CFTC proposes new framework for prediction market contracts

(PRESS RELEASE) -- The Commodity Futures Trading Commission published a Notice of Proposed Rulemaking seeking public comment on amendments to CFTC Regulation 40.11 and the addition of Appendix F to part 40.

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

In March, the Commission published an Advanced Notice of Proposed Rulemaking relating to prediction markets. This NPRM is narrowly tailored to address one aspect of that ANPRM and that ANPRM may lead to further rulemaking. The proposal sets out a 90-day review process ensuring critical procedural protections and a set of public interest factors the Commission would apply on a contract-by-contract basis. The proposal also defines key statutory terms, including “involve” and “gaming.”