CFTC Proposes First Regulatory Framework for Prediction Markets, Banning Terrorism and Assassination Contracts

The CFTC, led by Trump-appointed Chairman Michael Selig, published a notice of proposed rulemaking on Wednesday that would amend Regulation 40.11 and add Appendix F to Part 40, creating a structured, contract-by-contract public interest review process for event contracts involving terrorism, assassination, war, gaming, or conduct unlawful under federal or state law. Under the framework, contracts on war, terrorism, and assassinations would be broadly prohibited due to national security concerns, while most aggregate sports outcome markets — covering final scores, point differentials, win-loss results, and season-long statistics — would generally be permitted. However, the proposal would bar micro-event contracts tied to individual plays, player injuries, officiating decisions, physical altercations, and pre-collegiate sports, citing manipulation risks. The rules leave some grey area around gaming more broadly, and the commission acknowledged the proposal is narrow in scope, with further rulemaking anticipated. The announcement follows a series of high-profile insider trading cases, including a U.S. Special Forces soldier charged with using classified information to win over $400,000 on Polymarket related to the capture of Venezuelan President Nicolás Maduro, and a Google employee charged with earning $1.2 million using confidential search data. The proposed rule now enters a 45-day public comment period, and Selig signaled the CFTC will continue litigating against states — including a recent lawsuit against Minnesota — that attempt to regulate prediction markets as gambling rather than federally overseen derivatives.