The U.S. regulator for platforms like Kalshi and Polymarket warns that poor compliance could lead to market abuse.
By Jesse Hamilton|Edited by Nikhilesh De43 min ago2 min readMake preferred on ShareShare this articleCopy linkX (Twitter)LinkedInFacebookEmailMake preferred on The CFTC has issued guidance to prediction markets regarding compliance issues. (Jesse Hamilton/CoinDesk)SummaryShow- The U.S. Commodity Futures Trading Commission has released updated guidance for prediction market platforms about their incentive management.
- It emphasizes the need for proper filing and the avoidance of programs that could promote misconduct.
As regulated trading platforms under the oversight of the Commodity Futures Trading Commission, prediction markets aim to attract active traders and encourage firms to serve as market makers, thereby enhancing trading activity and participation. However, the CFTC has expressed concerns about the methods being employed, as highlighted in recent guidance published on Wednesday.
The regulator noted an uptick in filings from event-contract platforms seeking incentive programs, many of which are "procedurally or substantively deficient," making it challenging for the agency to assess whether these platforms have adequately informed participants about program terms and properly evaluated compliance.
The CFTC pointed out that certain aspects of these incentive programs raise compliance issues. Specifically, rewards designed for high-volume traders might encourage them to trade solely to meet volume targets, increasing the risk of practices such as wash trading, pre-arranged trading, or other manipulative and disruptive trading behaviors.
Additionally, market-maker programs that incentivize firms to manage both sides of a market have been criticized for potentially guaranteeing net profits or covering losses through stipends and rebates, which could foster fraudulent activities and market manipulation.
The CFTC has positioned itself as a leader in promoting U.S. prediction markets, engaging in legal disputes with states that have attempted to regulate these firms under local sports gambling laws. In June, the agency proposed its first set of rules for prediction markets. It has also been guiding the nascent industry through advisories on adhering to existing regulations governing designated contract markets (DCMs), including a recent advisory that cautions against cutting corners in contract certification processes.
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