On March 12, 2026, the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight issued Staff Advisory Letter No. 26-08 to all designated contract markets (DCMs), signaling a supportive stance toward prediction markets and other event-based derivatives, including contracts based on the outcome of sporting events. While reiterating existing compliance obligations, the advisory emphasizes the agency’s interest in fostering innovation and growth in these markets within the framework of the Commodity Exchange Act. At the same time, the CFTC released an advance notice of proposed rulemaking seeking broad public comment on whether and how to further regulate event contracts.
The advisory explains that event contracts — often binary contracts settling on the outcome of a particular event — fit within the broad “swap” definition in CEA Section 1a(47), as expanded by Dodd-Frank. The advisory supports arguments put forward by certain prediction market exchanges like KalshiEX LLC, which have argued that such products fall under the exclusive regulatory jurisdiction of the CFTC. Kalshi is currently involved in lawsuits with several states that seek to regulate or prohibit the offering of event-based contracts on sporting events under state authority to regulate sports betting.
The advisory also apparently seeks to address a number of issues underlying recent high-profile news stories that have led some observers to criticize prediction markets, including allegations of contracts based on players throwing games or altering their personal performance and insider trading of knowledge about military action including the removal of foreign leaders.
Rather than creating new rules, the advisory reiterates DCMs’ existing obligations under Core Principles 3, 4, and 12 (manipulation resistance, surveillance and enforcement, and customer protection) and reminds market participants that CFTC Regulation 180.1’s anti-fraud and anti-manipulation provisions apply to event contracts.
To comply with these obligations, DCMs must conduct real-time monitoring of all trading activity on their platforms. In designing and offering products, DCMs are encouraged to look to the integrity standards of the sporting organizations hosting the events on which contracts are being made, including guidance on restricted or insider participants, to protect against manipulation or insider trading.
The advisory notes that products tied to aggregate performance of multiple participants over a season or series of events are generally less susceptible to manipulation and more likely to satisfy DCM Core Principle 3, signaling that DCMs should avoid offering proposition-style contracts similar to “prop bets” based on a single player’s statistics and should avoid offering other event contracts where a single actor can easily manipulate the outcome.
Although much of the focus of the advisory is on sports-related contracts, the guidance applies to all event contracts listed on DCMs. Core Principles 3, 4, and 12, when examined collectively, would seem to prohibit products that center on world events (for example, speculation around war, assassination, etc.), as such events could be considered as “readily susceptible to manipulation,” while the exchanges themselves have no capacity to prevent such manipulation through market surveillance and enforcement procedures.
Further, under the guidance, DCMs must enforce rules to protect markets and market participants from abusive practices and promote fair and equitable trading. Such rules should address concerns around confidentiality of information, as well as concerns related to anonymous market participants.
DCMs are also advised to provide robust legal and risk analyses when self-certifying or seeking approval for new products and avoid overly broad contract terms that weaken their ability to monitor manipulation risk.
The advisory further encourages early engagement with the CFTC and collaboration with sports leagues and integrity units, particularly for higher-risk contracts (e.g., those based on injuries, officiating decisions, or unsportsmanlike conduct), including through information-sharing and use of official league data.
Why It Matters
For DCMs, prediction market operators, and other market participants, the advisory signals that the CFTC is open to innovation in event contracts if products are carefully designed and supported by strong compliance, surveillance, and integrity controls. The engagement-oriented tone of the guidance document combined with the notice of proposed rulemaking, seems to offer a near-term opportunity for stakeholders to help shape the future regulatory landscape for prediction markets and related derivatives.
Businesses considering new or expanded event contract offerings may wish to assess their current product pipelines, governance structures, and league or data-provider relationships in light of this evolving framework. Industry stakeholders should also begin considering how they will participate in the rulemaking comment process.