The CFTC, Prediction Markets and Event Contracts

The CFTC, Prediction Markets and Event Contracts: Setting the Stage Authored by Megha Kalbag, Philip T. Hinkle, Neel Maitra, Dale C. Beggs and Jillian Ran

March 2026

Table of Contents

Key Takeaways ............................................................................................................................2 Background on Event Contracts .................................................................................................3 The Request and the DMO Advisory ............................................................................................5 Market Access and Intermediation .............................................................................................7 Intermediation and the Impact on Registered Funds ..................................................................8 Regulation of Election, Gaming and Sports Related Event Contracts ........................................9 CFTC Asserts Exclusive Jurisdiction Over Event Contracts ...................................................... 11 Prediction Markets, Illegal Trading Practices and the DOE Advisory ........................................ 12 Conclusion ............................................................................................................................... 14 Appendix A .................................................................................................................................1

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The CFTC, Prediction Markets and Event Contracts: Setting the Stage

March 2026 / Authored by Megha Kalbag, Philip T. Hinkle, Neel Maitra, Dale C. Beggs and Jillian Ran

Key Takeaways

 Prediction markets have exploded in popularity in recent months, and the CFTC has taken notice. • In recent months, the CFTC has issued an advance notice of proposed rulemaking seeking comment on event contracts traded on DCMs, withdrawn previously proposed amendments to a rule prohibiting certain event contracts and filed an amicus brief asserting exclusive federal jurisdiction over event contracts traded on DCMs. • CFTC staff have published a request for comment on direct clearing for retail participants (an issue central to the plumbing of event contract DCMs and DCOs). The CFTC’s Division of Market Oversight and Division of Enforcement have each issued a staff advisory in connection with event contracts traded on DCMs. • The CFTC’s Division of Enforcement has also brought two enforcement actions for insider trading in connection with event contracts traded on a DCM.

 Advisory firms registered with the CFTC or SEC should watch these developments carefully.

• Scrutinized contracts are not limited to sports betting and political events but can also include contracts on events closely tied to securities and the companies that issue them. • The CFTC actions point to expanded federal oversight and regulation of prediction markets. • Registered advisory firms may wish to assess their risk exposure, including to the personal trading activity of associated persons. • Registered funds and BDCs seeking to participate in event contract markets should consider the custodial requirements of the 1940 Act, which may limit their ability to trade directly on DCMs and clear through DCOs that are not eligible custodians, although the recent removal of non-intermediation conditions by several DCMs has expanded access through intermediated models. On March 12, 2026, the CFTC issued an advance notice of proposed rulemaking (the “Request”) seeking public comment on event contracts traded on prediction markets. 1 On the same day, the CFTC’s Division of Market Oversight (“DMO”) issued Staff Letter No. 26-08 (the “DMO Advisory”) 2 providing guidance to Designated Contract Markets (“DCMs”) relating to event contracts,

1 Prediction Markets, 91 Fed. Reg. 12516 (Mar. 16, 2026).

CFTC Staff Letter No. 26-08 (Mar. 12, 2026).

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particularly sports-related event contracts. A few weeks prior, on February 25, 2026, the CFTC Division of Enforcement (“DOE”) had issued its own advisory (the “DOE Advisory”), outlining that event contracts traded on a DCM are subject to certain prohibited trading practices, which are policed both by the DCM and by the CFTC. 3 Over the last two years, prediction markets have been the focus of much regulatory attention, and there has been a significant increase in the number and diversity of event contracts listed for trading on prediction markets. Several DCMs that exclusively offer event contracts have recently launched, in some cases permitting retail participants 4 to trade directly on their platforms alongside institutional participants without the broker intermediation typically present in securities markets. This momentum sets the stage for the CFTC to provide critical market guidance in a rapidly evolving regulatory space through the Request and DMO Advisory. 5 This OnPoint summarizes the regulatory framework applicable to event contracts, describes the mechanics of fully-collateralized trading and clearing models, and discusses certain relevant CFTC regulatory actions and proposals.

This OnPoint is structured as follows:

 We begin with a background discussion on event contracts and prediction markets generally, as well as the regulatory structure that underpins them.

 Next, we summarize the Request and the DMO Advisory.

 We then address who may access these markets and under what conditions, and the implications of such access restrictions for pooled vehicles.  We also consider two issues that have been controversial in recent months: the trading of event contracts on political and sporting events and the participation of “insiders” with material non-public information in event contracts.  Finally, we summarize the ongoing litigation around whether event contracts and the prediction markets that offer them may fall afoul of state gambling laws.

Background on Event Contracts

Although the term “event contract” is not defined in the CEA or in the CFTC’s regulations, the CFTC has stated that “event contracts are generally understood to be a type of derivative contract, typically with a binary payoff structure, based on the outcome of an underlying occurrence or

3 CFTC Staff Advisory on Enforcement Authority over Event Contracts (Feb. 25, 2026), available at https://www.cftc.gov/media/13351/Enf_AdvisoryKalshi022526/download. 4 As used in this OnPoint, “retail participants” means individuals other than “eligible contract participants.” Eligible contract participants include investment companies subject to regulation under the 1940 Act and certain commodity pools and entities with over $10 million in assets. An individual is generally not an eligible contract participant unless the individual has more than $10 million invested on a discretionary basis.

5 A list of recent CFTC regulatory relief is appended to this OnPoint in Appendix A.

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event.” 6 These contracts can be structured to offer either binary payouts 7 (i.e., winner take all) or variable payouts (i.e., the payout varies with a measured outcome). 8 For a binary payout event contract, upon the occurrence or non-occurrence of the contract event, the holder of either the long (“yes”) or short (“no”) position is paid the total fixed payout amount (e.g., $1) while the counterparty receives no payment. For example, Hypothetical DCM lists a binary payout event contract based on whether snowfall in New York City will exceed 8 inches on March 15, 2026. A participant buys a contract from another participant at the prevailing market price of $0.75. New York City receives 10 inches of snow on March 15, resulting in a payout of $1.00 to buyer (i.e., the holder of the “yes” contract) and no payout to the seller (i.e., to the holder of the “no” contract). For a variable payout event contract, the fixed total payout amount is distributed between the long and short positions. If the total payout amount is $1.00, then a variable payout outcome could include a payment to long position holders of $0.10 and a payment to short position holders of $0.90. For example, Hypothetical DCM lists a variable payout event contract based on the percentage of days New York City receives at least an inch of snowfall in January 2026: each contract has a total payout of $1.00 and at final settlement the payout to the buyer equals the percentage of days it snowed at least one inch in New York City during the month of January 2026, and the payout to the seller is the difference between $1.00 and the payout to the buyer. A participant buys a contract from another participant at the prevailing market price of $0.10. New York City receives at least an inch of snow on 7 of 31 days (approx. 23%), resulting in a payout of $0.23 to buyer (i.e., the holder of the “yes” contract) and $0.77 to the seller (i.e., to the holder of the “no” contract). Many event contracts are “commodity options” under CFTC Regulation 1.3. Commodity options are subject to regulation under CEA section 4c(b), which prohibits any person from transacting in commodity options “contrary to any rule, regulation, or order of the Commission prohibiting any such transaction or allowing any such transaction under such terms and conditions as the Commission shall prescribe.” 9 As the Request explains, options are also “swaps” under the CEA. The broad statutory definition of “swap” would also generally include any event contract that does not fall under the commodity option definition. Event contracts that reference a security would likely fall under the definition of “security-based swaps,” which are subject to the jurisdiction of the SEC. As an alternative to being regulated as a swap, the Request explains that event contracts may be certified for listing as futures contracts. Because futures contracts are excluded from the CEA definition of “swap,” such event contracts would not be considered swaps. 10 However, because

6 Id.; Event Contracts, 89 Fed. Reg. 48968, 48969 (Jun. 10, 2024).

7 As of the date of this OnPoint , certain exchanges have disclosed plans to list event contracts that have binary payment outcomes.

8 Certain exchanges have also disclosed plans to list event contracts with variable payout outcomes.

9 The CFTC’s plenary options authority provision in CEA section 4c(b) was added by the Commodity Futures Trading Commission Act of 1974 and was not amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) passed in 2010.

See CEA section 1a(47)(B).

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they tend to track the probability of a discrete event occurring rather than a fluctuating value, the majority of event contracts have been certified as swaps rather than futures contracts. 11 Following the Dodd-Frank Act’s addition of the “swap” definition to the CEA, the CFTC adopted regulations that generally require commodity options to be transacted subject to the same laws and rules applicable to all other swaps. 12 Unlike more financially sophisticated eligible contract participants who can trade swaps on a bilateral, non-cleared basis, retail participants can legally only trade swaps, including event contracts, on a DCM. All transactions, including any contracts, executed on or through a DCM must be cleared with or through a DCO. Event contracts that are swaps may also be listed on a swap execution facility (“SEF”), but because only eligible contract participants may trade on SEFs, 13 more market participants can trade event contracts on DCMs than on SEFs.

The Request and the DMO Advisory

In the Request, the CFTC sets out the regulatory framework applicable to prediction markets and summarizes prior CFTC notices in this area. The CFTC also seeks comment on certain aspects of prediction market regulations, including the application and scope of the CFTC regulations applicable to prediction markets and insider trading considerations. The CFTC also asks for comment on the interaction between statutory core principles for DCMs and derivatives clearing organizations (“DCOs”) and prediction markets. The Core Principles are set out in sections 5(d), 5b(c)(2) and 5h of the Commodity Exchange Act (“CEA”) and establish standards for various CFTC- registered entities, including DCMs, DCOs and SEFs. These requests for comment indicate the issues the CFTC is focused on for future rulemaking. The CFTC also notes that it may use comments received in response to the Request to inform future actions in the space. The DMO Advisory is addressed to all DCMs and discusses the listing and trading of event contracts. In it, the DMO reminds DCMs of their obligations to:  Ensure that listed event contracts are not readily susceptible to manipulation (DCM Core Principle 3);  Prevent abusive trading practices through market surveillance and enforcement programs (DCM Core Principle 4); and

11 Lists of event contracts certified for listing as futures contracts and swap contracts are available on the CFTC’s web site. See https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts?Organization=&Type=&Status= &Date_From=&Date_To=&Category=&Subcategory=&Show_All=0.

Parts 3, 32 and 33 of the CFTC’s regulations.

CEA section 5h.

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 Establish and maintain rules to protect market participants from abusive practices (DCM Core Principle 12). 14 The DMO Advisory reminds DCMs and market participants that CFTC Regulation 180.1 separately prohibits the use of manipulative or deceptive devices in connection with any swap, or contract of sale of any commodity in interstate commerce, or contract for future delivery on or subject to the rules of any registered entity. The DMO Advisory also reminds DCMs of the CEA regulations they must keep in mind when submitting new contracts: they caution DCMs that offer sports-related event contracts in particular that overly broad contract specifications may inhibit the DCMs’ ability to comply with such regulations. The CFTC encouraged DCMs to work collaboratively with sports leagues and governing bodies when designing contracts that present heightened risks of manipulation. 15 The DMO Advisory follows the CFTC’s earlier withdrawal of Staff Letter No. 25-36 (the “Withdrawn Guidance”). Issued on September 30, 2025, the Withdrawn Guidance was addressed to the National Futures Association and all Futures Commission Merchants (“FCMs”), Introducing Brokers (“IBs”), DCMs, DCOs and registered future associations regarding the risk of state regulatory action and litigation around the listing, trading and clearing of sports-related event contracts. 16 The Withdrawn Guidance had sought to remind registered entities to make necessary disclosures and adopt appropriate risk management policies to account for such risk, and had noted that they should be prepared to identify such disclosures and policies to the CFTC in connection with routine registration with, and oversight and examination by the CFTC and applicable self-regulatory organizations. The DMO Advisory, unlike the Withdrawn Guidance, is directed only to DCMs and focuses on the growth and development of prediction markets. The tone is notably more favorable towards prediction markets than the Withdrawn Guidance, which focused more on warning of potential legal risks. The DMO Advisory views sports-related event contracts as an area of rapid growth and lists several ways for DCMs to collaborate with regulatory bodies in the space. Also notably, the DMO Advisory does not address the question of whether federal regulation pre-empts state laws on gaming or gambling (an issue which the CFTC is separately addressing through interventions in litigation, discussed below). In short, the DMO Advisory is firmly forward-looking, and suggests that the CFTC sees the growth in prediction markets as a positive development to be encouraged. 14 These Core Principles require, respectively, that listed contracts not be readily susceptible to manipulation, that DCMs maintain adequate surveillance and enforcement capabilities, and that DCMs protect market participants from abusive practices. 15 On March 19, 2026, Major League Baseball announced an official partnership with a designated contract market and signed an agreement with the CFTC to establish an “integrity framework.” See MLB Names Polymarket Exclusive Prediction Market Exchange Partner and Signs Agreement with CFTC to Establish Integrity Framework , Major League Baseball (MLB) Press Release (March 19, 2026), available at https://www.mlb.com/press-release/press-release-mlb- names-polymarket-exclusive-prediction-market-exchange-partner-and-signs-agreement-with-cftc-to-establish- integrity-framework; CFTC and MLB Sign Groundbreaking MOU (March 19, 2026), available at https://www.cftc.gov/PressRoom/PressReleases/9199-26. These appear to be clear examples of the type of collaboration and information-sharing the CFTC is encouraging.

CFTC Staff Letter No. 25-36 (Sep. 30, 2025).

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Market Access and Intermediation

DCMs and DCOs that list and clear event contracts are subject to certain swap data reporting and recordkeeping requirements (the “SDR Regulations”). 17 In particular, Parts 43 and 45 of the SDR Regulations require real-time reporting of swap transaction and pricing data, as well as broader swap data, to swap data repositories (“SDRs”). As we discuss further below, in late 2025 and early 2026, the CFTC’s DMO and its Division of Clearing and Risk (“DCR”) issued no-action relief letters to several event contract DCMs and their affiliated DCOs, providing relief from the SDR Regulations. Event contract DCMs and DCOs had routinely sought relief from the SDR Regulations on the basis that the SDR Regulations impose unviable operational and financial burdens. One DCM and DCO pair noted in its request letter that the costs of SDR reporting fees per trade are “approximately twenty times” the fees that the DCM charges per event contract trade. 18 Until recently, most DCOs offered clearing services through an intermediated model in which an FCM collects margin from a customer and posts it to a DCO. In such models, the FCM guarantees the customer’s financial obligations to the DCO and performs certain risk management tasks such as know-your-customer and anti-money laundering screenings. Under a non-intermediated model, participants post margin directly to a DCO and in these instances the DCO must decide whether to step into the role of performing such screening to ensure compliance with DCO requirements to maintain appropriate fitness standards and objective, risk-based admission and participation requirements. A DCO could also offer a hybrid model, where participants can either clear on a direct basis or clear through an FCM. On December 18, 2025, the CFTC staff published a request for comment regarding potential issues for DCOs that clear derivatives for retail participants on a direct (i.e., non-intermediated) basis. 19 Intermediation expands the scope of potential market participants, including to regulated entities such as mutual funds and exchange-traded funds. However, the CFTC originally required certain event contract DCMs to allow only trades not made through an FCM or IB (i.e., “non-intermediated trades”). This requirement reflected concerns regarding the adequacy of the intermediary’s surveillance systems, policies, processes and procedures, as opposed to relying on the DCM’s own systems, policies, processes and procedures. These non-intermediated trades to retail customers had to be fully-collateralized, as we discuss further below. However, over the past year, CFTC staff has removed prior conditions that prohibited DCM participants from clearing through third-party clearing members. Unlike securities exchanges, commodity and derivatives regulations do not prohibit retail participants from trading on a DCM or clearing directly with a DCO. A DCM’s rulebook and its designation order determine who may access its market, and a DCO’s rulebook and registration order set conditions on who can be a clearing participant. For DCMs and DCOs that seek to allow 17 The SDR Regulations are set out in CFTC Regulations 38.8(b), 38.10, 38.951 (in part), 39.20(b)(2), and Parts 43 and 45. 18 Letter from Margo Bailey, Sr. Counsel, LedgerX LLC d/b/a MIAX Derivatives Exchange, to Rahul Varma and Richard Haynes, Acting Dirs. of U.S. CFTC (July 1, 2025), available at https://www.cftc.gov/csl/25- 45/request_letter/0/download. 19 CFTC Staff Request for Comment on the Direct Clearing of Derivatives by Retail Participants (Dec. 18, 2025), available at https://www.cftc.gov/media/12861/DerivativesRetailInvestors_RFC121725/download.

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retail participants to directly trade and clear event contracts, the CFTC requires that the contracts be “fully-collateralized positions.” 20 A fully-collateralized position is one that is 100% prefunded such that there is no credit exposure (as would exist with respect to a leveraged or margined position). 21

Intermediation and the Impact on Registered Funds

Non-intermediated clearing models create regulatory challenges for registered funds and business development companies (“BDCs”) because of the custodial requirements of the 1940 Act. Section 17(f) of the 1940 Act and the rules thereunder govern the custody and safekeeping of a registered fund’s assets, including collateral pledged to support obligations under derivatives transactions (or the pre-positioning of assets to support future obligations). 22 Section 17(f) generally requires that any registered fund or BDC place and maintain its assets in the custody of a bank, a company which is a member of a national securities exchange or in its own custody. An entity’s status as a DCM or DCO does not necessarily mean that entity is an eligible custodian under the 1940 Act. Under Section 17(f), a registered fund or BDC is prohibited from posting assets with a DCM or DCO that is not such an eligible custodian. Consequently, if a registered fund or BDC was to trade directly on a DCM and was required to place or maintain assets at its associated DCO which is not an eligible custodian, such an arrangement would likely raise concerns under Section 17(f). Rule 17f-6 permits a registered fund or BDC to place and maintain assets at an FCM in amounts necessary to effect the fund’s transactions in commodity options. Pursuant to Rule 17f-6, an FCM may also place and maintain a fund’s assets at another FCM or a DCO, thus enabling registered funds and BDCs to participate in event contract markets through an intermediated model. Given the foregoing restrictions, the removal of non-intermediation conditions by several DCMs has significantly expanded potential market participation by these pooled investment products. Recent developments indicate that the CFTC is continuing to evaluate whether to permit DCMs and DCOs to largely determine their own access models, while maintaining a safe trading environment for retail customers. And while the question of who may access a prediction market, and how, continues to be debated, so does the question of whether certain event contracts are prohibited 20 See Appendix A for, among other things, a list of CFTC staff letters permitting DCMs and DCOs to allow retail participants to directly trade and clear event contracts, as well as descriptions. 21 CFTC Regulation 39.2 defines “fully collateralized position” as “a contract cleared by a derivatives clearing organization that requires the derivatives clearing organization to hold, at all times, funds in the form of the required payment sufficient to cover the maximum possible loss that a party or counterparty could incur upon liquidation or expiration of the contract.” In adopting the definition of fully-collateralized position, the CFTC reasoned that “full collateralization prevents a DCO from being exposed to credit risk stemming from the inability of a clearing member or customer of a clearing member to meet a margin call or a call for additional capital,” indicating that this risk is heightened where the customer is a retail participant. Derivatives Clearing Organization General Provisions and Core Principles, 85 Fed. Reg. 4800, 4804 (Jan. 27, 2020).

22 Section 59 of the 1940 Act applies Section 17(f) and the rules thereunder to BDCs.

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from trading on such markets. We discuss next the question of whether certain event contracts are prohibited from trading on DCMs.

Regulation of Election, Gaming and Sports Related Event Contracts

CFTC Regulation 40.11 prohibits any event contract based on an excluded commodity from being listed by a DCM or cleared by a DCO if the contract references:  Terrorism, assassination, war, gaming, or an activity that is unlawful under any State or Federal law; or  An activity similar to the above categories and is determined by the CFTC to be contrary to the public interest. CEA section 1a(19) defines “excluded commodity” to include “an occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or level of a commodity not described in [CEA section 1a19)(i)]” that is:

 “Beyond the control of the parties to the relevant contract, agreement, or transaction”; and

 “Associated with a financial, commercial, or economic consequence.”

In the 2011 adopting release for CFTC Regulation 40.11, the CFTC noted that its prohibition of event contracts referencing “gaming” was “consistent with Congress’s intent to ‘prevent gambling through the futures markets’ and to ‘protect the public interest from gaming and other events contracts.’” 23 In June 2024, the CFTC proposed to amend CFTC Regulation 40.11 to further define the categories of event contracts that may be deemed contrary to the public interest such that they may not be listed for trading or accepted for clearing. 24 Most significantly, the proposed amendments had sought to define the term “gaming” as “the staking or risking by any person of something of value upon:

 The outcome of a contest of others;

 The outcome of a game involving skill or chance;

 The performance of one or more competitors in one or more contests or games; or

 Other occurrence or non-occurrence in connection with one or more contests or games. 25

23 Provisions Common to Registered Entities, 76 Fed. Reg. 44776, 44786 (July 27, 2011).

24 Event Contracts, 89 Fed. Reg. 48968 (June 10, 2024).

Id. at 48992.

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The proposed amendment also listed illustrative examples of activities that constitute gaming. These included:

 A political contest, including an election or elections;

 An awards contest, or a game in which one or more athletes compete; or

 An occurrence or non-occurrence in connection with such a contest or game, regardless of whether it directly affects the outcome. 26 In short, the proposed amendments would have effectively prohibited all election and sports- related event contracts, which comprise a significant portion of the trading volume in the burgeoning event contract space. On February 4, 2026, the CFTC withdrew the outstanding proposal to amend CFTC Regulation 40.11. Shortly thereafter, on March 12, 2026, the CFTC issued the Request, which, among other things, specifically seeks comment on the CFTC’s ability under CFTC Regulation 40.11 to deem an event contract that falls within one of the enumerated categories to be “contrary to the public interest” and therefore prohibited. The CFTC requests comment on the factors it should consider in making this type of a public interest determination. Further, the CFTC seeks input on:  The interaction between the public interests set out in CEA section 3 and the public interest determination under CFTC Regulation 40.11;  Whether the “economic purpose” test included in a past version of the CEA should inform the public interest determination 27 ;  How considerations of hedging and other commercial purposes should inform the public interest determination;  The application of the purposes of the CEA set out in CEA section 3(b) 28 to event contracts; and

Id.

27 Between 1974 and 2000, pursuant to then-section 5(g) of the CEA, the listing of any commodity futures contract was subject to a process requiring the CFTC’s pre-approval of the contract’s terms and conditions. Under that regime, the CFTC’s now-rescinded Appendix A to Part 5-Guideline No. 1 (Interpretive Statement Regarding Economic and Public Interest Requirements for Contract Market Designation) required the DCM to furnish to the CFTC, among other things, information relating to whether “a proposed contract reasonably can be expected to be used for hedging and/or price basing on more than an occasional basis.” In 2000, the Commodity Futures Modernization Act repealed then-section 5(g). 28 CEA section 3(b) states: “It is the purpose of this chapter to serve the public interests described in subsection (a) through a system of effective self-regulation of trading facilities, clearing systems, market participants and market professionals under the oversight of the Commission. To foster these public interests, it is further the purpose of this chapter to deter and prevent price manipulation or any other disruptions to market integrity; to ensure the financial integrity of all transactions subject to this chapter and the avoidance of systemic risk; to protect all market participants from fraudulent or other abusive sales practices and misuses of customer assets; and to promote responsible innovation and fair competition among boards of trade, other markets and market participants.”

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 The relationship between event contracts and insurance and the bearing of such a relationship on the public interest determination.

The Request seeks comment on several aspects of CFTC Regulation 40.11, which sets out standards and procedures for listing and approval of event contracts. The request for comment includes the scope of enumerated categories set out in CFTC Regulation 40.11 as being prohibited. In addition to other activities prohibited under state and federal law, this list specifically prohibits listing and clearing contracts or transactions relating to terrorism, assassination, war and gaming. In particular, the Request asks which sources should inform the definition of “gaming,” whether different types of contests should be distinguished for purposes of defining it, and which public interest or anti-manipulation considerations are specific to event contracts involving gaming. 29 These questions provide a sense of the regulatory concerns that the CFTC may seek to address in a future rulemaking. While the scope of any prohibitions on or exclusions from the category of permitted event contracts will likely be the subject to extensive comment and discussion, the single most significant obstacle to the creation of a federal regulatory framework for event contracts and prediction markets may be state laws which govern or regulate gambling. As we discuss below, the evolving federal regime for prediction markets appears set to collide with multiple state laws regulating gambling.

CFTC Asserts Exclusive Jurisdiction Over Event Contracts

Gaming and consumer protection authorities in various states have sought to prohibit DCMs from offering sports-related event contracts in their respective jurisdictions pursuant to state gambling laws and regulations. 30 In response, DCMs offering sports-related event contracts have filed their own lawsuits against various state regulators arguing that event contracts tied to sporting events

29 The Request also invites comment on procedural issues under CFTC Regulation 40.11, such as at what stage the CFTC may make a public interest determination, whether such a determination may apply to a category of event contracts rather than individual contracts, and how the 90-day time limit should shape the CFTC’s procedure, as well as broader classification questions, including how event contracts differ from swaps, options, and futures, what costs, benefits, and antitrust considerations should inform any regulatory amendments, and how such amendments would affect small entities under the Regulatory Flexibility Act. 30 See, e.g., State of Nevada v. KalshiEX, LLC , No. 2:26-cv-00406 (D. Nev. 2026) (Nevada Gaming Control Board arguing that event contracts tied to sporting events are wagering activity subject to gambling regulation); Illinois Gaming Board, Cease and Desist Letters Related to Unlicensed Sports Wagering Activity, available at https://igb.illinois.gov/sports-wagering/cease-and-desist-letters.html (last visited Mar. 17, 2026). Lawsuits have also been brought against DCMs that offer sports event contracts by tribal governments. See, e.g., Ho-Chunk Nation v. Kalshi Inc. et al ., No. 3:25-cv-698 (W.D. Wis. 2025) (tribal and state authorities seeking to enjoin alleged illegal sports betting activities by Kalshi on tribal lands and throughout the state). On March 16, 2026, Arizona filed criminal charges against KalshiEX LLC and Kalshi Trading LLC, the companies behind the Kalshi prediction markets platform, for operating an illegal gambling business in Arizona without a license as well as for election wagering. Arizona v. KalshiEX LLC , No. CR2026-000173-001 (Ariz. Super. Ct. Maricopa Cnty. 2026); Arizona v. KalshiEX LLC , No. CR2026- 000173-002 (Ariz. Super. Ct. Maricopa Cnty. 2026).

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are swaps under the CEA and that the CEA therefore pre-empts any conflicting state law. 31 At the district court level, such DCMs have been successful in roughly half of these cases. 32 Several cases concerning event contracts are currently pending before the Third, Fourth and Ninth Circuit Courts, 33 and the CFTC has now officially added its voice to this debate. In a speech delivered in January 2026, CFTC Chairman Michael S. Selig announced the CFTC’s intent to assert exclusive jurisdiction over event contracts. On February 17, 2026 the CFTC filed an amicus brief to the Ninth Circuit reaffirming its exclusive jurisdiction over prediction markets. 34 In the brief, the CFTC argued that the “exclusive jurisdiction” provision of section 2(a)(1) of the CEA pre-empts application of state gambling laws to event contracts trading on DCMs governed by the CEA, irrespective of whether the question is evaluated as a matter of field pre-emption or conflict pre- emption. 35 If the circuit courts are unable to come to a consensus on the issue of CFTC pre-emption, it is likely the matter may reach the Supreme Court. 36

Prediction Markets, Illegal Trading Practices and the DOE Advisory

The potential conflict between state and federal legal regimes for prediction markets is only one of the controversies surrounding prediction markets. Another set of questions concerns the use of “insider” or material non-public information on prediction markets. Recent cases alleging such conduct have prompted legislative and regulatory efforts to protect the integrity of prediction markets and is likely to be an important element of future rulemaking. 31 See, e.g., KalshiEX LLC v. Martin , No. 1:25-cv-01283 (D. Md. 2025); Robinhood Derivatives, LLC v. Dereitzer et al ., No. 2:25-cv-01541 (D. Nev. 2025); Coinbase Financial Markets, Inc. v. Tong et al ., No. 3:25-cv-02121 (D. Conn. 2025). 32 However, in recent weeks several district courts have ruled against DCMs that offer event contracts. On March 9, 2026, an Ohio district court denied Kalshi’s request to block Ohio state regulators from applying state gaming laws to event contracts listed on Kalshi because such contracts have not been demonstrated to constitute “swaps” such that they are subject to the CFTC’s exclusive jurisdiction. KalshiEX LLC v. Schuler et al ., 2026 WL 657004 (S. D. Ohio Mar. 9, 2026). Similarly, on March 10, 2026, a Michigan district court denied Polymarket’s request to block Michigan state regulators from applying state gaming laws to event contracts listed on Polymarket, holding that such event contracts do not constitute “swaps” as defined under the CEA. Opinion and Order Denying Plaintiff’s Motion for a Temporary Restraining Order, QCX, LLC v. Nessel et al. , No. 1:26-cv-00710, ECF No. 17 (W. D. Mich. Mar. 10, 2026). 33 E.g., KalshiEX, LLC v. Flaherty, No. 25-1922 (3d Cir. 2025); KalshiEX, LLC v. Hendrick , No. 25-7516 (9th Cir. 2025); KalshiEX, LLC v. Martin , No. 25-1892 (4th Cir. 2025). 34 Amicus Brief of Commodity Futures Trading Commission, a Federal Government Agency, in Support of Appellant and in Support of Reversal, North American Derivatives Exchange, Inc. d/b/a Crypto.com v. The State of Nevada, et al ., No. 25-7187, Dkt. 37.2 (9th Cir. Feb. 17, 2026), available at https://www.cftc.gov/media/13261/amicusbrief_02172026/download. 35 Id. at 21. In the brief, the CFTC asserted that “[s]tates cannot invade the CFTC’s exclusive jurisdiction over CFTC- regulated [DCMs] by re-characterizing swaps trading on DCMs as illegal gambling.” Id. at 2. The CFTC also argued that if the Ninth Circuit were to hold that sports event contracts are beyond the CFTC’s exclusive jurisdiction, such a holding would have a destabilizing effect on prediction markets as a whole. Id. at 28. 36 The Supreme Court has consistently recognized that federal law can either expressly or impliedly pre-empt state law. E.g., Gade v. Nat’l Solid Wastes Mgmt. Ass’n , 505 U.S. 88, 98 (1992). Implied pre-emption may occur either because a comprehensive scheme of federal regulation precludes state regulation (“field pre-emption”) or because federal and state law directly conflict with one another (“conflict pre-emption”). Id.

March 2026 / Page 12

Event contracts traded on a DCM are subject to certain prohibited trading practices, which are policed both by the DCM and by the CFTC. The CFTC has made it clear that it will use its enforcement authority to police illegal trading practices occurring on DCMs that offer event contracts. On February 25, 2026, the CFTC Division of Enforcement (“DOE”) issued the DOE Advisory regarding two instances of insider trading and fraud that occurred on Kalshi. Although these cases were resolved by Kalshi’s internal enforcement team, DOE emphasized its willingness to investigate and prosecute trading violations while also noting that DCMs have an independent duty to monitor trading on their respective platforms. 37

In the DOE Advisory, the DOE reminded market participants that the CFTC has the authority to police illegal trading practices occurring on any DCM, including activity constituting:

 Misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information (commonly known as “insider trading”); 38

 Pre-arranged, noncompetitive trading and wash sales; 39

Disruptive trading; 40 and



Fraud and manipulation. 41



Consistent with this stance, the Request seeks comment on insider trading of event contracts, asking, among other things, whether:

37 CFTC Staff Advisory on Enforcement Authority over Event Contracts (Feb. 25, 2026), available at https://www.cftc.gov/media/13351/Enf_AdvisoryKalshi022526/download. 38 CEA section 6(c)(1) (“It shall be unlawful for any person, directly or indirectly, to use or employ, or attempt to use or employ, in connection with any swap, or a contract of sale of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, any manipulative or deceptive device or contrivance, in contravention of such rules and regulations as the Commission shall promulgate by not later than 1 year after July 21, 2010, provided no rule or regulation promulgated by the Commission shall require any person to disclose to another person nonpublic information that may be material to the market price, rate, or level of the commodity transaction, except as necessary to make any statement made to the other person in or in connection with the transaction not misleading in any material respect.”); CFTC Regulation 180.1(a)(1)(“It shall be unlawful for any person, directly or indirectly, in connection with any swap, or contract of sale of any commodity in interstate commerce, or contract for future delivery on or subject to the rules of any registered entity, to intentionally or recklessly: (1)Use or employ, or attempt to use or employ, any manipulative device, scheme, or artifice to defraud”).

39 CEA sections 4c(a)(1) and (2)(A); CFTC Regulation 1.38(a).

40 CEA section 4c(a)(5) (“It shall be unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that— (A)violates bids or offers; (B)demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or (C)is, is of the character of, or is commonly known to the trade as, ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).”) 41 CEA section 9(a)(2) (“...manipulate or attempt to manipulate the price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, or of any swap...”).

March 2026 / Page 13

 There is a public interest utility to the trading of event contracts by informed participants with an asymmetric information advantage;  How CFTC regulations should address event contracts whose underlying events are under the control of one or several individuals;  The application of the anti-manipulation prohibition in CEA section 6(c)(1) to prediction markets; and  The impact of Federal Government employees or officials possessing non-public information on prediction markets. Other lawmakers are also seeking to address the issue of insider trading on prediction markets. In January 2026, Representative Ritchie Torres of New York introduced legislation that would prohibit elected officials, political appointees, executive branch employees and congressional staff from trading government or politics-related event contracts when they have or could reasonably obtain material non-public information relating to such contracts. Similarly, on March 5, 2026, Senators Jeff Merkley of Oregon and Amy Klobuchar of Minnesota introduced legislation that would prohibit the U.S. President, Vice President and members of Congress from trading event contracts and limit such activity by senior federal government officials. Soon after, on March 11, Senators Richard Blumenthal of Connecticut and Andy Kim of New Jersey introduced separate legislation that would, among other things, prohibit insider trading on event contracts. It is currently unclear whether any of these legislative proposals will move forward. However, these legislative actions and the Request, along with the CFTC’s stated aim of policing illegal and manipulative trading practices, indicate that these are issues of priority.

Conclusion

Interest in event contract markets and all-to-all trading has grown exponentially in recent years and market participants will likely welcome the Request and the forthcoming rulemaking, particularly given the CFTC’s new and markedly favorable approach to such markets. Recent CFTC staff actions, including the withdrawal of the proposed amendments to CFTC Regulation 40.11 and the amicus brief filed to the Ninth Circuit reasserting its exclusive jurisdiction over event contracts, indicate that the CFTC views itself as the primary regulator of event contracts and event contract markets, and is generally very supportive of the prediction market industry. However, the CFTC’s assertion of exclusive jurisdiction over event contracts raises questions regarding the interplay between federal and state regulatory authority. Although the cases in substance involve whether certain event contracts are subject to state gaming laws, the CFTC’s amicus brief did not address CFTC Regulation 40.11 as currently in effect, which continues to prohibit any event contract based on an excluded commodity from being listed by a DCM or cleared by a DCO if the contract involves “gaming.” The CFTC’s pre-emption argument, if accepted by the courts, would foreclose state enforcement of gaming laws against DCMs with respect to such contracts. However, these contracts could nevertheless be subject to prohibition under CFTC Regulation 40.11. The CFTC’s decision to withdraw the proposed amendments to CFTC Regulation 40.11 removes the immediate threat of a categorical ban on sports-related and election-related event contracts but leaves open the question on how exactly these contracts will be regulated.

March 2026 / Page 14

Additionally, the CFTC and federal lawmakers continue to evaluate how best to address the potential for insider trading and other abusive trading practices on prediction markets. As noted by the Request and the DMO Advisory, certain event contracts are particularly susceptible to manipulation, such as those that are based on events within the control of one or several individuals. 42 However, the specific types of information that should be treated as material and non- public, and the types of trading that should be seen as manipulative and impermissible will both require sustained engagement and discussion. It is likely that the CFTC will continue to support innovation and activity in this space, but it has also demonstrated that it will take steps to protect market participants as necessary. It remains to be seen how the CFTC will maintain the balance between those objectives.

42 Prediction Markets, 91 Fed. Reg. 12516, 12522 (Mar. 16, 2026).

March 2026 / Page 15

Appendix A

Date

Event

Jun. 30, 2017

CFTC Staff Letter 17-31: DMO and DCR provide no-action relief to Nadex (DCM and DCO) from the SDR Regulations for fully-collateralized binary option event contracts and spread event contracts executed on and cleared by Nadex. Conditions include that no participant clears through a third-party clearing member. CFTC Staff Letter 17-32: DMO and DCR provide no-action relief to Cantor Futures Exchange (DCM) and Cantor Clearinghouse (DCO) from the SDR Regulations for fully-collateralized binary option event contracts executed on Cantor Futures Exchange and cleared by Cantor Clearinghouse. CFTC Staff Letter 21-11: DMO, DCR and the Division of Data provide no-action relief to KalshiEX LLC (DCM) and LedgerX LLC (DCO) from the SDR Regulations for fully-collateralized binary option event contracts executed on Kalshi and cleared by LedgerX.

Jun. 30, 2017

Apr. 22, 2021

June 10, 2024

89 FR 48968: CFTC proposes amendments to CFTC Regulation 40.11.

Jul. 12, 2024

CFTC Staff Letter 24-09: DMO and DCR provide no-action relief to ForecastEx LLC (DCM and DCO) from the SDR Regulations for fully-collateralized binary option event contracts. CFTC Staff Letter 24-12: DMO and DCR provide no-action relief to LedgerX LLC d/b/a MIAX Derivatives Exchange (MIAXdx) (DCM and DCO) from the SDR Regulations for fully-collateralized binary option event contracts executed on or pursuant to MIAXdx’s rules. Conditions include that no participant clears through a third-party clearing member. CFTC Staff Letter 24-15: DMO and DCR expand the scope of Staff Letter 21-11 to include Kalshi Klear LLC as a DCO covered by the no-action position related to the SDR Regulations.

Sep. 4, 2024

Oct. 4, 2024

Jan. 17, 2025

CFTC issues an amended order of designation for KalshiEX LLC as a DCM, removing the prior non-intermediation condition.

March 2026 / Page 1

Jan. 31, 2025

CFTC Staff Letter 25-02: DMO and DCR issue a supplemental no-action letter to KalshiEX LLC (DCM) and Kalshi Klear LLC (DCO) to remove the prohibition on clearing through third-party clearing members and to extend the relief to fully- collateralized variable payout contracts. CFTC Staff Letter No. 25-23: DMO and DCR provide no-action relief to Chicago Mercantile Exchange (DCM and DCO) from the SDR Regulations for fully- collateralized binary option event contracts. CFTC Staff Letter 25-26: DMO and DCR provide no-action relief to Railbird Exchange, LLC (DCM) and QC Clearing LLC (DCO) from the SDR Regulations for fully-collateralized binary option event contracts executed on Railbird and cleared by QC Clearing, LLC. Conditions include that no participant clears through a third-party clearing member. CFTC Staff Letter 25-28: DMO and DCR provide no-action relief to QCX LLC d/b/a Polymarket US (DCM) and QC Clearing LLC d/b/a Polymarket Clearing (DCO) from the SDR Regulations for fully-collateralized binary option and variable payout event contracts. Conditions include that no participant clears through a third-party clearing member. CFTC Staff Letter 25-35: DMO and DCR provide no-action relief to Electron Exchange DCM and Electron Exchange DCO from the SDR Regulations for fully- collateralized binary option event contracts. Conditions include that no participant clears through a third-party clearing member. CFTC Staff Letter 25-36: Market Participants Division, DMO and DCR issue staff advisory to caution CFTC-registered entities regarding the risk of state regulatory action and litigation arising from the listing or facilitation of trading and clearing of sports-related event contracts.

Jul. 22, 2025

Aug. 7, 2025

Sep. 2, 2025

Sep. 30, 2025

Nov. 24, 2025

CFTC issues an amended order of designation for QCX LLC d/b/a Polymarket US as a DCM, removing the prohibition on intermediated clearing.

CFTC Staff Letter 25-44: DMO and DCR provide no-action relief from the SDR Regulations to Gemini Titan LLC (DCM) and QC Clearing LLC for fully- collateralized binary option and variable payout event contracts.

Dec. 11, 2025

March 2026 / Page 2

Dec. 11, 2025

CFTC Staff Letter 25-47: DMO and DCR provide no-action relief from the SDR Regulations to Aristotle Exchange DCM, Inc. and Aristotle Exchange DCO, Inc. for fully-collateralized binary option and variable payout event contracts. Conditions include that no participant clears through a third-party clearing member.

Dec. 11, 2025

CFTC Staff Letter 25-45: DMO and DCR amend relief previously granted to MIAXdx, removing the prior non-intermediation condition.

CFTC Staff Letter 25-48: DMO and DCR amend relief previously granted to QCX LLC d/b/a Polymarket US (DCM) and QC Clearing LLC d/b/a Polymarket Clearing, removing the prior non-intermediation condition. CFTC staff publishes request for comment regarding potential issues related to DCOs that, either in part or in whole, provide for the clearing of derivatives to retail participants on a direct (non-intermediated) basis. CFTC Staff Letter 26-01: DMO and DCR provide no-action relief from the SDR Regulations to Bitnomial Exchange, LLC (DCM) and Bitnomial Clearinghouse, LLC (DCO) for fully-collateralized “binary and bounded swaps referencing digital assets, economic indicators, and

Dec. 11, 2025

Dec. 18, 2025

Jan. 8, 2026

financial outcomes” traded on and cleared by Bitnomial.

Feb. 4, 2026

91 Fed. Reg. 5386: CFTC withdraws proposed rulemaking on “Event Contracts” published on June 10, 2024 that, among other things, would have further specified the types of event contracts that involve “gaming” and are contrary to the public interest. CFTC Staff Letter 26-04: CFTC withdraws CFTC Staff Advisory 25-36, which warned industry participants of the risk of state regulatory action and litigation arising from the listing or facilitation of trading and clearing of sports-related event contracts. The advisory also reminded registered entities to make any necessary disclosures and adopt appropriate risk management policies to account for such risk, and noted that they should be prepared to identify such disclosures and policies to the CFTC in connection with routine registration, oversight and examination activities of the CFTC and applicable self-regulatory organizations.

Feb. 4, 2026

Feb. 17, 2026

CFTC files an amicus brief to the Ninth Circuit reaffirming its exclusive jurisdiction over prediction markets.

Feb. 25, 2026

DOE issues an advisory regarding two instances of insider trading and fraud that occurred on Kalshi in which it emphasizes its willingness to investigate and

March 2026 / Page 3

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