Q&A
What are prediction markets?
Prediction markets are platforms where participants trade contracts based on future events such as elections, economic indicators, or entertainment outcomes. Prices reflect the probability of an event occurring, according to the collective judgment of participants. Because of this structure, prediction markets can function not only as wagering platforms but also as tools for forecasting and aggregating information.
How do the US and Canada regulate prediction markets differently?
In the US, prediction markets are regulated as derivatives under the Commodity Exchange Act (“CEA”), with the Commodity Futures Trading Commission (“CFTC”) acting as the primary federal regulator. In Canada, no equivalent framework exists. The operation of prediction markets runs counter to the Criminal Code of Canada gaming and betting provisions, as well as the prohibition on binary options pursuant to Canadian Securities Administrators Multilateral Instrument 91-102.
What is the CFTC?
The CFTC is the US federal agency responsible for regulating derivatives markets, including futures, swaps, and event contracts. It licenses designated contract markets, which are the exchanges through which prediction market contracts are listed and traded.
What types of prediction market contracts are permitted in the US?
Most prediction market contracts, including those tied to elections, economic indicators, and broad sports outcomes, can be listed freely by registered exchanges. Under the proposed new rules, contracts involving certain “restricted” categories including gaming, terrorism, assassination, war, or unlawful conduct are subject to heightened scrutiny and may be prohibited if the CFTC determines they are contrary to the public interest.
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On June 10, 2026, the Commodity Futures Trading Commission ("CFTC") published proposed rules (the “Notice”) that would create, for the first time, a clear regulatory framework for prediction market contracts in the US. This is the most concrete step to date towards bringing regulatory certainty to a rapidly growing market, as well as restricting the ability of prediction market operators to offer certain contracts, and it has meaningful implications for Canadian operators and investors with exposure to these markets.
The Current Lay of the Land
Currently in the US, prediction market contracts are regulated as derivatives under the CEA, placing them under CFTC jurisdiction. Registered exchanges can self-certify new contracts for listing without seeking prior CFTC approval. While the CFTC has long held statutory authority to prohibit specific event contracts it determines to be contrary to the public interest, it has until now done so without formal rules governing how that determination is made.
What the Notice Does
The Notice proposes a three-step screening process for prediction market contracts:
- Event-based: The contract must qualify as an event contract, meaning its settlement is determined by the occurrence or extent of a real-world event or contingency, rather than a change in the price or value of an underlying commodity.
- Enumerated category: The contract will then be assessed for whether it “involves” one of five categories the CEA flags for heightened scrutiny: gaming, terrorism, assassination, war, or conduct unlawful under federal or state law. If a contract falls within one of these categories, it proceeds to the third step. If it does not, fall within these enumerated categories, the contract may be listed without additional scrutiny. Notably, the word "involves" is a defined term under the proposal: a contract does not “involve” an enumerated activity merely because that activity could influence the outcome; the settlement-determining occurrence must itself fall within that activity. For example, a contract on oil flows through the Strait of Hormuz does not “involve” war even if war could affect those flows, because the settlement-determining occurrence is a commercial measurement, not a military act.
- Public interest analysis: For contracts that involve an enumerated category, the CFTC conducts a public interest analysis weighing three factors: (1) whether the contract provides meaningful price discovery, hedging utility, or commercially useful information; (2) whether it presents elevated risks of manipulation, settlement integrity problems, or exploitation of insider information; and (3) whether trading it would challenge the platform's compliance infrastructure. No single factor is determinative. A contract determined to be contrary to the public interest at this third step may not be listed for trading.
The Notice also introduces the first formal definition of "gaming" under the CEA: an activity engaged in for recreation or entertainment, governed by rules, and dependent on measurable skill, luck, or athletic performance. As noted above, contracts that fall within this category (step 2) are subject to public interest scrutiny (step 3) and may be prohibited from listing. Contracts that do not involve an element of skill, luck, or athletic performance, such as political or economic event contracts, fall outside this definition and are not subject to heightened scrutiny.
The inclusion of “gaming” in the list of contract categories requiring heightened scrutiny is notable. Given the prevalence of such contracts on prediction markets, requiring all such contracts to undergo the more enhanced review process set out above may be severely restrictive for prediction markets operators. It remains to be seen whether the CFTC intends to subject all such “gaming” contracts to increase scrutiny, or if it intends to limit such scrutiny to a small subset of gaming contracts that are particularly problematic (i.e. contracts amateur or obscure events, or events with a high risk of integrity concerns).
The Notice opts for case-by-case review rather than categorical bans. Contracts falling under the enumerated categories face heightened scrutiny, but none are automatically prohibited.
What Comes Next
The Notice was published in the Federal Register on June 12, 2026, opening a 45-day public comment period. No binding rules will take effect until that process concludes.
Nevertheless, the Notice signals that the CFTC intends to continue acting as the primary regulator for prediction markets, treating such products as derivatives, and that it is prepared to defend that position. The agency is currently in active litigation against at least seven states that have moved to apply state gambling laws to federally registered prediction market platforms.
For Canadian operators considering entry into US prediction markets, or those already navigating cross-border compliance obligations, the Notice marks a first step toward the regulatory certainty the industry has been waiting for.
If you have any questions about this article or prediction markets, we would love to hear from you. Feel free to reach out to us at 1-800-604-1312 or https://segevllp.com/contact-us/.
The above blog post is provided for informational purposes only and has not been tailored to your specific circumstances. This blog post does not constitute legal advice or other professional advice and may not be relied upon as such.