Guide

Why Are Some Prediction Market Contracts Banned?

Comment deadline: 2026-07-27The CFTC's proposed Rule 40.11 amendments (91 FR 35806) are open for public comment until July 27, 2026.How to file a comment

Prediction markets in the United States operate under the Commodity Exchange Act (CEA), which gives the CFTC exclusive jurisdiction over event-contract derivatives. That jurisdiction comes with a hard constraint: Congress permanently banned five categories of contracts in CEA §5c(c)(5)(C) — and no exchange, platform, or regulator can override that statutory text. A separate public interest test governs everything else.

In June 2026, the CFTC issued a Notice of Proposed Rulemaking (NPRM) to clarify how it applies that public interest test, with particular focus on sports-event contracts. Understanding the distinction between the always-banned categories and the proposed sports scrutiny is critical for traders, exchanges, and the public comment process (deadline: July 27, 2026).

CEA §5c(c)(5)(C)

NPRM RIN 3038-AF65

91 FR 35806

The Two-Track System: Statutory Bans vs. Public Interest Review

Track 1 — Always Banned

CEA §5c(c)(5)(C) permanently prohibits five categories. No CFTC chairman, no DCM rule change, and no company legal team can list these — they require an act of Congress to lift.

Gaming
Terrorism
Assassination
War
Unlawful Activity

Track 2 — Public Interest Review

All other event contracts go through a three-step sequential inquiry. A contract can survive this test and be listed legally. The CFTC's 2026 NPRM proposes new factors for how that test is applied to sports contracts.

The test is not automatic rejection — many sports contracts may still pass, depending on structure, governing-body coordination, and the factors the NPRM outlines.

Always-Banned Categories: What §5c(c)(5)(C) Prohibits

These five categories are permanently off-limits. A CFTC-designated contract market (DCM) that lists any of these contracts — even inadvertently — is in violation of the CEA regardless of how the contract is structured or what public interest arguments it might otherwise satisfy.

Gaming

Contracts whose underlying activity is a game of chance, skill, or athletic ability governed by rules — including casino games, poker, chess, and sports events where the contract constitutes wagering rather than price discovery.

Terrorism

Any contract based on the occurrence or extent of a terrorist act, including attacks on infrastructure, mass-casualty events, or acts designated as terrorism under federal or state law.

Assassination

Contracts contingent on the assassination of a public official or private individual — regardless of jurisdiction or the identity of the target.

War

Contracts based on the initiation, duration, or outcome of armed conflict between states or non-state actors, including declarations of war or military invasions.

Unlawful Activity

Contracts whose underlying activity is illegal under federal or state law, including drug trafficking, money laundering, or any activity that would make the contract itself a vehicle for evading the law.

Gaming is the contested category. The CFTC's 2026 NPRM proposes a formal definition of "gaming" to clarify which sports-event contracts fall inside this permanent ban vs. which ones proceed to the three-step public interest test.

The Three-Step Public Interest Inquiry (Proposed Rule 40.11)

For contracts that are not in the always-banned categories, the CFTC applies a sequential three-step analysis. A contract must pass all three steps to be listed.

Assess whether the agreements, contracts, transactions, or swaps qualify as event contracts (based upon an occurrence, extent of an occurrence, or contingency).

Determine whether the event contracts involve an activity enumerated in the Special Rule (gaming, terrorism, assassination, war, or unlawful activity) or similar activity.

If they involve such activity, undertake a public interest analysis and determine whether the event contract is affirmatively against the public interest.

Source: Federal Register 91 FR 35806

Sports Contracts: What the 2026 NPRM Proposes

The NPRM does not automatically ban all sports-event contracts — that would require Congress to remove gaming from the Special Rule. Instead, it proposes specific factors the CFTC would weigh when applying the public interest test to sports contracts. Some categories are flagged as likely contrary to the public interest; others carry favorable factors that weigh toward approval.

The specific sports contract categories proposed in the NPRM are being confirmed against the Federal Register text. Check back for the full breakdown, or review the source document (91 FR 35806) directly.

These are proposed factors under the NPRM — not final rules. The CFTC will consider public comments received before July 27, 2026 before issuing a final rule. Confirm the current status of any listed contract with its exchange.

What's Not Affected: Contracts That Remain Available

The sports scrutiny in the 2026 NPRM does not touch political, financial, economic, geopolitical, or science-policy contracts. These categories have consistently passed the three-step public interest inquiry, and the NPRM's proposed factors do not introduce new barriers for them.

Economic Indicators

CPI, PCE, GDP, jobless claims, unemployment rate
Federal Funds rate decisions
Trade deficit / new home sales

Financial Markets

Broad-based stock indices (S&P 500, NASDAQ)
Mortgage rates, credit card debt totals
Currency exchange rates

Political & Electoral

Presidential, Senate, and House elections
Ballot propositions and referenda
Cabinet confirmations and legislative votes

Geopolitical

Diplomatic agreements and treaty ratification
Sanctions and tariff policy changes
Summit outcomes and international negotiations

Science & Policy

FDA drug approval decisions
Clinical trial primary endpoint outcomes
Climate and environmental policy announcements

What Traders Should Do Right Now

Check your open sports positions

If you hold contracts on player injuries, officiating decisions, or in-game actions, monitor the CFTC rulemaking. Delisted markets are typically voided with original stakes returned, but confirm your platform's rulebook.

Separate sports contracts from everything else

Financial, political, and economic contracts are not affected by the NPRM's sports scrutiny. If your strategy focuses on Fed rate decisions, election outcomes, or GDP prints, the proposed rules do not create new risk.

Comment before July 27

The NPRM is in its public comment period. Traders, researchers, and industry participants can file formal written comments that become part of the rulemaking record.

Frequently Asked Questions

Primary Source

Prediction Markets; Public Interest Determinations

CFTC Notice of Proposed Rulemaking · RIN 3038-AF65 · 91 FR 35806 · Comment deadline: 2026-07-27

Read on Federal Register

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How to Comment on the CFTC NPRM

Step-by-step filing guide before the July 27 deadline.

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CFTC vs. Michigan: The Dual-Authority Standoff

What happens when federal and state orders directly conflict.

State-by-State Legal Status

Where prediction markets are available, restricted, or legally contested.