CFTC Tightens Guidance on Prediction Market Incentive Program Filings

The U.S. Commodity Futures Trading Commission (CFTC) has issued new guidance reminding designated contract markets (DCMs) of their regulatory obligations when submitting self-certifications for market-maker, liquidity, trading and incentive programs.

The advisory, issued by the CFTC’s Division of Market Oversight on August 12, addresses an increasing number of filings under CFTC Regulation 40.6(a), particularly those involving event contract products. The regulator said some submissions contain procedural and substantive deficiencies that can hinder its ability to assess whether exchanges have provided sufficient notice of program terms and properly evaluated compliance requirements.

Under the guidance, DCMs are expected to provide more complete information when submitting incentive programs under Regulations 40.5 and 40.6. The requirements apply to new programs as well as amendments or other changes to existing programs.

The CFTC said filings must give regulators sufficient information to assess whether proposed programs comply with applicable core principles and other Commission requirements. The advisory also sets out expectations concerning the content and procedures for submitting these certifications.

The move comes as prediction markets and event-based contracts continue to attract greater attention in the US derivatives market. Incentive programs can be used by exchanges to encourage market makers and traders to provide liquidity or participate in specific contracts, making regulatory oversight of their structure and implementation increasingly important.

The CFTC said the advisory is intended to improve the quality of self-certification submissions and ensure that DCMs meet their obligations before launching or modifying incentive programs.