Lynnae Williams Journalist
Lynnae is a journalist covering the intersection of technology, culture, and gambling. She has more than five years of experience as a writer and editor, with bylines at SlashGear and MakeUseOf. On the iGaming side,...
Read Full BioThe Commodity Futures Trading Commission’s Division of Market Oversight (DMO) has issued a new staff advisory to designated contract markets. While the advisory addresses compliance obligations generally, it places particular emphasis on sports-related event contracts and their vulnerability to manipulation.
In the March 12 letter, staff acknowledged the growing popularity of prediction markets as a “financial asset class and as a proven source of reliable information,” but stressed that designated contract markets may list only contracts that are “not readily susceptible to manipulation.”
The advisory serves as a reminder to exchanges that they’re front-line regulators and, as such, are expected to be proactive in monitoring the contracts they list for manipulation, insider trading, and settlement risks.
This is a point that former CFTC regulator Carl Kennedy made during an interview with CasinoBeats. “If you are a registered exchange … one of your roles is also to be a regulator deputized by the CFTC to police your own market.”
In the advisory, the DMO encourages prediction markets to be “proactive” in their surveillance of event contracts, noting that while many sports contracts are consistent with regulatory principles when based on aggregate performance, others, like those based on individual player injuries or officiating actions, may have a “heightened potential for manipulation or price distortion.”
The advisory makes clear that the CFTC expects exchanges that list sports contracts to demonstrate that those markets can’t be easily manipulated and to build oversight programs strong enough to police those risks.
The CFTC released the advisory on the same day that it opened public comment on prediction markets, marking the formal start of its new rulemaking process for event contracts.
Advisory Zeroes in on Manipulation & Settlement Risks
The advisory places special emphasis on sports-related event contracts that could be vulnerable to manipulation or price distortion. CFTC staff flagged several categories of contracts that could be at risk, including those tied to “injuries to individual sports participants,” “unsportsmanlike conduct,” “physical altercations,” and officiating actions, as well as contracts based on “the action of a single individual or a small group of individuals.”
Exchanges were also directed to think carefully about how these contracts settle. Staff said exchanges should identify the exact data sources used for settlement and assess their “reliability, objectivity, and manipulation resistance.” They wrote that vague statements about using a “consensus of yet-to-be-determined sources may not be sufficient” to meet the commission’s standards.
To mitigate these risks, the DMO recommends that prediction markets engage with sports governing bodies when developing their products. The advisory suggests exchanges do the following:
- Establish “information-sharing and data arrangements with the relevant sports integrity monitoring organization.”
- Rely on “official data provided by the relevant league or governing body, as applicable, as the settlement source.”
- Cooperate with “any league-run investigations into potential manipulation or insider trading investigations.”
Letter Builds on CFTC’s Broader Prediction Market Reset
This new staff advisory lands just weeks after CFTC Chairman Michael Selig signaled that the commission would take a more proactive approach to prediction markets. As part of the reset under Selig, the CFTC withdrew its 2024 event-contracts proposal and 2025 sports advisory, which would have prohibited sports and political markets.
At the time, Selig said the agency would move toward “clear standards for event contracts,” saying the move was necessary after months of regulatory uncertainty. With public comment on event contract rules now underway, the advisory shows the CFTC isn’t going to wait for the process to play out before making its expectations clear to the prediction market exchanges under its authority.
