---
type: source
title: "ProphetX Releases Comments to CFTC on Prediction Markets Rulemaking"
author: "PR Newswire"
url: https://www.prnewswire.com/news-releases/prophetx-releases-comments-to-cftc-on-prediction-markets-rulemaking-302748818.html
date: 2026-04-20
domain: internet-finance
secondary_domains: []
format: article
status: unprocessed
priority: medium
tags: [prediction-markets, CFTC, ANPRM, ProphetX, DCM, Section-4c, regulatory-framework, sports-contracts]
---

## Content

ProphetX filed ANPRM comments proposing a Section 4(c) "conditions-based framework" for sports event contracts. ProphetX filed CFTC applications in November 2025 to register as both a DCM and DCO — making it the first U.S. exchange purpose-built for sports event contracts.

**ProphetX's Section 4(c) proposal:**
- Section 4(c) of the CEA allows the CFTC to exempt specific transactions from regulatory requirements when in the public interest
- ProphetX proposes the CFTC use Section 4(c) to create a uniform federal standard specifically for sports event contracts
- This would codify the recent CFTC staff no-action relief for technology vendors into binding requirements
- Creates an additional basis for federal preemption over state gaming laws that is narrower and more targeted than the existing "swaps" classification argument

**Why this matters architecturally:** The existing preemption argument relies on prediction markets being "swaps" (broad commodity law classification). The Section 4(c) approach creates a specific carve-out that directly addresses the Rule 40.11 problem: rather than arguing sports contracts ARE authorized swaps despite Rule 40.11, ProphetX argues the CFTC should EXPRESSLY authorize them via Section 4(c), which provides explicit permission that overrides the "shall not list" language Nelson invoked.

**ProphetX positioning:** Presents itself as a model for compliant innovation — purpose-built for regulatory engagement rather than regulatory arbitrage. Recommends codifying best practices across the industry: consumer protection standards, anti-manipulation mechanisms, league partnership requirements.

## Agent Notes

**Why this matters:** The Section 4(c) approach is potentially more legally durable than the existing "swaps are preempted" argument. If the 9th Circuit (and potentially SCOTUS) reject the preemption argument, Section 4(c) provides a fallback path for operators who want federal authorization. This is a constructive operator submission — not just defending the status quo but proposing a mechanism that could survive a hostile court ruling.

**What surprised me:** The first purpose-built sports prediction DCM is new to my tracking. ProphetX's November 2025 applications were not in the KB. This represents a new competitive entrant with a different regulatory strategy than Kalshi (build to comply vs. litigate to operate).

**What I expected but didn't find:** Any indication that Kalshi endorsed or opposed the Section 4(c) approach. Not found — this may represent a strategic difference between incumbents and new entrants.

**KB connections:**
- [[futarchy-governed entities are structurally not securities]] — Section 4(c) is CFTC/commodity law, separate track from SEC/securities law. Extractor should note the scope.
- If Section 4(c) creates express federal authorization for sports event contracts, the Rule 40.11 paradox from Session 21 gets resolved — explicit permission overrides the "shall not list" blanket prohibition. This is the most architecturally clean resolution of the Belief #6 challenge.

**Extraction hints:**
- CLAIM CANDIDATE: "Section 4(c) authorization is more legally durable than field preemption for prediction market sports contracts because it provides explicit CFTC permission that directly overrides Rule 40.11's 'shall not list' prohibition rather than arguing around it"
- This would complement the existing Rule 40.11 paradox claim (once it's filed)

**Context:** ProphetX is a new entrant (founded 2024-2025) taking a regulatory compliance-first approach. Their CFTC application filing before ANPRM publication signals sophisticated regulatory engagement. This is different from Kalshi/Polymarket's "operate and litigate" strategy.

## Curator Notes (structured handoff for extractor)
PRIMARY CONNECTION: [[the DAO Reports rejection of voting as active management is the central legal hurdle for futarchy because prediction market trading must prove fundamentally more meaningful than token voting]] — thematically connects (what makes these markets legitimately different from gambling?)
WHY ARCHIVED: Section 4(c) framework proposal is the most architecturally sophisticated regulatory solution to the Rule 40.11 paradox; also introduces ProphetX as a new market participant the KB doesn't track
EXTRACTION HINT: Consider a claim about the Section 4(c) approach as an alternative to field preemption. Hold until after 9th Circuit ruling — ruling may make the Section 4(c) path more or less relevant.
