The U.S. Commodity Futures Trading Commission has issued new guidance addressing the rapid expansion of prediction markets and the trading of event-based contracts. The agency’s Division of Market Oversight published a staff advisory that clarifies expectations for exchanges registered as designated contract markets (DCMs) when listing and supervising these instruments.

Regulatory Expectations For Exchanges

Authorities released the advisory as interest in prediction markets continues to grow. Event contracts allow traders to buy and sell positions based on whether a specific event will occur. These contracts typically revolve around binary outcomes and may relate to sports competitions, elections, or economic developments.

The regulator described prediction markets as a developing financial segment that requires both innovation and compliance with existing federal rules. The guidance highlights regulatory responsibilities for exchanges while also beginning a broader rulemaking effort to evaluate the long-term regulatory structure for these markets.

The advisory stresses that exchanges must follow their statutory obligations when offering event contracts. Under the Commodity Exchange Act and related regulations, designated contract markets act as the first line of oversight for the trading activity occurring on their platforms.

Officials emphasized that exchanges must review products carefully before listing them. Core Principle 3 requires that exchanges list only contracts that cannot be easily manipulated. Core Principle 4 obliges platforms to maintain the ability to detect market disruptions and prevent price distortions through monitoring and enforcement tools.

The Division of Market Oversight explained that exchanges must also comply with requirements governing product submissions and contract design. These obligations appear in Section 5(d) of the Commodity Exchange Act and Part 38 of Commission regulations.

Acting director Frank N. Fisanich said the advisory seeks to balance innovation with oversight under existing federal law. As stated in the regulator’s press release, the document also notes that designated contract markets should take proactive steps to ensure the contracts offered on their platforms comply with regulatory standards.

In a separate statement accompanying the rulemaking initiative, Chairman Mike Selig said the agency’s work represents a shift toward establishing a clearer regulatory framework for prediction markets.

“This begins the process of new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act, while reassuring the American people that the CFTC will exercise its exclusive jurisdiction over prediction markets,” Selig said.

Growth Of Event Contracts Prompts Review

Event contracts allow traders to speculate on the outcome of real-world developments through tradable positions. Participants can buy contracts tied to yes-or-no outcomes, such as the result of an election or the winner of a sporting contest.

Interest in these markets has increased sharply in recent years. According to regulatory data, registered exchanges listed an average of five event contracts annually between 2006 and 2020. Activity accelerated significantly afterward, reaching 131 contracts in 2021 and approximately 1,600 certified contracts by 2025.

Applications for exchange registration have also risen. Regulators noted that the number of submissions seeking designation as contract markets has more than doubled over the past year, with many applicants focused primarily on operating prediction markets.

The advisory applies to exchanges that list such contracts, including platforms that facilitate trading on event outcomes. It instructs these exchanges to ensure their products cannot be easily manipulated and to maintain surveillance systems capable of detecting irregular activity.

The guidance also highlights the role of exchanges in policing their markets. Firms operating these platforms must monitor transactions for signs of manipulation and take enforcement action when necessary.

The document also examines risks tied to sports-related contracts. Because the outcome of sporting events may be influenced by various external factors, regulators indicated that exchanges must design oversight systems carefully.

Staff members recommended that exchanges communicate with sports governing bodies or relevant authorities when developing terms and compliance programs for contracts tied to sporting events. This engagement could help reduce the risk of disputes or enforcement action related to market manipulation.

The advisory also states that the Commission retains authority to investigate violations such as insider trading or the misuse of confidential information.

At the same time, the agency has launched a broader rulemaking initiative to examine how event contracts should be regulated in the future. The process begins with an advance notice of proposed rulemaking that invites public input.

The consultation document asks whether certain types of contracts should be restricted entirely. Regulators specifically raised questions about markets connected to subjects such as terrorism, assassination, war, or other activities that may conflict with the public interest under the Commodity Exchange Act.

The commission is also examining questions related to the use of insider information, definitions of prohibited events, and potential market surveillance challenges.

The rulemaking process will unfold in stages. Officials first issued the advisory to clarify existing regulatory obligations while the commission gathers feedback on future policy.

The public has been invited to submit written comments during a 45-day consultation period beginning on March 12. These responses will help shape a formal regulatory proposal that the commission plans to release later.

After reviewing the comments, regulators will develop a more detailed rule proposal followed by a final rule under the standard administrative process.

Authorities described the consultation as part of a broader effort to determine how prediction markets should operate within the federal derivatives framework. Officials said the goal is to encourage innovation while maintaining oversight that protects market integrity.