Prediction Markets Institute
Request to join
← All memos

Adversarial review memo

Does the CFTC's three-part public-interest test actually test the right thing?

Draft — pending reviewPrediction Markets Institute

The CFTC's June 2026 proposed rule ('Prediction Markets; Public Interest Determinations,' docket CFTC-2026-1189) would let the Commission review whether an event contract is contrary to the public interest through a three-step sequential test. Does that test locate the actual failure modes of these contracts, or does it test something else?

Perspectives

The operator's case

The test gives operators a predictable compliance target, if applied narrowly.

A sequential, three-step test is easier to build a listing process around than an open-ended standard. Step one (is this an event contract in an excluded commodity) and step two (does it involve an enumerated activity) are close to bright-line questions an operator can check before listing a contract. The real risk sits in step three: an undefined public-interest prong applied after the first two steps could reintroduce exactly the case-by-case discretion the earlier steps were meant to remove, if the Commission treats it as a catch-all rather than a narrow backstop.

The supervisory case

The test screens by topic, but most real disputes are not topic disputes.

Gaming, terrorism, assassination, war, and similar categories are content-based exclusions. They answer whether a contract's subject matter is acceptable at all. They do not reach the question this Institute's own research agenda treats as the dominant failure mode: whether the contract is worded so that a resolution can actually be produced without dispute. A contract on an entirely acceptable topic can still have an undefined resolution source, no tie-break procedure, or no halt criteria -- and the proposed rule, as described in the public filings reviewed for this memo, does not examine any of that.

The market-integrity case

Clearing the public-interest gate says nothing about what happens after listing.

Even a contract that survives all three steps still needs the ordinary design discipline of a resolvable question: a named source, a stated deadline, a dispute procedure, and halt criteria for when the underlying event goes ambiguous mid-market. The proposed rule is a gate at listing time, not a design standard for the life of the contract. Passing the gate and being well-designed are two different properties, and the rule as proposed only speaks to the first.

Synthesis

The three-part test is a topic-based gate, not a design-quality gate. It answers whether a category of contract should be listed at all, not whether a specific contract's wording can actually be resolved without dispute. If finalized close to the June 2026 proposal, contracts that clear the public-interest bar will still need the kind of contract-design discipline this Institute's standing research agenda is built around -- the rule and the Institute's own work occupy adjacent ground, not overlapping ground. That is worth saying plainly rather than assuming the rule, once final, will have done that work for the industry.

Open questions

  1. Will the final rule add any wording- or settlement-design requirement, or remain purely topic-based?
  2. How will "involves" an enumerated activity be interpreted in step two -- direct subject matter only, or incidental exposure too?
  3. What happens to contracts already listed that would newly fail the public-interest test if the rule finalizes close to the June 2026 proposal?

Sources

This memo is draft analysis, not legal advice and not a filed comment. It has not been reviewed by fellows or outside readers — the Institute's stated review process — and does not represent an Institute position until it has.

Cite this memo

Plain text

Prediction Markets Institute. (2026). Does the CFTC's three-part public-interest test actually test the right thing?. Draft — pending review. https://www.predictionmarketadvisors.com/memos/cftc-public-interest-test-2026

BibTeX

@misc{pmi_cftc-public-interest-test-2026,
  title = {Does the CFTC's three-part public-interest test actually test the right thing?},
  author = {{Prediction Markets Institute}},
  year = {2026},
  howpublished = {\url{https://www.predictionmarketadvisors.com/memos/cftc-public-interest-test-2026}},
  note = {Draft — pending review}
}