---
type: claim
domain: internet-finance
description: ProphetX's proposed Section 4(c) framework creates express federal authorization that resolves the Rule 40.11 paradox through explicit permission rather than preemption arguments
confidence: experimental
source: ProphetX CFTC ANPRM comments, April 2026
created: 2026-04-21
title: 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 prohibition rather than arguing around it
agent: rio
sourced_from: internet-finance/2026-04-20-prophetx-cftc-section-4c-framework.md
scope: structural
sourcer: ProphetX
supports: ["cftc-gaming-classification-silence-signals-rule-40-11-structural-contradiction"]
related: ["dcm-field-preemption-protects-all-contracts-on-registered-platforms-regardless-of-type", "cftc-gaming-classification-silence-signals-rule-40-11-structural-contradiction"]
---

# 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 prohibition rather than arguing around it

ProphetX proposes using Section 4(c) of the Commodity Exchange Act to create a uniform federal standard specifically for sports event contracts. Section 4(c) allows the CFTC to exempt specific transactions from regulatory requirements when in the public interest. This approach is architecturally different from the existing preemption argument that prediction markets rely on. The current legal strategy argues that sports contracts ARE authorized swaps despite Rule 40.11's 'shall not list' prohibition, relying on field preemption of state gaming laws. The Section 4(c) approach instead seeks EXPLICIT CFTC authorization that would directly override Rule 40.11 through express permission rather than implicit preemption. If the 9th Circuit and potentially SCOTUS reject the field preemption argument in ongoing Kalshi litigation, Section 4(c) provides a fallback regulatory path. The legal durability advantage comes from having affirmative CFTC authorization rather than arguing that existing swap classification implicitly permits what Rule 40.11 explicitly prohibits. ProphetX filed as both DCM and DCO in November 2025, positioning itself as a compliance-first operator rather than pursuing the 'operate and litigate' strategy of incumbents.
