The Commodity Futures Trading Commission (CFTC) has issued a prediction markets advisory in regards to the listing of event contracts for trading purposes, as well as requested public opinion on the need for additional regulations.
“Today’s action is an important step in the Commission’s continued effort to promote responsible innovation in our derivatives markets,” CFTC Chairman Michael Selig said.
“This begins the process of new rulemaking grounded in a rational and coherent interpretation of the Commodity Exchange Act, while reassuring the American people that the CFTC will exercise its exclusive jurisdiction over prediction markets.”
The CFTC’s advisory reminds DCMs of its regulatory obligations pursuant to the Commodity Exchange Act and Commission regulations, as well as mentions particular nuances which may relate to sports-related event contracts.
The advisory states: “Sports-related event contracts and event contracts more generally have often been shown to be consistent with DCM Core Principle Three where the settlement outcome depends on the aggregate performance of multiple participants over an extended period of play. The breadth of the outcome, in the typical case, reduces the ability of any single actor to manipulate the settlement value without material cost or substantial risk of detection.
“DMO staff recognizes that sports-related event contracts may implicate the involvement of professional sports leagues and their integrity units, as well as the governing bodies of non professional sports organizations.
“DMO staff further understands that the Commission is actively discussing issues of settlement integrity with some relevant sports leagues and their governing bodies and foresees that appropriate information sharing by these entities with the CFTC may lead to enhanced CFTC oversight capabilities.”
The CFTC went on to recommend that DCMs consider engaging in pre-self-certification communications with sports governing bodies or authorities when developing market oversight programs for sports-related events contracts.
The Commission also advised DCMs to establish information-sharing and data arrangements with sports integrity monitoring organizations to better rely on official data provided by relevant leagues or governing bodies.
Finally, DCMs were advised to cooperate with any league-run investigations into potential manipulation or insider trading investigations.
The CFTC’s request for public comment is in regards to the need to amend or issue new regulations concerning event contracts traded on prediction market platforms. The Commission stated it intends to use the information received to better inform potential future agency action, such as prediction markets rulemaking.
US lawmakers introduced legislation on March 10 that would prohibit prediction market contracts tied to war, terrorism and individual deaths, escalating scrutiny of event-based trading platforms
