CFTC proposes framework to review terrorism, war, assassination-related contracts on prediction markets

• The CFTC proposed amendments to Regulation 40.11, creating a formal review framework for certain prediction market contracts.
• The framework targets contracts linked to terrorism, assassination, war, gaming or unlawful conduct under federal law.
• Chairman Michael Selig said the proposal provides the CFTC with durable rules to safeguard public interests. 

The Commodity Futures Trading Commission (CFTC) on Wednesday proposed amendments to Regulation 40.11, seeking to establish a formal framework for reviewing prediction market contracts.

The proposed framework targets contracts linked to terrorism, assassination, war, gaming, or conduct that is unlawful under federal or state law. The move aims to provide greater regulatory clarity as event contracts traded on CFTC-regulated platforms continue to expand.

"The CFTC will protect the integrity of our regulated markets without standing in the way of responsible innovation," said CFTC Chairman Michael Selig.

CFTC seeks clearer standards for high-risk event contracts

Selig stated that existing provisions in the Commodity Exchange Act already provide safeguards for prediction markets. However, he argued that clearer standards are needed to improve predictability and transparency in applying those rules.

"This proposal gives the Commission a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward," Selig added.

The proposal follows an Advanced Notice of Proposed Rulemaking (ANPRM) issued in March, which sought public input on whether additional rules governing event contracts were necessary. The new proposal is designed to address one of the central issues raised during that consultation process.

Selig also argued that contracts involving activities such as terrorism, assassination and war require broad oversight because participants often lack reliable information to assess such events accurately.

He warned that individuals with access to sensitive national security information could be incentivized to profit from privileged knowledge, while bad actors could potentially manipulate contract prices to send misleading signals to the public or government agencies.

"The public often cannot know the true likelihood of these events occurring," Selig stated, adding that uncertainty surrounding such events can make contract resolution difficult and potentially undermine public confidence.

Selig also acknowledged that some controversial event contracts may continue to be offered through offshore platforms outside the CFTC's jurisdiction. He argued that the proposal is intended to encourage prediction market activity to develop within the agency's regulated framework rather than migrate to less transparent venues.

"Either prediction markets responsibly develop within the CFTC's transparent, accountable, and time-tested framework [...] or they drift into the shadows offshore," Selig noted.

The proposal is open for public comment as the agency continues its broader effort to modernize oversight of the rapidly growing prediction market sector.