Key facts
- The CFTC is concerned about how prediction market platforms manage their incentive programs.
- The agency noted an increase in incentive program filings that are often deficient.
- Certain reward structures for high-volume participants may encourage wash-trading or manipulation.
- Market-maker programs guaranteeing net process or covering losses could also incentivize fraudulent behavior.
- The CFTC has been steering the prediction market industry through guidance and advisories.
The U.S. Commodity Futures Trading Commission (CFTC) has issued new guidance to prediction market platforms, urging them to properly manage their incentive programs and avoid filings that are "procedurally or substantively deficient." The agency expressed concern that certain reward structures, particularly those for high-volume participants and market makers, could encourage manipulative trading practices such as wash-trading or pre-arranged trades. The CFTC noted an increase in filings related to these programs, many of which hinder the agency's ability to assess compliance. The regulator has been actively involved in fostering U.S. prediction markets, having previously engaged in legal battles against states and proposed its first rule in June. The agency continues to guide the industry through advisories on adhering to existing rules for designated contract markets.