CFTC issues Advisory and Advance Notice of Proposed Rulemaking for prediction markets

As the tension between US states and the Commodity Futures Trading Commission (CFTC) builds as to whether event contracts in the prediction markets constitute gambling (regulated by state law) or financial derivatives (regulated by federal law), the CFTC issued a Prediction Markets Advisory (Advisory) and an Advance Notice of Proposed Rulemaking and request for comments (Notice) on March 12, 2026. Although “event contracts” are not defined in the Commodity Exchange Act (CEA), the CFTC asserts that they are a type of derivative falling under the broad definition of “swap” in the CEA, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, because the settlement is based on the outcome of an underlying occurrence or event. As such, the CFTC has claimed exclusive jurisdiction over and taken steps to regulate the rapidly growing prediction markets.¹

The Advisory 

In the Advisory, the Division of Market Oversight (DMO) of the CFTC provides guidance to designated contract markets (DCMs), the exchanges on which derivatives are listed and traded. Noting that DCMs have self-regulatory obligations and are “front-line regulators” for the contract markets they operate, the CFTC references the statutory “Core Principles” set forth in the CEA² and applicable CFTC rules and regulations as they relate to DCMs. For example, DCMs may not list contracts that are prone to market manipulation, price distortion, abusive practices or unfair trading. DCMs also must conduct real-time monitoring of such practices, including whether or not any person is defrauding or attempting to defraud another or engaging in price manipulation or insider trading. 

The CFTC highlights existing regulatory guidance for DCMs³ as it relates to cash-settled event contracts that may create an incentive to participants to manipulate, coerce or influence the underlying occurrence, and focuses on sports-related event contracts. DCMs are advised to engage with CFTC staff to ensure such risks are recognized, accounted for and mitigated with appropriate controls, preferably including a settlement outcome that depends on the “aggregate performance of multiple participants over an extended period of play” rather than on the actions of one individual or event. In line with this approach, on March 19, 2026, Major League Baseball (MLB) entered into both a memorandum of understanding with the CFTC to establish a cooperative framework to protect professional baseball in the context of prediction markets, and an exclusive sponsorship deal with Polymarket, a leading prediction-market platform, joining a number of other professional sports leagues in the prediction markets space.⁴ MLB has stated that its contract with Polymarket limits contract offerings, namely excluding contracts based on individual actions, or the decisions of managers or umpires, similar to the guidance provided by the CFTC to DCMs in the Advisory.

The Advance Notice of Proposed Rulemaking; Request for Comments

Given the speed at which the prediction markets are growing, specifically the number of contracts listed for trading and the diversity of events underlying such contracts, the CFTC is seeking information from the public to design a regulatory framework that will provide effective guardrails without hampering innovation. In the Notice, the CFTC sets forth roughly 40 questions for public comment covering the following primary issues: 

(1) Are the existing rules and regulations governing derivatives contracts, including the core principles applicable to DCMs, sufficient to govern event contracts, or are new parameters required for the prediction markets? 
(2) How should the CFTC address the possibility of manipulation, abusive trade practices and insider trading?
(3) What should the market structure look like for the prediction markets? (e.g., position limits, margin requirements, and whether retail traders should be treated differently from institutional traders.) What are operational risks specific to event contracts?
(4) How should the agency address technical issues, e.g., blockchain-based prediction markets?
(5) Are there specific event contracts that should be prohibited, either because they are illegal on their face or against the public interest? Examples include certain political events, war, assassinations, and terrorism, where bidding on whether such an event will take place may encourage bad or potentially criminal behavior.
(6) Is there a legitimate purpose behind the prediction markets that justify the potential risks they may create in the financial markets or society at large, e.g., managing risks, price discovery? Should the CFTC revive the “economic purpose” test from a past version of the CEA (repealed in 2000), or elements thereof, for purposes of event contracts? How do event contracts compare to insurance? How are event contracts different from “gaming”? Is an event contract a “swap” under the CEA?

Notably, the CFTC takes a softer tone in the Notice in terms of whether it has exclusive jurisdiction over event contracts, as compared to the Advisory and the related press releases. Participants in the prediction markets should continue to monitor developments as to the rules and regulations relevant to prediction markets, both under applicable state law and federal law, until there is further guidance on jurisdiction in this expanding market. Comments in response to the questions posed in the Notice must be submitted to the CFTC in writing by April 30, 2026.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.

_{1 See CFTC Seeks Public Comment on Advanced Notice of Proposed Rulemaking Relating to Prediction Mkts (Mar. 12, 2026), accessible here. 
2 7 USC 7a-2(c)(5)(C).
3 17 CFR Part 38, Appendix C.
4 See MLB names Polymarket exclusive Prediction Mkt Exch. partner (Mar. 19, 2026), available here.}