CFTC Takes Aim at Event Contracts Linked to Terrorism, War

• First proposed CFTC rule aimed specifically at prediction markets
• 45-day public comment period will follow publication of the proposal
• Trump has pledged to implement broader prediction-market regulations

In its first proposed rule aimed specifically at the fast-growing prediction markets industry, the Commodity Futures Trading Commission (CFTC) is targeting some of the most controversial event contracts offered by prediction-market exchanges.

Tapping into the Commodities Exchange Act (CEA), the CFTC wants to examine and potentially limit or eliminate prediction markets’ ability to offer event contracts linked to “conduct that is unlawful under federal or state law.”

That’s a broad field, but the commission is targeting derivatives tied to terrorism, war and other conduct deemed not to be in the public interest.

The Commission has continued to observe growth in the number and variety of event contracts listed for trading by CFTC-registered entities, including contracts referencing sporting events,” said the commission in a statement. “In light of these developments, the proposal would establish a structured framework for evaluating whether such contracts involve an activity enumerated in Section 5c(c)(5)(C) of the Commodity Exchange Act —activity that involves terrorism, assassination, war, gaming, or conduct that is unlawful under federal or state law—and, if so, whether that contract is contrary to the public interest.”

The CFTC’s proposal now enters a 45-day public comment period.

An Early Move to Assert CFTC Authority

The CFTC is the federal agency with regulatory responsibility for prediction markets and it’s looking to assert that authority amid a slew of state-level legal challenges. Moving to clampdown on the most controversial event contracts is one example of the commission’s efforts to make clear it, not the states, has jurisdiction over prediction markets.

Trump, who appointed CFTC Chairman Michael Selig, recently attacked Democrats in some states that are challenging prediction markets in court or, in the case of Minnesota, banning event contracts.

“The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation,” said Selig in the statement. “This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward.”

What the CFTC’s Proposed Rule Means for Sports Event Contracts

In March, the CFTC released a Notice of Proposed Rulemaking (NPRM), in which it proposed a process through the commission can define what it describes as “key statutory terms” such as “gaming” and “involve.”

One takeaway is that there are implications for sports event contracts, the derivatives that ushered the prediction markets industry into the spotlight.

For the moment, the CFTC appears to be on board with prediction market operators offering derivatives that are akin to traditional sports wagers, but the commission notes it’s monitoring some corners of the sports event contract market.

“Within gaming, the Commission aims to permit contracts settled on aggregate sports outcomes with objective data and integrity infrastructure, while prohibiting pure‑chance games and high‑risk sports‑adjacent designs (e.g., injury, officiating‑only, discrete actions, altercations, pre‑collegiate events),” according to the proposed rule.