I. ANPRM

The ANPRM includes 40 questions focused on a range of topics related to prediction markets, including public interest considerations associated with event contracts, how futures exchanges create and list contracts for trading, data and settlement integrity, and the treatment of “inside information” in event contract marketplaces. 

The questions posed by the ANPRM are organized into six categories, although they are not entirely independent of one another. We briefly describe each below:

1. Applicability of DCM Core Principles and Commission Regulations: Questions 1 through 6 seek to clarify how the Commission should approach the applicability of the DCM core principles to prediction markets. In particular, the Commission invites discussion about whether the Commodity Exchange Act (CEA) core principles for DCMs will operate effectively for the regulation of event contracts or if additional guidance and regulatory revisions would be advisable.
2. Public Interest: Questions 7 through 14 relate to the Commission’s ability to deem event contracts impermissible if they are “contrary to the public interest.”³ The Commission requests input on how it should approach the public interest determination analysis to sufficiently account for the unique risks posed by prediction markets, including what factors should be considered and how the Commission should incorporate different aspects of public interest concerns into their analysis. Interestingly, in Question 9, the Commission proposes using elements of the economic purpose test (though not re-introducing the test itself), which was repealed from the CEA in 2000.⁴
3. Activities Listed in CEA Section 5c(c)(5)(C): Questions 15 through 22 relate to the prior set of public interest questions, as the Commission delves deeper into the five activities that currently provide the basis for a determination that an event contract is contrary to the public interest under the CEA. The questions seek to understand what aspects of the five activities (unlawful activity under state or federal law, terrorism, assassination, war, and gaming), should be considered most relevant to the public interest determination. The Commission seeks comments on all five activities but focuses most heavily on gaming, posing questions about the definition, scope and characteristics of market participants that will engage with gaming-based event contracts. The Commission also requests comment on how state laws should be taken into account for the analysis.⁵ While the Commission has the authority to determine what constitutes a sufficient connection to these activities, it also explicitly requests comment on whether changes to the regulations related to the public interest determination should be proposed.
4. Procedural Aspects of CEA Section 5c(c)(5)(C): Questions 23 through 28 also relate to the procedural aspects of the Commission’s ability to make a public interest determination. These questions request feedback regarding whether it would be appropriate for the Commission to make a public interest determination on a contract that is reasonably expected but not yet filed, how the 90-day limit on review should be taken into account when establishing the procedures for making a public interest determination,⁶ whether the determination should be applied to categories of event contracts or individual contracts, and how the Commission should determine if an event contract can be analyzed under the public interest determination. These questions also seek comment on whether, and how, the Commission should provide guidance on how it expects to perform the analysis, and if it should propose revisions to the regulations governing these procedural aspects.
5. Inside Information: Questions 29 through 32 are concerned with insider information. The Commission begins the section by asking about the potential public utility of insider information, questioning whether such information may allow the markets to be more reliable indicators of the probability of events. Other questions seek to better understand the risks associated with insider information and control, inviting respondents to weigh in on how to best approach the issue of contracts that can be manipulated by a single individual or a small group and whether event contracts are uniquely susceptible to manipulation.
6. Types of Event Contracts and Other Issues: Questions 33 through 40 cover a variety of other issues, raising questions about the different types of event contracts, the classification of the contracts as swaps and futures contracts, the costs and benefits of prediction markets, antitrust concerns, and how small entities use these markets. Though there is a wider array of questions in this section, the Commission appears to be most focused on the categorization of the contracts, seeking comments on detailed questions about how event contracts can be distinguished from other swaps, how they can be based on the value of financial or economic interests or property, and whether there are any embedded risks that differentiate these contracts from other commodity derivative instruments.

II. Division of Market Oversight Prediction Markets Advisory 

On the same day it issued the ANPRM, the CFTC’s Division of Market Oversight released the Advisory to DCMs addressing the listing of event contracts.⁷ Advisory letters state staff views and guidance; they are nonbinding, create no rights or defenses, and do not amend Commission rules or confer no‑action relief.

The Advisory describes how existing DCM regulatory obligations apply to event contract listings—what DCMs should submit, how to substantiate those submissions and where heightened scrutiny applies.

1. DCMs as Frontline Self-Regulators: The Advisory reiterates that DCMs must meet the 23 core principles set forth in CEA Section 5(d) and operate as “front-line” self-regulators—proactively surveilling listed products and enforcing rules to deter manipulation, price distortion and settlement disruptions. CFTC staff reminds DCMs of their self-regulatory obligations under the CEA, which include being proactive in surveillance and oversight of products listed on their exchanges. This includes ensuring that DCMs have the capacity and responsibility to prevent manipulation, price distortion, and disruptions in the settlement or delivery process through its market surveillance and enforcement procedures.
2. Product Submission Requirements: The Advisory reminds DCMs that self-certifications for event contracts must comply with CEA and Commission regulations. Each submission should include a complete explanation and analysis demonstrating how the contract satisfies the core principles and applicable CFTC rules, supported by documentation; and DCMs should be ready to provide additional materials upon staff request. The Advisory states that a robust submission “should include, among other things, a description of the settlement methodology that accounts for differing potential permutations of the contract, identification of the specific data source(s) on which settlement will be based, and an assessment of the reliability, objectivity, and manipulation resistance of such sources.”⁸
3. Sports‑Related Settlement Integrity: For sports‑contingent contracts, staff emphasized settlement integrity and engagement with leagues and governing bodies. DMO recommends that DCMs (1) conduct pre‑certification outreach to appropriate sports authorities; (2) explain alignment with the league’s/governing body’s integrity standards; (3) establish information‑sharing and data arrangements with recognized sports‑integrity monitors; (4) rely on authoritative league or governing‑body data as the settlement source; and (5) cooperate with league investigations into potential manipulation or misuse of nonpublic information, as such cooperation supports core principle obligations.

While the Advisory does not create new regulatory requirements, it highlights the issues the CFTC staff views as most important and offers helpful insight into how these markets are being reviewed and regulated.

III. Conclusion 

The ANPRM and Advisory signal heightened regulatory focus on prediction markets and the listing of event contracts on CFTC-regulated exchanges. While the ANPRM reflects an early step in the Commission’s consideration of how regulatory frameworks should be adapted for these products, the Advisory reiterates the CFTC’s view that DCM’s must comply with the CEA and CFTC’s core principles to oversee such event contracts. 

As the Commission continues to provide further guidance on the listing of event contracts, market participants should closely monitor these developments and consider constructive comments in response to the ANPRM before the filing deadline.

WilmerHale’s Futures and Derivatives Group has extensive experience navigating prediction markets with clients, from guiding registration with the CFTC through advising on strategic investment and transactions involving event contract market participants.