and such an exchange must be designated by the Commission as a contract market, i.e., a DCM. 20 Since its enactment in 1974, the CEA has required that futures contracts and options on futures contracts be transacted on or subject to the rules of a DCM; this is known as the exchange trading requirement. 21
19 CEA sec. 2(a)(1)(A), 7 U.S.C. 2(a)(1)(A) (vesting the Commission with “exclusive jurisdiction,” except as otherwise expressly provided by Congress, over all “accounts, agreements. . ., and transactions involving swaps or contracts of sale of a commodity for future delivery”). The CEA “preempts the application of state law.” Leist v. Simplot, 638 F.2d 283, 322 (2d Cir. 1980). “Express preemption occurs when a federal statute explicitly states that it overrides state or local law.” Hoagland v. Town of Clear Lake, 415 F.3d 693, 696 (7th Cir. 2005). The CFTC and the SEC share jurisdiction over security futures and options on security futures. Preemption was the primary goal of the “exclusive jurisdiction” provision. Indeed, potentially limiting language was stricken from the statute “to assure that Federal preemption is complete.” 120 Cong. Rec. 30464 (1974) (Statement of Sen. Curtis).
20 See CEA sec. 5, 7 U.S.C. 7. The Board of Trade of the City of Chicago (also called the Chicago Board of Trade, or CBOT), the first cash grain market exchange in the U.S., was created in 1848 by grain merchants and received its charter in 1859. See Philip McBride Johnson et al., Derivatives Regulation sec. 6.03 (last updated Jan. 2026).
21 CEA sec. 4(a)(1), 7 U.S.C. 6(a)(1). This section of the CEA also refers to transactions in futures contracts and options on a derivatives transaction execution facility, but there are no such facilities currently in operation.
The CFTC's jurisdiction “supersedes State as well as Federal agencies” because commodity derivatives markets require nationally uniform rules governing the listing, trading, clearing, settlement, surveillance, and enforcement of financial instruments traded in these markets. 22 Prompted by the evolution of national financial markets and repeated conflicts with a patchwork of state laws, Congress granted the CFTC exclusive jurisdiction in the CEA to regulate the commodity derivatives markets through a comprehensive federal regulatory framework that expressly preempts state laws that attempt to regulate the operation of, or transactions on, CFTC-registered exchanges. 23 State regulation of developing event contracts markets would impose additional regulations on event contracts that, as discussed below in section I.B.3., have long been traded uncontroversially on CFTC-registered DCMs, like contracts on the weather or agricultural production. Subjecting those markets to a patchwork of 50 state regulations is precisely what Congress sought to avoid with the CEA. 24
22 See S. Rep. No. 93-1131 (1974), reprinted in 1974 U.S.C.C.A.N. 5848. The Constitution's Supremacy Clause mandates that “[t]his Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2.
23 See KalshiEX, 172 F.4th at 227 (the CEA “grants the CFTC exclusive regulatory authority over event contracts. . . .”). Where Congress makes “a single sovereign responsible for maintaining a comprehensive and unified system” of regulation, allowing states to regulate the same field “ `detract[s] from the “integrated scheme of regulation” created by Congress.' ” Arizona v. U.S., 567 U.S. 387, 401-02 (2012) (quoting Wisconsin Dept. of Indus. v. Gould Inc., 475 U.S. 282, 288-89 (1986)).
24 Preemption of state law was necessary because, for decades, states had attempted to apply state gambling laws to derivatives trading. By the mid-nineteenth century, commodity exchanges in major trading hubs like New York and Chicago had organized trading to facilitate price discovery (information exchange), risk management (hedging), and speculation. Congress recognized the need for uniform, nationwide regulation of futures and options markets because concurrent regulation by the states could lead to “total chaos.” See Commodity Futures Trading Act of 1974: Hearings Before the S. Comm. on Agriculture & Forestry on S. 2485, S. 2578, S. 2837, H.R. 13113, 93d Cong., 2d Sess. 685 (1974) (statement of Sen. Clark), available at https://catalog.hathitrust.org/Record/010373491.
The 1990s saw the growth of a new type of derivative financial product—swaps. 25 The Futures Trading Practices Act of 1992, authorized the CFTC to exempt certain off-exchange ( i.e., over-the-counter or OTC) swap transactions from the exchange trading requirement. 26 The swap market grew rapidly, and in 1999 a Presidential Working Group Report concluded that “under many circumstances, the trading of financial derivatives by eligible swap participants should be excluded from the CEA” in order to avoid legal uncertainty and unnecessary regulatory burdens. 27 Spurred by the 1999 report, the Commodity Futures Modernization Act of 2000 (CFMA) exempted or excluded swap transactions from the exchange trading requirement. 28
25 In 1989, the Commission adopted a policy statement describing when it would not take action against swaps as illegal futures contracts. See Policy Statement Concerning Swap Transactions, 54 FR 30694 (July 21, 1989).
26 Public Law 102-546, sec. 502(a)(2), 106 Stat. 3590, 3629 (1992), adding section 4(c) to the CEA, including CEA sec. 4(c)(5)(B), 7 U.S.C. 6(c)(5)(B).
27 Report of The President's Working Group on Financial Markets, Over-the-Counter Derivatives Markets and the Commodity Exchange Act (Nov. 1999) at 1 (footnote omitted), available at https://home.treasury.gov/system/files/236/Over-the-Counter-Derivatives-Market-Commodity-Exchange-Act.pdf. In addition to participating in this working group, the Commission also prepared a framework for deregulation of DCMs and exclusions from the CEA for OTC transactions. See Report of the Commodity Futures Trading Commission Staff Task Force, A New Regulatory Framework (2000), available at https://www.cftc.gov/sites/default/files/files/opa/oparegulatoryframework.pdf. See also Derivatives Regulation sec. 2.04[B].
28 Public Law 106-554, App. E, sec. 103, 114 Stat. 2763A-365, 2763A-377 (2000), adding CEA sec. 2(d), which at that time exempted off-exchange swaps in an “excluded commodity” entered into by “eligible contract participants.” See 7 U.S.C. 2(d) (2000 Main Ed.).
The CFMA also introduced definitions of the terms “eligible contract participant” and “excluded commodity.” See CEA sec. 1a(18) and (19), 7 U.S.C. 1a(18) and (19), respectively. The definition of “excluded commodity” is in effect unchanged today and is discussed further below. The definition of “eligible contract participant” has been subject to only technical amendments.
The CFMA restructured CEA sec. 5, 7 U.S.C. 7, applying a principles-based regulation philosophy to set out designation criteria and core principles with which a DCM must comply, rather than prescribing strict requirements. See CFMA sec. 110, 114 Stat. at 2763A-384.
Last, the CFMA added CEA sec. 5c, 7 U.S.C. 7a-2, which introduced a provision for DCMs to list a contract for trading by providing to the Commission a certification that the contract complies with the CEA (including Commission regulations thereunder). See CFMA sec. 113, 114 Stat. at 2763A-399. CEA sec. 5c will be discussed in detail below.
In the wake of the 2008 financial crisis, Congress created a framework within the CEA for the on-exchange execution, clearing and reporting of vast portions of the previously OTC swap markets. The Wall Street Transparency and Accountability Act of 2010 (Dodd-Frank Act) expressly extended the CFTC's “exclusive jurisdiction” to encompass “transactions involving swaps.” 29 Among other things, the Dodd-Frank Act also:
29 See Public Law 111-203, sec. 722(a)(1), 124 Stat. 1376, 1672 (2010), amending CEA sec. 2(a)(1)(A), 7 U.S.C. 2(a)(1)(A). This CEA section expressly extends 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] . . . .” The CFTC shares jurisdiction over mixed swaps and security futures with the SEC, and the SEC has sole jurisdiction over security-based swaps. See CEA sec. 1a(44), 7 U.S.C. 1a(44) and secs. 3(a)(55) and 3(a)(68) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. 78c(a)(55) and 78c(a)(68). See also KalshiEX, 172 F.4th at 226 (“The Dodd-Frank Act of 2010 amended the Act again, . . . expanding the CFTC's exclusive jurisdiction ‘with respect to accounts, agreements . . . and transactions involving swaps or contracts of sale of a commodity for future delivery . . . traded or executed on a [DCM.]’ 7 U.S.C. 2(a)(1)(A).”).
• added a new definition of the term “swap” to the CEA; 30
30 CEA sec. 1a(47), 7 U.S.C. 1a(47).
• directed the CFTC and the SEC to jointly adopt a rulemaking to further define the term “swap” (among other terms) in consultation with the Federal Reserve; 31
31 Dodd-Frank Act sec. 712(d)(1), codified at 15 U.S.C. 8302(d)(1) (directing the CFTC and SEC to undertake joint rulemaking on covered topics). See Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 77 FR 48208 (Aug. 13, 2012).
• required retail swap transactions ( i.e., transactions not between eligible contract participants) to be entered into on a DCM; 32
32 CEA sec. 2(e), 7 U.S.C. 2(e). The term “eligible contract participant” is defined in CEA sec. 1a(18), 7 U.S.C. 1a(18), and generally includes only institutional investors.
• created a new type of trading facility—a swap execution facility (SEF)—where eligible contract participants can transact swaps; 33 and
33 CEA sec. 5h, 7 U.S.C. 7b-3. A SEF may make any swap available for trading to eligible contract participants.
• adopted CEA section 5c(c)(5)(C), a “Special Rule for review and approval of event contracts and swaps contracts,” 34 which is discussed in detail below.
34 7 U.S.C. 7a-2(c)(5)(C).
In sum, under current law, futures contracts, options on futures contracts and retail swaps must be transacted on DCMs, and the CFTC oversees DCMs and SEFs and trading in these instruments. In this document, the term “prediction market” refers to a CFTC-registered DCM or SEF that offers event contracts in the form of swaps or futures contracts for trading. Depending on their underlying events, other event contracts may be security-based swaps or other instruments subject to the jurisdiction of the SEC. 35
35 See 7 U.S.C. 1a(47)(B) (providing “exclusions” from the definition of “swap” under the CEA, including for securities such as security based-swaps, certain options, and debt securities); see also, e.g., 15 U.S.C. 78c(a)(68)(A) (defining “security-based swap” under the Exchange Act).
CEA section 1a(47)(A)(ii) defines “swap” to include “any agreement, contract, or transaction . . . that provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) 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.” 36 Also, CEA section 1a(47)(A)(i) defines the term “swap” to include “any agreement, contract, or transaction . . . that is a put, call, cap, floor, collar, or similar option of any kind that is for the purchase or sale, or based on the value, of 1 or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind.” 37 Event contracts traded as swaps under CEA section 1a(47)(A)(i) are sometimes referred to as binary options, a type of swap which is an “option whose payoff is either a fixed amount or zero.” 38
36 7 U.S.C. 1a(47)(A)(ii).
37 7 U.S.C. 1a(47)(A)(i).
38 See CFTC, Futures Glossary, available at https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CFTCGlossary/index.htm#B. (last visited May 18, 2026).
The definition of what constitutes a futures contract is not set out in the CEA but rather has been developed in court decisions. 39 Event contracts structured as futures contracts would have the key characteristics of futures contracts such as standardization, futurity, fungibility, and offset. 40
39 See CFTC v. Co Petro Marketing Group, Inc., 680 F.2d 573 (9th Cir. 1982), Transnor (Bermuda) Ltd. v. BP N. Am. Petroleum, 738 F. Supp. 1472 (S.D.N.Y. 1990), and Salomon Forex, Inc. v. Tauber, 8 F.3d 966 (4th Cir. 1993). See also In re Stovall, [1977-1980 Transfer Binder] Comm. Fut. L. Rep. (CCH) 20,941 (CFTC Dec. 6, 1979), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrceacases/documents/ceacases/stovall-dec1979-decision-13.pdf.
40 Since futures contracts are specifically excluded from the statutory definition of “swap,” these event contracts are not swaps. CEA sec. 1a(47)(B), 7 U.S.C. 1a(47)(B), provides that “[t]he term ‘swap’ does not include—(i) any contract of sale of a commodity for future delivery (or option on such contract) . . . .”
Because of CEA section 2(e) and the exchange trading requirement, respectively, a prediction market that offers event contracts for trading by the general public in the form of swaps or futures contracts must register with the 41 These prediction markets must comply with the substantive and procedural requirements that apply, more generally, to the listing for trading by a DCM of derivative contracts. 42 Further, a prediction market registered as a DCM or SEF is subject to statutory requirements to only list or permit trading in derivative contracts that are not readily susceptible to manipulation; 43 to enforce compliance with contract terms and conditions; 44 and to monitor trading on the exchange in order to prevent manipulation, price distortion, and disruption of the settlement process through market surveillance, compliance, and enforcement practices and procedures. 45
41 See CEA sec. 2(e), 7 U.S.C. 2(e) (requirement that persons other than eligible contract participants transact swaps on a DCM) and CEA sec. 4(a), 7 U.S.C. 6(a) (requirement to transact futures contracts on a DCM). The term “eligible contract participant” is defined in CEA sec. 1a(18), 7 U.S.C. 1a(18), and generally includes only institutional investors. In addition to DCMs, a SEF may make any swap, including an event contract that is a swap, available for trading. See CEA sec. 5h, 7 U.S.C. 7b-3. However, swap trading on a SEF is not available to the general public, but rather only to eligible contract participants.
42 See generally CEA sec. 5, 7 U.S.C. 7. SEFs are subject to similar requirements. See CEA sec. 5h, 7 U.S.C. 7b-3.
43 See Core Principle 3 for DCMs, CEA sec. 5(d)(3), 7 U.S.C. 7(d)(3), and Core Principle 3 for SEFs, CEA sec. 5h(f)(3), 7 U.S.C. 7b-3(f)(3).
44 See Core Principle 2 for DCMs, CEA sec. 5(d)(2), 7 U.S.C. 7(d)(2), and Core Principle 2 for SEFs, CEA sec. 5h(f)(2), 7 U.S.C. 7b-3(f)(2).
45 See Core Principle 4 for DCMs, CEA sec. 5(d)(4), 7 U.S.C. 7(d)(4), and Core Principle 4 for SEFs, CEA sec. 5h(f)(4), 7 U.S.C. 7b-3(f)(4).
2. CEA Section 5c(c)(5)(C)
In 2000 the CFMA added CEA section 5c, which introduced a provision for DCMs to list a contract for trading by providing to the Commission a certification that the contract complies with the CEA and Commission regulations. 46 This document refers to event contracts which a prediction market certifies to be in compliance with the CEA and Commission regulations as “self-certified event contracts” and to this process as “self-certification.” The Dodd-Frank Act revised CEA section 5c(c) in 2010 to include a new paragraph (5)(C), under which the Commission is authorized to prohibit CFTC-registered exchanges and clearinghouses from listing for trading or making available for clearing particular types of event contracts, if the Commission determines that such contracts are contrary to the public interest. 47 This document refers to CEA section 5c(c)(5)(C) as the Special Rule.
46 See 7 U.S.C. 7a-2 (2000 Main Ed.). Before 2000, the CEA required that a DCM obtain the Commission's prior approval before listing a contract for trading. See infra, note 60. CEA section 5c, as added by the CFMA, also includes a provision for a DCM to seek prior approval of a contract; however, it is not mandatory. See 7 U.S.C. 7a-2(c)(4).
47 7 U.S.C. 7a-2(c)(5)(C), amended by Dodd-Frank Act, Public Law 111-203, sec. 745(b), 124 Stat. 1376, 1735 (2010).
Specifically, clause (i) in the Special Rule provides that, “[i]n connection with the listing of agreements, contracts, transactions, or swaps in excluded commodities 48 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 [CEA] section la(2)(i)), 49 by a [DCM] or [SEF], the Commission may determine that such agreements, contracts, or transactions are contrary to the public interest if the agreements, contracts, or transactions involve—(I) activity that is unlawful under any Federal or State law; (II) terrorism; (III) assassination; (IV) war; (V) gaming; or (VI) other similar activity determined by the Commission, by rule or regulation, to be contrary to the public interest.” 50
48 The term “excluded commodity” is defined in CEA section 1a(19), 7 U.S.C. 1a(19), as: “(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; (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; (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; or (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.”
49 There is no “section 1a(2)(i)” in the CEA. The Commission believes that the reference in CEA section 5c(c)(5)(C)(i) to “section 1a(2)(i)” is a typographical or drafting error.
50 CEA sec. 5c(c)(5)(C)(i), 7 U.S.C. 7a-2(c)(5)(C)(i).
Clause (ii) in the Special Rule provides that “[n]o agreement, contract or transaction 51 determined by the Commission to be contrary to the public interest under clause (i) may be listed or made available for clearing or trading on or through a registered entity.” 52
51 CEA sec. 5c(c)(5)(C)(i) applies in connection with the listing of agreements, contracts, transactions, or swaps by a DCM or SEF. 7 U.S.C. 7a-2(c)(5)(C)(i). The Commission notes that similar phrases both later in CEA sec. 5c(c)(5)(C)(i) and in CEA sec. 5c(c)(5)(C)(ii) refer only to “agreements, contracts, or transactions . . . .” The Commission interprets either phrase to encompass derivative contracts listed for trading on or through DCMs or SEFs, and for simplicity refers to “agreements, contracts, transactions or swaps” as “event contracts” herein.
52 CEA sec. 5c(c)(5)(C)(ii); 7 U.S.C. 7a-2(c)(5)(C)(ii). The term “registered entity” includes a DCM, a SEF, and a derivatives clearing organization registered with the CFTC. See CEA sec. 1a(40); 7 U.S.C. 1a(40).
It is notable that the Special Rule applies in addition to the other requirements applicable to event contracts traded on a prediction market. That is, the Special Rule is not the only way in which a prediction market could be prohibited from listing an event contract and the Special Rule applies only if the event contract is certified to be in compliance with all other requirements (because an event contract can be listed only if it is certified to be in compliance). 53 The Commission therefore preliminarily believes that, in general, the Special Rule should have only a limited application in cases where the listing, trading, and clearing of event contracts that would be otherwise in compliance with all applicable requirements should be prohibited because the event contracts involve an activity enumerated in clause (i) of the Special Rule and are contrary to the public interest.
53 In the self-certification process, the prediction market bears the burden to assess and certify compliance of event contracts with the CEA and Commission regulations. If the prediction market certifies that the event contracts are in compliance, the prediction market can list the event contracts for trading on the next business day. See 17 CFR 40.2(a)(2). See also infra, note 58.
Apart from the Special Rule, the Commission has limited authority to prohibit a prediction market from listing self-certified event contracts. If Commission staff identify concerns with a self-certified event contract submission ( e.g., concerns that a contract may be readily susceptible to manipulation), the Commission could, pursuant to § 40.2(c), stay the listing of the event contracts during either the pendency of Commission proceedings for filing a false certification or during the pendency of a petition to alter or amend the event contract terms and conditions. See 17 CFR 40.2(c). The Commission could also initiate an enforcement action alleging that the prediction market failed to comply with part 40 requirements or applicable core principles ( e.g., failure to comply with the prediction market's obligation to list only contracts that are not readily susceptible to manipulation).
The Commission preliminarily interprets the Special Rule to require the Commission to engage in a three-step inquiry before it may determine an event contract is prohibited thereunder. 54 First, the Commission 55 Second, the Commission must determine whether the event contracts “involve” an activity enumerated in paragraph (i) of the Special Rule (each, an Enumerated Activity) or other similar activity as determined by the Commission by rule or regulation (similar activity). Third, if the Commission determines that the event contracts involve such activity, the Commission may block a contract from being listed if it undertakes a public interest analysis and determines the event contract is affirmatively against the public interest. The Commission interprets the Special Rule to provide that the event contract may not be listed or made available for clearing or trading by a prediction market if the Commission affirmatively finds that (i) the contract is an event contract, (ii) the event contract involves an Enumerated Activity or similar activity, and (iii) the event contract is contrary to the public interest.
54 Several commenters on the Commission's Advance Notice of Proposed Rulemaking on Prediction Markets, see infra note 154, wrote that the Special Rule requires a two-step inquiry. See, e.g., Letter from CME Group, Inc. 9 (Apr. 30, 2026); Letter from Harry Crane, Rutgers University, 2 (Apr. 30, 2026). Those commenters treated the second and third steps below as the two steps required; the Commission simply notes here that an additional initial step is to determine if the agreements, contracts, transactions, or swaps are event contracts. The letters are available on the Commission's website. See infra note 155.
55 Event contracts in certain excluded commodities are not subject to the Special Rule. See infra section II.B.
The Commission also notes that the Special Rule does not provide that event contracts involving Enumerated Activities are contrary to the public interest per se. Rather, if event contracts involve an Enumerated Activity, the Commission “may” determine that they are contrary to the public interest and prohibited from trading. 56
56 CEA sec. 5c(c)(5)(C)(i); 7 U.S.C. 7a-2(c)(5)(C)(i). In the two instances where the Commission applied the Special Rule, it made an affirmative finding that the event contracts in question were contrary to the public interest. See infra sections I.C.5 and I.C.7.
In 2011, the Commission adopted final rules under part 40 of the Commission's regulations, including new Regulation 40.11. 57 The Commission adopted Regulation 40.11 to implement the Special Rule as part of broader changes to the Commission's part 40 regulations. 58
57 Provisions Common to Registered Entities, 76 FR 44776 (July 27, 2011).
58 Part 40 of the Commission's regulations, more generally, implements the contract and rule submission requirements for registered entities set forth in CEA section 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 a self-certification that the contract complies with the CEA, including the CFTC's regulations thereunder. 17 CFR 40.2; 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-certification 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. 17 CFR 40.3; see also CEA sec. 5c(c)(4)-(5), 7 U.S.C. 7a-2(c)(4)-(5). Amendments to an existing derivative contract also must be submitted to the Commission either by way of self-certification or for prior Commission approval. 17 CFR 40.5, 40.6.
3. Past Provisions for Contract Approval and History of the Current Text of the Special Rule
The Special Rule provides that the Commission may determine that certain event contracts are “contrary to the public interest.” 59 In understanding this provision, it is useful to review the prior application of a public interest standard to a DCM's listing of a contract for trading, and the legislative history of the Special Rule. The Commission preliminarily believes that the following precedents and legislative history indicate that the public interest standard to be applied in the Special Rule is different from the public interest standard previously applied prior to enactment of the CFMA in 2000.
59 CEA sec. 5c(c)(5)(C)(i), 7 U.S.C. 7a-2(c)(5)(C)(i).
As noted above, prior to the CFMA, CEA section 5(7) required that a DCM demonstrate that each futures contract it listed “will not be contrary to the public interest.” 60 The legislative history of this provision, from 1974 when the CEA was enacted, indicated that an “economic purpose” test was incorporated into the public interest requirement. 61 Based on this, prior to 2000 the Commission took the position that every proposed futures contract must satisfy an economic purpose test and, in addition, a broader public interest test. 62
60 7 U.S.C. 7(7) (1994 Ed. and Supp. V). At that time, a DCM was required to obtain from the Commission a designation as a contract market for each futures contract that it listed for trading. See Derivatives Regulation sec. 6.04[C.2.c.iii].
61 See id. The Derivatives Regulation authors explain that in connection with the adoption of the CEA in 1974, the House of Representatives proposed to explicitly require a DCM to demonstrate that its contracts could be used by commercial businesses for price discovery or to hedge the risk of price fluctuations, but the Senate instead required a DCM to demonstrate “that transactions for future delivery in the commodity for which designation as a contract market is sought will not be contrary to the public interest,” which is the provision that was added to the CEA. Id. (citing H.R. Rep. No. 975, 93d Cong., 2d Sess. 103 (Apr. 4, 1974) and S. Rep. No. 1131, 93d Cong., 2d Sess. 72 (Aug. 29, 1974)). However, the Conference Committee report stated that the “broader language of the Senate provision would include the concept of the ‘economic purpose’ test provided in the House bill subject to the final test of the `public interest.' ” H.R. Rep. No. 1383, 93d Cong., 2d Sess. 14 (Sept. 27, 1974).
62 The Commission adopted “Guideline No. 1” to assist DCMs in preparing applications for product approval. See Guideline on Economic and Public Interest Requirements for Contract Market Designation, 40 FR 25849 (June 19, 1975). Guideline No. 1 stated that DCMs should make an affirmative showing that a proposed futures contract was “reasonably expected to serve, on more than occasional basis,” as a price discovery or hedging tool for commercial users of the underlying commodity. Subsequently, the Commission revised Guideline No. 1, publishing it as appendix A to part 5 of the Commission's regulations. See 47 FR 49832 (Nov. 3, 1982). As revised in 1982, Guideline No. 1 was updated to address proposed innovations in the trading of futures contracts, including futures contracts on financial instruments and on various indexes and cash-settled futures contracts. Guideline No. 1 was again revised in 1992. 57 FR 3518 (Jan. 30, 1992). The 1992 revisions, among other things, eliminated the guideline that a DCM provide a further, separate justification that the proposed contract would be quoted and disseminated for price basing, or used as a means of hedging against possible loss through price fluctuation on more than an occasional basis, noting that “the economic purpose of a contract is often implicit, or encapsulated, in the exchange's demonstration that the terms and conditions of the proposed contract meet the criteria of the Guideline [No. 1].” 57 FR at 3521-22, note 9. Finally, Guideline No. 1 was further revised and streamlined in 1999. 64 FR 29217 (June 1, 1999). When former CEA section 5(7) was repealed by the CFMA, Guideline No. 1 was withdrawn by the Commission.
Although the combined public interest/economic purpose test was applied by the Commission from 1974 to 2000 and retained the support of Congress through the various amendments to the CEA during that period, it was not without criticism. 63 In 1976, a Commission-established Advisory Committee endorsed an approach where listing a contract for trading would not require an affirmative conclusion that the contract served an economic purpose. 64 The Advisory Committee noted that futures contract prices guide economic decisions, and therefore any actively traded futures contract would provide economic benefits, unless it is flawed. 65 By 66
63 For example, prior to CFTC reauthorization in 1982, some DCMs proposed a repeal or amendment of the public interest test. See CFTC Reauthorization: Hearings before the Subcomm. on Conservation, Credit, and Rural Development of the Comm. on Agriculture, House of Representatives, 97th Cong., 2d Sess., on H.R. 5447, Feb. 23, 24, and 25, 1982, at 269 (testimony of Lee Berendt, Comex, that contract approval “could be left to free market forces”), 309 (statement of Clayton Yeutter, Chicago Mercantile Exchange, that “the marketplace should be allowed to decide whether a contract proposed by an exchange is useful and beneficial so long as that contract is not in violation of any provision of” the CEA or regulations thereunder), and 353 (statement of Alvin Donahoo, Minneapolis Grain Exchange, that the contract approval process “is very costly and time consuming for the Exchange”), available at https://catalog.hathitrust.org/Record/002757479. But Congress did not make the suggested changes to the CEA.
64 See Report of the CFTC Advisory Committee on the Economic Role of Contract Markets 8 (1976), available at https://catalog.hathitrust.org/Record/000751730.
65 Id. (“The Committee endorses the Commission's demonstrated approach to this evaluation of the public interest—that a futures contract should only be denied designation if a finding is made that the trading would be against the public interest. . . . [F]utures markets
66 The Advisory Committee concluded that “[i]f a newly drawn contract succeeds, it can produce substantial benefits for the economy. Lack of success generally means simply that the contract is not traded.” Id.
The public interest/economic purpose test did not prevent the Commission from approving an increasing variety of futures contracts in the 1980s and 1990s. These included futures contracts based on: interest rates derived from the securitization of mortgages, 67 rates of return on Eurodollar deposits, 68 equity indices, 69 the consumer price index, 70 corporate bond indices, 71 catastrophe insurance, 72 barge freight rates, 73 corn harvest yields in specific regions, 74 and temperature indices. 75
67 See 1975 approval of GNMA CDR Mortgage Backed Certificate futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/255.
68 See 1981 approval of Eurodollar Time Deposit Rate futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/326.
69 See 1982 approval of Value Line Stock Index futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/455.
70 See 1985 approval of CPI-U futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/445.
71 See 1987 approval of Long Term Corporate Bond Index futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/231.
72 See 1992 approval of Catastrophe Insurance futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/223.
73 See 1992 approval of Barge Freight Rate Index futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/295.
74 See 1995 approval of North Dakota Spring Wheat Yield Insurance futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/737.
75 See 1999 approval of Atlanta Degree Days Index futures contract, available at https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/1032.
The Commission preliminarily believes that this history demonstrates that the public interest/economic purpose test, despite its longevity, was controversial and difficult to apply. And experience showed that the public interest/economic purpose test was of limited relevance to deciding whether a futures contract should be prohibited, because no standard for finding that a futures contract does not serve an economic purpose has ever been applied to prohibit any futures contract.
As noted above, in 2000 the CFMA repealed CEA section 5(7) and added CEA section 5c, which among other things introduced a provision for DCMs to list a contract for trading by providing to the Commission a certification that the contract complies with the CEA and Commission regulations. 76 Following the enactment of the CFMA, the Commission was no longer required to find that a contract is not contrary to the public interest before listing of the contract.
76 See 7 U.S.C. 7a-2 (2000 Main Ed.).
The Special Rule was added to the CEA by section 745(b) of the Dodd-Frank Act, which amended the requirements for contract and rule submission by adopting a new version of CEA section 5c(c). 77 The only discussion of the Special Rule in the legislative history of the Dodd-Frank Act is a short colloquy on the Senate floor between the late Senator Diane Feinstein and Senator Blanche Lincoln, then-Chair of the Senate Committee on Agriculture, Nutrition, and Forestry. 78 In this colloquy, the two Senators appear to be talking about two different types of derivatives contracts, and Senator Lincoln (the author of the Special Rule) never expressly adopts Senator Feinstein's reasoning.
77 7 U.S.C. 7a-2(c), amended by Dodd-Frank Act section 745(b), 124 Stat. 1376, 1735 (2010). The new section 5c(c) was added relatively late in the process of drafting the Dodd-Frank Act. It first appears in the “Dodd-Lincoln Substitute Amendment” on April 29, 2010, where its text is the same as in the final law. See Amendment No. 3739 to S.3217, Calendar No. 349, at 728, available at https://www.congress.gov/111/bills/s3217/BILLS-111s3217as.pdf. Notably, a new section 5c(c) does not appear in the April 15, 2010 Dodd draft of S.3217, available at https://www.congress.gov/111/bills/s3217/BILLS-111s3217pcs.pdf. The new section 5c(c) also is not mentioned in S. Rep. No. 111-176, The Restoring American Financial Stability Act of 2010 (April 30, 2010), available at https://www.congress.gov/committee-report/111th-congress/senate-report/176/1?outputFormat=pdf.
78 156 Cong. Rec. S5906-07 (daily ed. July 15, 2010) (“Event Contracts”), available at https://www.congress.gov/111/crec/2010/07/15/CREC-2010-07-15-senate.pdf (Feinstein-Lincoln Colloquy).
Senator Feinstein describes a broad swath of speculative derivatives, saying, “[s]ince 2000, derivatives traders have bet billions of dollars on derivatives contracts that served no commercial purpose at all and often threaten the public interest,” before expressing that the Special Rule should authorize the CFTC to “determine that a contract is a gaming contract if the predominant use of the contract is speculative as opposed to a hedging or economic use.” 79 The Commission preliminarily believes that Senator Feinstein is suggesting that the activity of “gaming” in the Special Rule would encompass “billions of dollars” of contracts— i.e., the derivative contracts that she believes contributed to the 2008 crisis. 80
79 Id.
80 Given the precedents for approval of a wide variety of futures contracts under the public interest/economic purpose test described above, it is unlikely that this test would have led the Commission to prohibit the contracts to which Senator Feinstein refers.
Senator Lincoln, on the other hand, says the purpose of the Special Rule is “to prevent the creation of futures and swaps markets that would allow citizens to profit from devastating events and also prevent gambling through futures markets.” 81 That is, in contrast to Senator Feinstein's reference to past contracts, Senator Lincoln looked at types of event contracts that could potentially be developed in the future.
81 Feinstein-Lincoln Colloquy.
The Commission preliminarily believes that the colloquy between Senators Feinstein and Lincoln does not indicate an intent to revive the public interest/economic purpose test that applied before the CFMA. 82 The “billions of dollars on derivatives contracts that served no commercial purpose at all and often threaten the public interest” to which Senator Feinstein refers would not be subject to the Special Rule, and arguably would not be prohibited under the pre-CFMA test. And Congress was aware of the history surrounding the economic purpose test but chose not to incorporate it into the text of the Special Rule. In any case, the Commission notes that a floor colloquy is not a definitive source of Congressional intent. 83 For these reasons, and in addition to the generally limited value of legislative history, 84 the Commission preliminarily 85
82 That is, and for clarity, the Commission preliminarily believes that the reasoning in a Commission order in 2012 prohibiting certain political event contracts was incorrect. See section I.C.5.
83 See, e.g., NLRB v. SW Gen., Inc., 580 U.S. 288, 307 (2017) (contradictory statements of two Senators are “a good example of why floor statements by individual legislators rank among the least illuminating forms of legislative history”); Rhode Island v. Narragansett Indian Tribe, 19 F.3d 685, 699 (1st Cir. 1994) (rule that individual legislators' statements do not have controlling effect “applies fully to the special case of statements by those members of Congress most intimately associated with a bill: its floor manager and its sponsors”) (citing Weinberger v. Rossi, 456 U.S. 25, 35 n.15 (1982) (“The contemporaneous remarks of a sponsor of legislation are certainly not controlling in analyzing legislative history.”)).
84 See, e.g., Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546, 568 (2005) (“Not all Conroy v. Aniskoff, 507 U.S. 511, 519 (1993) (Scalia, J., concurring) (“The greatest defect of legislative history is its illegitimacy.”).
85 See Derivatives Regulation sec. 6.04[C.2.c.iv] (the Special Rule is “a different type of public interest standard” as compared to the pre-CFMA standard).
Senator Lincoln continued the colloquy by saying, “[t]he Commission needs the power to, and should, prevent derivatives contracts that are contrary to the public interest because they exist predominantly to enable gambling through supposed ‘event contracts.’ It would be quite easy to construct an ‘event contract’ around sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament. These types of contracts would not serve any real commercial purpose. Rather, they would be used solely for gambling.” Senators Feinstein and Lincoln then conclude the colloquy by saying that the Special Rule “will also” authorize the Commission to prevent trading in event contracts relating to national security events such as terrorism and war. 86
86 Feinstein-Lincoln Colloquy.
The Commission preliminarily believes that the colloquy between Senators Feinstein and Lincoln establishes that Congress was aware that event contracts based on “sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament” could potentially be submitted under CEA section 5c(c), but Congress chose not to prohibit event contracts involving those sorts of events. Instead, the Special Rule confirms the CFTC's jurisdiction over event contracts and sets out a process by which the CFTC “may” find such event contracts to be contrary to the public interest. Notably, the statute does not authorize the Commission to impose a per se prohibition on the listing of such event contracts independent of a public interest determination.
The Commission has carefully considered the floor statement of Senator Lincoln, expressing concern that event contracts on sporting events might “not serve any real commercial purpose” and “would be used solely for gambling.” 87 The Commission preliminarily shares the underlying concern that the Special Rule should prevent the use of prediction markets as venues for event contracts that have neither commercial utility nor informational value. This proposal's framework operationalizes that concern through contract-specific application of the public interest factors set forth in proposed § 40.11(a)(5) and (a)(6), rather than through a categorical prohibition based on the identity of the underlying event. Former Senator Lincoln's own comment in response to the Commission's Advance Notice of Proposed Rulemaking on Prediction Markets supports the appropriateness of this approach. 88 Senator Lincoln explained that “[s]ome contracts genuinely should be prohibited—direct references to specific acts of terrorism, named-individual assassinations, military operations,” while “[o]ther contracts that help users manage real economic exposure should not be prohibited.” 89 Senator Lincoln specifically identified “the Super Bowl” as an example of a sporting event with “strong commercial value” because of its “major impacts on advertising, apparel sales and the hospitality industry.” 90 The framework proposed herein reflects these considerations.
87 Id.
88 Letter from Blanche Lincoln, Lincoln Policy Group (Apr. 30, 2026). The letter is available on the Commission's website. See infra note 155.
89 Id.
90 Id.
C. Commission History With Prediction Markets
1. Staff Actions
The Commission's Division of Market Oversight has issued staff no-action positions which provide that, subject to specified terms, the Division will not recommend to the Commission enforcement action with respect to two small-scale, not-for-profit markets that offer trading in political and economic indicator event contracts for educational and research purposes.
The first no-action position, issued in 1992, involves the Iowa Electronic Markets (IEM), an online electronic trading facility “where contract payoffs are based on real-world events such as political outcomes, companies' earnings per share (EPS), and stock price returns. The market is operated by University of Iowa Henry B. Tippie College of Business faculty as an educational and research project.” 91 The staff no-action position limits the number of traders who can access the market at any one time and the maximum amount any single trader can risk. 92
91 See IEM home page, available at https://iem.uiowa.edu/iem/ (last visited May 18, 2026).
92 See CFTC Staff Letter No. 93-66 issued to the University of Iowa (June 18, 1993), available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/93-66.pdf. This no-action position superseded the operative terms of a more limited no-action position issued in 1992.
The CFTC staff no-action position did not extend to EPS or stock price returns. The University of Iowa did not request a no-action position as to stock price returns, and the CFTC staff referred the matter of EPS to the SEC staff. See CFTC Staff Letter No. 93-66 at 5. 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.” 93 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. 94
93 See “What is PredictIt?” available at https://www.predictit.org/support/what-is-predictit (last visited May 18, 2026).
94 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. 95 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.” 96 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.” 97 The Commission elaborated as follows: 98
95 2008 Concept Release, supra note 1, 73 FR at 25670, 25673.
96 Id. at 25670.
97 Id. at 25669.
98 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?” 99
99 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
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. 111 112
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 CEA sec. 5c(c)(4)-(5), 7 U.S.C. 7a-2(c)(4)-(5). Amendments to an existing derivative contract also must be submitted to the Commission either by way of self-certification or for prior Commission approval. 17 CFR 40.5, 40.6.
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
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 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 be controlled by for ?” 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 is 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
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 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
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 v. 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 v. 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 v. 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
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 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
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
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, curr

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FR_PRORULE_2026-11854. Check the current official text before relying on it. Not legal advice.