CFTC Says Many Prediction-Market Incentive Program Filings Are Deficient

The Commodity Futures Trading Commission has raised concerns about the way prediction-market platforms structure their incentive programs.

CoinDesk reported on August 12 that the CFTC, in guidance released that day, said filings related to incentive programs from prediction-market platforms are increasing, but many are "procedurally and substantively deficient."

The agency said flaws in the applications make them difficult to review. As a result, it can be hard to determine whether a platform adequately disclosed program terms and properly reviewed compliance with regulations.

The CFTC also flagged volume-based reward programs. Some incentives offered to high-volume participants could encourage trading aimed solely at meeting volume targets, increasing the risk of market manipulation such as wash trading and prearranged trades, it said. The agency added that fee rebates and loss-compensation structures in market-maker programs could also encourage manipulation.

The CFTC has played an active role in fostering prediction markets. In June, it proposed its first rule related to prediction markets. It has also sided with companies in legal disputes with some state governments that sued prediction-market firms for allegedly violating sports-betting rules. The latest guidance follows a warning issued in July over efforts to simplify the contract-certification process and continues the agency's broader push to steer the industry within the existing regulatory framework.