The Commodity Futures Trading Commission on Wednesday released a proposed rule that would set up a structured review process for event contracts tied to terrorism, war, gaming, and other federally prohibited activities. Under the new framework, each contract would be examined individually before it could trade, marking a shift from the agency's previous approach that stalled under earlier leadership.
What the proposed rule does
The Notice of Proposed Rulemaking (NPRM) establishes a case-by-case review system for event contracts involving so-called restricted activities. Those include acts of terrorism, armed conflict, gambling, and any other activity that federal law already bans. The CFTC says the change will give market participants clearer guidance on which contracts are allowed and which aren't, while keeping the agency's oversight flexible enough to adapt as new types of contracts emerge.
Why the CFTC is rewriting the approach
The new rule replaces a prior CFTC policy that failed to advance. That earlier effort never got off the ground, leaving the agency without a consistent way to handle event contracts that touch on sensitive topics. Critics of the old approach said it was too vague, creating uncertainty for exchanges and traders who wanted to launch or use these contracts. The current proposal aims to fix that by spelling out a review process upfront.
How the review process would work
Under the proposed framework, anyone seeking to list an event contract on a restricted activity would have to submit it to the CFTC for review. The agency would then evaluate it based on criteria outlined in the rule. If approved, the contract could trade. If denied, the exchange would get a written explanation. The CFTC says the case-by-case method strikes a balance between preventing harm and allowing innovation in prediction markets and other event-based derivatives.
What industry watchers are watching
The rule covers contracts that have drawn attention in recent years, including those that let people bet on election outcomes, pandemic milestones, or geopolitical events. While the proposal doesn't name any specific exchange or contract, it comes as platforms like Kalshi and PredictIt have faced regulatory pushback. The CFTC's new framework could either open the door for more such products or tighten the screws, depending on how it's applied.
The agency is expected to take public comments on the proposal before issuing a final rule. That process typically takes several months. Market participants will be watching closely: the outcome could reshape what kinds of event contracts are available to retail and institutional traders alike.
