Will the CFTC’s recent publications on prediction markets improve regulatory clarity?

On March 12, 2026, the Commodity Futures Trading Commission (CFTC) issued two key documents aimed at clarifying regulatory oversight in the prediction markets – an Advanced Notice of Proposed Rulemaking (ANPRM) and a staff advisory letter to Designated Contract Markets (DCMs). In this article, we will highlight key takeaways from both.

Background

Prediction markets are trading platforms where market participants can buy and sell derivative contracts based on specific event outcomes (i.e., event contracts). Event contracts are typically binary in nature, meaning they result in a “yes” or “no” outcome, and cover a wide range of subjects from Federal Reserve interest rates to Oscar winners to Bitcoin prices.

Over the last few years, prediction markets have surged in popularity in the US, with large upticks in trading volumes and a growing number of platforms seeking to list event contracts. They have also been at the center of controversies due to the unique nature of event contracts and the lack of clear legal and regulatory standards. The public, trading platforms, and regulators have raised concerns over the sufficiency of insider trading controls and the opportunity to profit from contracts related to war and death. For example, earlier this year an anonymous prediction market user reportedly made over $400,000 on a well-timed event contract based on the ouster of Venezuelan leader Nicolás Maduro, raising questions about whether the user capitalized on inside information. ¹ Such events have led to increased media scrutiny and even new legislation being introduced. ²

Prediction markets are facing a slew of litigation. In one case, a proposed class action was filed in March on behalf of retail participants, alleging that a prediction market failed to pay out contract holders for an event contract based on whether Ayatollah Ali Khamenei would leave office as the Supreme Leader of Iran before a specified date range. ³ Plaintiffs claim that Khamenei’s death equated to leaving office, and thus a “yes” contract should have been paid out. However, the prediction platform invoked a “death carveout,” which resulted in the contract being settled at a last traded price. This case shows the potential for disputes over adequate disclosures and properly defined contract terms.

There are also numerous ongoing cases about whether sports-based event contracts fall under the regulatory jurisdiction of federal authorities or state gaming regulators. Prediction markets, and the CFTC, argue that the Commodity Exchange Act (CEA) preempts state and tribal gaming law, but many states and gaming commissions disagree based on historical jurisdiction over gambling by states, which has led to an estimated 20 lawsuits on this issue. ⁴ For example, an Ohio judge recently ruled that prediction markets are subject to state regulations on gambling and Arizona filed criminal charges against a prediction market, alleging operation of an illegal gambling operation. ^{5 6} Meanwhile, some states have issued preliminary injunctions in favor of prediction markets. ⁷ Conflicting judicial rulings have contributed to an uncertain legal climate.

In our recent article on CFTC-SEC regulatory harmonization efforts, we noted that regulators have recognized the need for greater regulatory clarity around prediction markets to foster financial markets innovation. The CFTC’s issuance of the ANPRM and staff advisory letter suggests that the agency is actively working to establish a well-defined, transparent regulatory framework for prediction markets. 

Advanced Notice of Proposed Rulemaking for Prediction Markets

The CFTC issued the ANPRM to seek public comments regarding event contracts traded on prediction markets to inform potential future rulemaking. ⁸ The CFTC wrote that the ANPRM was issued in response to the increase in event contracts listed for trading and DCM registration applications from entities interested in operating prediction markets. 

Currently, the CFTC’s position is that certain event contracts traded on prediction markets may be classified as either swaps or futures under the CEA, and that prediction markets offering swaps or futures contracts to the general public must be registered as a DCM, falling under CFTC regulation. ⁹

The CFTC is seeking general insight from the public about how to appropriately classify event contracts (e.g., as swaps or futures), as well as costs and benefits to be weighed in adopting regulations relating to prediction markets. The ANPRM includes a series of targeted questions on the key topics outlined below. 

Application of Core Principles

A CFTC-registered DCM must comply with the CEA’s Core Principles. ¹⁰ In the ANPRM, the CFTC requested public comments on attributes of prediction markets that may impact application of DCM Core Principles, such as:

• Are there unique risks of abusive trading for prediction markets?
• What factors should be considered in analyzing whether an event contract is readily susceptible to manipulation?
• Can existing surveillance practices adequately detect suspicious activity in prediction markets?
• Should event contracts be subject to position limits, and if so, how should they be determined?
• Should trading on margin be allowed, and if so, how should margin be calculated?
• What operational risks do prediction markets face, and can they be mitigated with appropriate procedures, controls, and systems?
• Are there particular considerations for blockchain-based prediction markets?

The CFTC also highlighted aspects of Core Principle application relevant to Derivatives Clearing Organizations (DCOs) and Swap Execution Facilities (SEFs).

Activities Contrary to Public Interest

The CEA provides that the CFTC can determine that an event contract is contrary to public interest if it involves unlawful activities under state and federal law, terrorism, assassination, war, gaming, or other similar activities. The CFTC requested public comments on the factors it should consider to determine whether an event contract is against public interest, including:  

• How should conflicts be resolved in cases where an event contract involves activity that is unlawful only in certain states?
• Are the meanings of terms such as terrorism and assassination self-evident? What factors distinguish cyberterrorism from other cyberattacks?
• What activities fall under the scope of war?  
• What characteristics establish whether an activity is gaming, and should there be different treatment for different types of contests?

The CFTC also requested feedback on how event contracts foster public interest and how it should incorporate considerations of hedging and price risk management, price discovery, and price dissemination in its public interest determination.

Use of Inside information

Trading based on inside information is generally prohibited in financial markets and there has recently been increased focus on the risks of insider trading in prediction markets. In February 2026, the CFTC’s Enforcement Division issued an advisory discussing two enforcement matters related to the misuse of nonpublic information in prediction markets. ¹¹

The ANPRM requested public comments on factors that should be considered in regulating the use of inside information in prediction markets, including:

• Are there specific challenges related to cross-market manipulation in prediction markets?
• Are prediction markets more susceptible to manipulation by insiders than other derivative markets, and if so, why?
• How should the CEA’s prohibition on Federal Government personnel using nonpublic information for personal gain through swap or futures transactions inform prediction markets regulation?

Staff Advisory Letter to DCMs on Listing Event Contracts

The CFTC also issued a staff advisory letter (CFTC Letter No. 26-08) to DCMs regarding event contracts on prediction markets. ¹² DCMs were reminded of their self-regulatory obligations and requirements to comply with the Core Principles. The CFTC also highlighted DCMs’ obligations for promoting market integrity including that:

• DCMs cannot list contracts readily susceptible to manipulation and should assess whether certain types of contracts present an increased potential for manipulation;
• DCMs must conduct real-time monitoring of trading activity to identify disorderly trading or system anomalies;
• DCMs must have market surveillance, compliance, and enforcement practices and procedures in place to prevent manipulation, price distortion, and disruptions to the settlement process; and 
• DCMS must have and enforce rules to protect markets and market participants from abusive practices and promote fair and equitable trading. 

For new event contracts, the CFTC reiterated that DCMs need to provide sufficient detail in the self-certification process, including a detailed analysis on the contract’s compliance with the CEA, Core Principles, and CFTC regulations. The CFTC also stated that it has the right to prohibit the listing or clearing of contracts contrary to public interest (e.g., contracts related to war, terrorism, or assassination).

The advisory also highlighted specific considerations for sports-related event contracts. The CFTC recognized that such contracts may warrant the involvement of oversight bodies of sports leagues and organizations. The advisory letter recommended that DCMs:

• Communicate with relevant sports governing bodies during development of contract terms and compliance programs for sports-related event contracts;
• Describe whether a contract aligns with the relevant sports league’s integrity standards in self-certified product submissions;
• Collaborate with relevant sports integrity units to establish information-sharing for monitoring purposes and use data provided by relevant sports governing bodies for settlement; and
• Cooperate with investigations by sports leagues into potential manipulation or insider trading events.

How A&M Can Help

Market participants that trade in or offer event contracts need to keep abreast of the shifting regulatory landscape and be prepared to adapt their compliance and supervision programs. Firms may need to revise insider trading policies, enhance monitoring controls, and reassess Core Principles satisfaction. In the event of a potential regulatory investigation or enforcement action, firms will need to develop sound responses.

As the regulatory environment around event contracts continues to evolve, our team has the expertise to help your organization understand key CFTC rule changes and implement necessary enhancements to compliance and risk frameworks. We can also support clients in prediction markets-related disputes and litigation matters.

A&M has extensive experience working with all major US regulatory agencies and is well-positioned to provide tailored, risk-based solutions for clients across different sectors of the financial services industry.

Our Services:

• Investigation support and market analysis
• Expert dispute services
• Regulatory change management guidance and implementation 
• Compliance program evaluations
• Risk assessments
• Control testing
• Surveillance program review and remediation
• Systems calibration and enhancement
• Regulatory data reporting 
• Data governance, mapping, and validation

Click here to learn more about A&M Disputes and Investigations offerings.

1. Danniell Kaye and Natalie Sherman, “Anonymous Crypto Gambler Made $436,000 on Maduro Capture,” January 5, 2026.
2. Members of both the House and Senate have introduced new bills regarding prediction markets, such as the DEATH BETS Act and the Prediction Markets Security and Integrity Act. See “Rep. Levin & Sen. Schiff Introduce New Bicameral Legislation to Explicitly Ban Death & War Prediction Contracts,” March 10, 2026, and “Blumenthal Introduces New Legislation to Regulate Prediction Markets,” March 11, 2026.
3. Gillian R. Brassil, “Kalshi Sued Over Death Carveout in Iran Leader Prediction Market,” March 6, 2026. See Adam Risch v. KalshiEx LLC, 2:26-cv-02390, C.D. Cal., filed March 5, 2026.
4. National Conference of State Legislatures, “Prediction Markets: A New Frontier in State Regulatory Authority,” updated March 12, 2026.
5. Max Rego, “Ohio Judge Orders Kalshi to Follow State Betting Laws,” March 10, 2026.
6. Marshall Cohen, “Arizona Files Landmark Criminal Charges Against Prediction Market Kalshi,” March 17, 2026.
7. Alan Wilmot, “TN Court Grants Kalshi’s Motion for Preliminary Injunction on Sports Predictions,” February 22, 2026.
8. Commodity Futures Trading Commission, “CFTC Seeks Public Comment on Advanced Notice of Proposed Rulemaking Related to Prediction Markets,” March 12, 2026. The full text of the Advanced Notice of Proposed Rulemaking can be found in the Federal Register. 91 Fed. Reg. 12516 (March 16, 2026). Public comments must be received, in writing, by April 30, 2026, and comments can be viewed on the CFTC’s website at Comments for Proposed Rule 91 FR 12516 - CFTC.
9. The CFTC specified in the ANPRM that on CFTC-registered DCMs and SEFs, event contracts are swaps or futures contracts subject to jurisdiction of the CFTC; however, there are other event contracts subject to jurisdiction of the SEC, such as those characterized as security-based swaps.
10. There are 23 Core Principles applicable to DCMs, which are explained in Part 38 of CFTC regulations. See 17 CFR Part 38. 
11. Commodity Futures Trading Commission, “CFTC Enforcement Division Issues Prediction Markets Advisory,” February 25, 2026.
12. Commodity Futures Trading Commission, CFTC Letter No. 26-08, March 12, 2026.