U.S. regulators move to rein in fast-growing prediction markets as event-based derivatives gain traction, with the CFTC warning exchanges to strengthen surveillance, prevent manipulation, and ensure new contracts tied to real-world outcomes meet federal trading rules.
Growing interest in event-based derivatives has drawn new regulatory attention in U.S. markets. The Commodity Futures Trading Commission’s Division of Market Oversight issued a prediction markets advisory on March 12, addressing the listing and trading of event contracts on designated contract markets.
CFTC staff stated:
“In light of the rapid rise in popularity of prediction markets, the division seeks to encourage growth and innovation in these markets while reminding designated contract markets of their regulatory obligations pursuant to the Commodity Exchange Act and Commission regulations.”
The advisory explains that prediction markets allow trading of event contracts, a form of derivatives often structured with binary payouts based on the outcome of future events. These agreements may fall within the broad definition of swaps under the Commodity Exchange Act because settlement depends on the occurrence or nonoccurrence of specific events with financial or economic consequences.
Regulatory guidance emphasizes that designated contract markets must comply with core principles under the Commodity Exchange Act when listing event contracts. Exchanges must ensure contracts are not readily susceptible to manipulation and must maintain systems to monitor trading activity in real time. The advisory also highlights rules that prohibit fraud, price manipulation, and misuse of confidential information, including insider trading. Market operators may be required to obtain trader-level data or pursue disciplinary action when irregular trading patterns or anomalies are detected.
Meanwhile, CFTC Chairman Mike Selig shared on social media platform X that prediction markets represent a significant development in financial markets. He wrote:
“ Prediction markets are one of the most exciting innovations in financial markets. Yet for too long, the CFTC has failed to provide guidance for these markets being used by millions of Americans. This ends today.”
The advisory also notes that sports-related event contracts may require additional safeguards, particularly when outcomes depend on actions by individual participants or officials, which could heighten manipulation risks.
Rapid growth in event-based derivatives has prompted regulators to clarify compliance rules and market surveillance expectations.
They are derivatives that pay out based on whether a specific future event occurs or does not occur.
Designated contract markets may need stronger monitoring systems and stricter safeguards against manipulation and insider trading.
Outcomes tied to individual athletes or officials may increase the potential for manipulation or insider activity.
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