The Commodity Futures Trading Commission (CFTC) consultation on proposed rules for prediction markets closed yesterday, 30 April, as the regulatory body sought public input on how to shape the framework for the vertical.
Having opened on 16 March, the consultation drew more than 1,500 responses, as the discourse, discussion and dissection of the sector continues to ramp up.
EGR has compiled responses and recommendations from industry stakeholders, ranging from operators, prediction market platforms and sporting bodies.
Luana Lopes Lara, co-founder and COO of Kalshi
Luana Lopes Lara spoke against the potential limiting of event contracts, arguing the way forward is to create a more robust framework around the markets already on offer.
She said: “For the overwhelming majority of contracts, the right response to manipulation risk, integrity risk and customer protection concerns is not to narrow the universe of permissible contracts, which would push volume offshore (like the origin of the London Eurodollar market), but to ensure Designated Contract Markets (DCMs) and Derivatives Clearing Organisations (DCOs) are doing the work the Core Principles already require them to do.
“Kalshi supports and is prepared to undertake enhanced surveillance, robust cooperation with Commission enforcement, and additional intra-exchange controls calibrated to the specific risks that certain markets could present.
“We believe DCMs, DCOs, the Commission and market participants are all better served by a framework that holds exchanges to demanding standards on the work they perform – not a framework that resorts to categorical prohibitions that drive demand to offshore platforms.”
Justin Hertzberg, CEO of Polymarket US
Polymarket US CEO Justin Hertzberg stated that any new specific guidelines pertaining to prediction markets would create “unnecessary regulatory burdens” for the vertical.
He remarked: “We support chairman [Michael] Selig’s regulatory philosophy to ensure the CFTC promotes ‘smart, clear regulations’.
“While Commission guidance or rulemaking may be appropriate in targeted areas, a bespoke set of new prediction market regulations would be largely duplicative of existing rules, impose unnecessary regulatory burdens, stifle innovation and run contrary to the CFTC’s longstanding principles-based approach to regulation.”
Robinhood Derivatives president JB Mackenzie
Robinhood’s representative called for the CFTC to spell out how state regulators should be interacting with certain prediction market products.
Robinhood Derivatives president JB Mackenzie said: “The Commission should, via formal rulemaking or guidance, clarify the interaction between federal regulation under the Commodity Exchange Act (CEA) and emerging state efforts to regulate certain event contracts as state-regulated gaming.
“Where contracts are listed on a DCM and fall within the statutory definition of swaps, the CEA’s comprehensive federal framework should govern. Long-term uncertainty regarding the applicability of state gaming laws risks undermining the uniformity and impartial access required under Core Principle 2, particularly where such laws would impose geographic restrictions inconsistent with national market access.
“We also recommend the Commission considers potential rulemaking to further define ‘gaming’ means ‘playing a game of chance for stakes’.”
Faryar Shirzad, chief policy officer at Coinbase
Coinbase’s chief policy officer Faryar Shirzad suggested the CFTC should update its regulations pertaining to market manipulation.
He said: “The CFTC’s guidance on how DCMs can demonstrate a contract is not readily susceptible to manipulation has not been updated since 2012 and is due for modernisation.
“We believe such an exercise would be consistent with the chairman’s focus on ‘future-proofing’ derivatives markets oversight.
“We recommend the Commission revisit this guidance, not solely to address trading on prediction markets but also to respond to the myriad of ways in which trading on CFTC-regulated exchanges has evolved due to advancements in technology and innovative products.
“It is critical the CFTC’s guidance on this requirement remains up to date and reflects modern trading practices, contracts and technology.”
DraftKings
While also calling for a more structured framework surrounding prediction markets, DraftKings had several suggestions for the CFTC to contemplate.
The operator wanted the regulator to consider requiring retail access to prediction markets to occur through an affiliated FCM, adopt fit-for-purpose rules on clearing, reporting and liquidity provision, and to apply a contract-specific, evidence-based public interest framework “rather than categorical judgements based on labels alone”.
DraftKings also sounded out the potential for raising the age limits of prediction markets from 18 to 21.
A DraftKings spokesperson said: “Age limits present a related consumer-protection question. Reasonable arguments can be made for either an 18+ or 21+ standard for event contracts, but current public sentiment appears to favour 21+ as the more appropriate line.
“The Commission need not treat public sentiment as dispositive, but it should take seriously the view that a 21+ standard may better align with consumer-protection expectations for retail-facing event contracts as part of the broader analysis.
“A well-designed federal framework can support responsible innovation while protecting the public. DraftKings welcomes the opportunity to continue engaging with the Commission as it considers these issues.”
Cory Fox, senior vice-president of public policy and sustainability at FanDuel
In addition to branding a new set of prediction market regulations as the “correct next step in the advancement of the Commission’s approach to regulating these markets”, FanDuel’s senior vice-president of public policy and sustainability Cory Fox had suggestions for how the CFTC could combat the threat of insider trading.
He said: “We recommend the Commission adopt clear prohibitions on trading by such ‘insiders’ in contracts related to sporting events with respect to which they may possess material non-public information.
“Further, the Commission should require operators to enforce and implement technical mechanisms to carry out prohibitions on trading by individuals included on sports ‘insider’ lists provided by sports governing bodies. Governance bodies are well-positioned to determine which individuals have access to sensitive information or the ability to manipulate outcomes.
“These measures would help mitigate systemic risks associated with asymmetric information, reduce incentives to misappropriate information or tamper with event resolution, and reinforce perceptions of market fairness.”
Andy Levinson, senior vice-president of tournament administration at the PGA Tour
The PGA Tour laid out several proposals for a new prediction markets framework, stating the importance of maintaining integrity across sporting competitions.
Andy Levinson, senior vice-president of tournament administration at the PGA Tour, said: “In addition to the use of official league data, the PGA Tour respectfully submits that the Commission should adopt a framework that requires robust integrity safeguards, integrity monitoring and reporting requirements, as well as cooperation with sport governing bodies.
“The framework should establish know your customer standards that allow for the ability to detect and share information at the individual trade level, should there be an integrity concern, and increases the age requirement of those who can participate in sports events contracts to 21.
“Restrict potentially harmful markets and allow the rights holders to approve or deny markets in advance of self-certification process, as well as offer immediate takedown of markets that are deemed to be questionable or concerning.
“Innovation should not come at the expense of competition integrity. Contracts tied to sports events raise unique integrity, consumer protection and public interest concerns that warrant careful consideration under the Commission’s statutory mandate.”
Players Associations
The respective Players Associations of the NBA, NHL, MLS, NFL and MLB have stressed athlete protection should be a priority for any national framework for prediction markets.
A joint letter from all associations read: “As you know, the CFTC does not currently have a regulatory regime like those run by the state gambling authorities. The individuals targeting our members, however, do not distinguish between state-regulated wagers and contracts offered on prediction markets.
“From their point of view, a bet is a bet regardless of where it is placed. Therefore, we believe it is essential that, should the CFTC allow for continued offering of sports-related contracts, it implements appropriate regulations that protect professional athletes and their families akin to those in place under the state regulatory regimes.
“The failure to do so not only increases the risks facing our members, but also provides more latitude to those seeking to manipulate sporting events. Accordingly, we urge you to consider the following safeguards in any rulemaking process.”
The post Industry stakeholders weigh in on CFTC’s prediction markets consultation first appeared on EGR Intel.
Representatives from the likes of Kalshi, Polymarket, FanDuel and DraftKings share recommendations with the regulator on what a new framework for the vertical should look like
The post Industry stakeholders weigh in on CFTC’s prediction markets consultation first appeared on EGR Intel.