Reddit users asked why prediction markets allow bets on wildfires but not the Super Bowl. The answer is rooted in a 2010 federal law, a self-certification process, and five permanently banned event categories — and it explains a lot about which markets exist and which never will.
This guide covers CFTC-licensed prediction markets (Kalshi, Interactive Brokers' ForecastEx). Decentralized platforms like Polymarket have different rules — noted where relevant.
Prediction markets listed on CFTC-licensed exchanges are called event contracts — futures-style instruments settled by whether a specific, verifiable event occurs. The exchange, not the CFTC, decides which events to list. But the CFTC sets hard limits on which events are categorically off-limits, and retains a review window to scrutinize any contract before it goes live.
This dual structure — platform discretion bounded by federal prohibitions — is what explains why you can trade on election outcomes and Fed rate decisions but not on, say, which team wins the Super Bowl (under most circumstances) or on whether a foreign leader is assassinated.
Under CEA §5c(c)(1), a Designated Contract Market (DCM) certifies a new contract complies with CEA and CFTC rules — then lists it.
The CFTC has a 10-business-day review window to raise objections. If the window passes without action, the contract goes live.
CEA §5c(c)(5)(C) prohibits event contracts involving unlawful activity, terrorism, assassination, war, or gaming — no exceptions.
Beyond the categorical prohibitions, an exchange must satisfy general DCM core principles when listing any contract. In practice, this means the event must be:
Verifiable and objectively settleable
The outcome must be determinable from a reliable, public source — an official election result, a published government statistic, a court docket, or similar. Markets that could be manipulated by a single actor are unlikely to clear CFTC review.
Economically purposeful
Regulators historically look for hedging utility or genuine price-basing value. A contract that exists purely to let participants gamble — with no corresponding real-world risk to hedge — faces heavier scrutiny under public-interest analysis.
Not susceptible to manipulation by resolution
A market whose outcome could be influenced by a participant with a large financial stake in the contract raises market integrity concerns. The CFTC's DCM core principles require exchanges to surveil for and prevent market manipulation.
Compliant with CFTC rules and CEA prohibitions
The contract must not involve any of the five prohibited categories under CEA §5c(c)(5)(C) and 17 CFR 40.11. The exchange signs off on this when it self-certifies.
Polymarket operates differently. Polymarket is a decentralized, crypto-settled exchange operating outside the US regulatory perimeter — it is not a CFTC-licensed DCM. Its listing decisions are governed by its own community resolution rules, not CEA §5c(c)(5)(C). The standards above apply specifically to CFTC-licensed platforms like Kalshi.
Source: CFTC Press Release 8907-24 · 17 CFR 40.11
CEA §5c(c)(5)(C), added by the Dodd-Frank Act in 2010 and implemented through CFTC Rule 40.11, permanently prohibits five categories of event contracts from being listed on any CFTC-registered exchange. No exchange may list these contracts regardless of claimed hedging utility or public demand.
Activity that is unlawful under any Federal or State law
Example: A contract on whether a specific person will commit a crime
Why banned: Creating a market with a financial payoff tied to illegal activity creates perverse incentives for that activity to occur.
Event contracts that involve, relate to, or reference terrorism
Example: A contract on whether a terrorist attack will occur in a specific city
Why banned: Financial gain from a terrorist act creates obvious moral hazard and could theoretically incentivize the attack.
Event contracts that involve, relate to, or reference assassination
Example: A contract on whether a specific political figure will be killed
Why banned: Direct financial incentive to cause the death of an identified person. Prohibited categorically regardless of claimed hedging utility.
Event contracts that involve, relate to, or reference war
Example: A contract on whether a specific country will initiate military conflict
Why banned: Congress viewed war-related contracts as contrary to the public interest — similar moral hazard concerns as terrorism contracts.
Event contracts that involve, relate to, or reference gaming (gambling)
Example: A contract on the winner of the Super Bowl, a horse race, or a golf tournament
Why banned: Congress explicitly named the Super Bowl, the Kentucky Derby, and the Masters as the paradigmatic examples when adding this prohibition in 2010. Sports gambling contracts lack the hedging utility that justifies exchange trading.
The gaming category is being actively litigated
Kalshi has argued that political contracts, sports contracts, and other event-based markets are not "gaming" under the statute because they have genuine hedging utility. The CFTC's 2024 proposal to further define gaming was withdrawn in 2026 after significant legal challenges. Courts are actively working out the boundaries — which is why you see sports contracts on Kalshi even though sports appear on the prohibited list.
Even contracts that don't fall into a prohibited category can face scrutiny if they create a risk that market participants could influence the underlying event to profit from their position — a problem economists call moral hazard.
What manipulation risk looks like
What reduces manipulation risk
The wildfire contract controversy of 2026 illustrates this tension directly: critics argued that a prediction market on whether wildfires would exceed a certain acreage created financial incentives for arson. Proponents argued that the probability of any one arsonist winning enough to justify the crime was negligible compared to the informational benefits of aggregating wildfire-risk forecasts.
See: Senators vs. Wildfire Prediction Markets — what the CFTC letter means
Within the CFTC's boundaries, each licensed exchange sets its own criteria for what events are commercially interesting, resolvable, and appropriately liquid. The listing and appeals process differs by platform.
Kalshi is a CFTC-licensed DCM. All listed contracts go through the CEA §5c(c)(1) self-certification process. Kalshi's listing decisions are governed by its DCM rulebook; markets go live after the 10-business-day CFTC review window passes without objection.
Platform-specific listing review and appeal process details are confirmed at Kalshi's official legal documentation. Refer to kalshi.com/legal for the most current rules.
Polymarket operates as a decentralized exchange outside the US regulatory perimeter and is not subject to CFTC DCM requirements. Market creation and resolution are governed by Polymarket's own UMA-based oracle system and community dispute process — not by CFTC rules.
ForecastEx, Interactive Brokers' prediction market subsidiary, is also a CFTC-licensed DCM. Its listed contracts follow the same CEA §5c(c)(1) self-certification framework as Kalshi, with the 10-business-day CFTC review window. ForecastEx focuses primarily on economic and policy events.
