The U.S. Commodity Futures Trading Commission (CFTC) unveiled its first regulatory framework for forecast markets, publishing what it called a proposed approach to governing the industry under U.S. law.

The plan, released by the agency on Wednesday, would set standards for certain types of betting, leaving markets linked to elections and politics largely out of the category of activities that require more scrutiny.

Where the line is drawn

New application outlines how the agency will begin to determine whether a particular contract should be prohibited. As drafted, the CFTC tentatively views both sports betting and wagering involving games of chance and pure luck as covered by “gaming.”

At the same time, it suggests that betting on sports outcomes is probably not fundamentally contrary to the public interest, whereas betting money on games of chance or games based on pure luck probably would be.

The framework further argues that prediction markets based on sports results, price differentials, win-loss records, tournament advances, and similar data can perform a “price discovery” function and provide meaningful information.

The proposal draws stricter boundaries for certain categories sports betting. The CFTC indicated that betting on player injury, fighting, children’s sports, officiating, or betting organized in a way to encourage cheating would be unlikely to meet the public interest standard.

The bill also addresses election-related contracts, noting that election betting is “contests, not games” and therefore does not fall within the “enumerated activities” that would allow the CFTC to apply its 90-day event contract review process.

The agency’s proposal also focuses largely on how to assess whether an agreement does not go too far into areas such as terrorism, war and assassinations – topics that, as the draft notes, are domestic in nature. regulated exchanges they largely avoided offering.

45-day comment period for forecast markets

In a statement, the CFTC acknowledged that the rules published Wednesday were “thin” and said additional regulations on prediction markets could be introduced in the future. After Wednesday’s publication, the proposed rule will be subject to a 45-day public comment period.

CFTC Chairman Mike Selig emphasized the commission’s intention to prepare next steps in the case rule-making process. In a statement, it said the CFTC would protect the integrity of its regulated markets while enabling “responsible innovation.”

Selig added that the up-to-date prediction markets proposal provides a eternal and see-through framework for identifying contracts that Congress has directed the agency to study, while allowing legal markets to continue to operate.

In addition to defining the types of establishments that can be located on different sides of the border, the proposal sets out a step-by-step process for implementing bans. The CFTC will first determine whether agreement is actually related to some event.

It would then evaluate whether the event falls within the categories set out in the Commodity Exchange Act, and finally conduct a public interest analysis to decide whether forecast market contracts should be banned or permitted.

Featured image created with OpenArt; chart from TradingView.com