The Commodity Futures Trading Commission (CFTC), the U.S. derivatives regulator, published a 267-page proposal on June 10 that would shape how regulated prediction markets list event contracts, including bets tied to war, terrorism, assassinations, and other illegal activity.
Chairman Michael Selig said the agency wants to protect market integrity "without standing in the way of responsible innovation."
But as Alexander Osipovich, a Wall Street Journal reporter who covers exchanges and market structure, pointed out, there's still one messy line in the proposal.
As he noted in a June 10 thread on X, the CFTC's proposed rulebook could treat a contract on whether Iran starts a conflict there as war-related, while a contract on oil shipments through the same route could be treated as a commercial market, even if war risk is the reason traders care.
The timing issue may be even bigger. The proposal sets out a 90-day review process for questionable contracts, Osipovich notes, adding that during that period, the CFTC can ask a registered exchange to suspend trading, but the proposal doesn't appear to create an automatic pre-listing block for every disputed market.
Alexander Osipovich
In theory, that means a prediction market could list a war-related contract first and attract attention, liquidity and trading volume before the CFTC finishes reviewing it, though keeping it live after a suspension request would carry serious regulatory risk.
The CFTC also targets other ugly corners of event trading, Osipovich writes.
- For example, murder contracts would likely fail because murder is illegal under state law.
- But, contracts settled on a court conviction may still be treated differently because the outcome is the judgment, not the crime itself, the journalist notes.
Sports, which currently have more than $530 million in combined open interest, get even more room.
The CFTC says sports contracts can provide useful information because teams, leagues and stadiums are large businesses. But player-injury contracts, referee-only decisions, youth sports, fights outside sanctioned combat sports and casino-style random outcomes would likely raise public-interest problems.
As of press time, the rule is still a proposal. The CFTC says comments are due 45 days after publication, putting the deadline at July 25.