De Silva Law Offices Files CFTC Comment Letter on Prediction Markets RIN 3038-AF65

On March 23, roughly $580 million in crude futures changed hands about fifteen minutes before President Trump posted on Truth Social that he was pausing strikes on Iranian energy infrastructure. Oil tanked. Equities ripped. That same morning, a separate sweep moved roughly $1.5 billion into S&P 500 futures while dumping about $192 million in crude. On April 7, around $950 million bet against oil in the hours before a US-Iran ceasefire became public. On April 18, someone placed a $760 million directional short on crude. Twenty minutes later, Iran's foreign minister announced that the Strait of Hormuz was open, and the market obliged.

Call it close to $3 billion in notional, concentrated in narrow windows, on the same theme, in the same instruments. Any one of these trades is interesting on its own. Taken together, they stop looking like a run of lucky bets and start looking like a data set.

These are not retail-sized trades. A $760 million directional bet placed in a twenty-minute window is an institutional footprint. Even in a market as deep as WTI crude, a sweep of that size leaves a visible trail on the tape. Whoever is behind this has a large book, clearing relationships, and the operational capacity to move size quickly. They are either the source of the nonpublic information or sitting close enough to touch it.

The CFTC has the statutory tools to investigate. Section 6(c)(1) of the Commodity Exchange Act and Regulation 180.1 prohibit the use of manipulative or deceptive devices in connection with any futures contract, and trading on material nonpublic information obtained in breach of a duty sits squarely inside that rule. But the enforcement record on the commodities side is considerably thinner than on the securities side. The Commission has not pursued a contested enforcement action against a trader profiting from misappropriated government information in a futures market. The authority exists. The precedent, largely, does not.

And the self-regulatory organizations that sit closest to the tape have their own structural problem. The SRO model asks the same entity that profits from volume to police the conduct that generates it. CME reported more than three million crude contracts on several March trading days, against a baseline of roughly 700,000 to 1.4 million in the weeks before hostilities began. Those are fee-generating contracts. Asking a publicly traded exchange to enforce aggressively against its largest revenue contributors is asking it to act against its own commercial interest.

On April 29, 2026, De Silva Law Offices, LLC filed a comment letter in response to the CFTC's Advance Notice of Proposed Rulemaking on Prediction Markets (RIN 3038-AF65). The letter takes up the structural question behind the headlines: not whether any particular trade was unlawful, but whether the regulatory architecture the Commission currently operates can detect this kind of trading at all.

The Problem the Framework Was Not Built to See

The letter focuses on what happens when the outcome of an event contract, or any derivatives position, is controlled by a single person or a small group of identifiable people. This is where prediction markets and the oil futures pattern converge. The vehicles differ. The core conduct does not.

The current regulatory framework rests on a self-regulatory model in which the exchange is responsible for detecting manipulation through its own surveillance systems. That model works for traditional futures, where manipulation typically requires large capital deployment or coordinated trading activity that leaves detectable footprints in exchange data.

Event contracts under individual control present a different category of problem. When the outcome depends on whether a specific head of state orders a military action, whether a specific official announces a policy, or whether a specific board approves a transaction, the universe of people with decisive information is small, identifiable, and operating entirely outside the exchange. An insider who trades on that information does not need to layer orders or coordinate with anyone. The insider places a directional trade that looks, to any surveillance system, like every other directional trade on the platform.

The March 23 oil futures trades illustrate this precisely. The anomaly was visible only in hindsight, only because the volume was so extreme and the timing so compressed that it drew public attention. A more sophisticated insider trading in smaller size across a longer window would have been invisible. The exchange cannot see what it cannot see. The information asymmetry that makes the trade abusive exists upstream of the exchange, in the rooms where decisions are made.

What the Securities Laws Figured Out Decades Ago

The federal securities laws have addressed an analogous problem for approximately ninety years. The comment letter identifies four structural features of the securities regulatory framework that together reduce the scope of insider trading in equity markets, none of which has a present analog in the CFTC's event contract framework.

The first is mandatory issuer disclosure. Regulation FD and the periodic reporting requirements under the Exchange Act continuously push material information into the public domain, narrowing the pool of nonpublic information available to insiders before they can trade on it. No equivalent obligation applies to the people whose decisions determine event contract outcomes, or to the people whose policy announcements move the crude oil complex.

The second is beneficial ownership and insider transaction disclosure. Sections 13 and 16 of the Exchange Act require large holders and corporate insiders to report their positions and trades publicly, creating both a factual record for enforcement and a deterrent effect. In the current futures and event contract framework, positions of any size are invisible to the public. The identities behind the March and April oil trades remain unknown weeks after the trades were placed.

The third is the jurisprudential reach of insider trading liability. The securities laws, through the classical theory, the misappropriation theory, and the tipper-tippee doctrine, reach a wide range of persons trading on material nonpublic information. The CEA's insider trading provisions reach only federal government employees, members of Congress, and judicial officers. Everyone else with access to the determinative decision falls outside the statute.

The fourth is enforcement infrastructure. The SEC's Market Abuse Unit, Analysis and Detection Center, and Consolidated Audit Trail operate above the exchange level with cross-market visibility. The CFTC's enforcement infrastructure relies more heavily on exchange-level self-regulatory surveillance, the very model the letter argues is inadequate for this category of conduct. The Commission has been hampered by staffing constraints that limit its capacity to take on the kind of complex, multi-trade investigation that the March and April pattern demands.

The letter does not argue that the SEC has solved the insider trading problem. It argues that the SEC's structural architecture is the reason equity markets function despite the presence of corporate insiders, and that the CFTC's framework for event contracts under individual control lacks every element of that architecture.

A Tiered Framework

The letter proposes that the Commission adopt a tiered regulatory framework with five elements: a categorical distinction by rule between event contracts on aggregate phenomena and event contracts under individual control; mandatory position reporting for the latter category; a rulemaking under Regulation 180.1 to extend insider trading prohibitions to non-governmental persons trading on misappropriated information; enhanced surveillance with mandatory referral obligations; and a narrow categorical prohibition for contracts where no structural measure can close the information asymmetry gap.

Each element rests on statutory authority the Commission already possesses. No legislative amendment is required.

Close to $3 billion in perfectly timed oil futures trades over two months is not an abstraction. Every refiner, airline, and physical hedger who uses the crude complex to manage real risk pays a quiet tax when a well-timed mega-trade moves the market against their hedge. Market integrity is not a regulatory formality. It is the reason hedgers show up in the first place, and it is the thing the Commission's framework was built to protect. The question this letter poses is whether the framework, as currently designed, can protect it.

The full comment letter is available here and in the CFTC public comment file at comments.cftc.gov.