The Commodity Futures Trading Commission on Friday published an advisory from its Division of Market Oversight (DMO) addressing how designated contract markets and other trading venues certify prediction market contracts. The DMO said it has observed market participants self-certifying "broad, template event contracts that bundle together potential contract permutations with differing settlement sources and/or methodologies under a single certification."
According to the advisory, combining many possible permutations of event contracts into one self-certification impedes the Commission staff's capacity to review whether each contract satisfies regulatory requirements, including safeguards against manipulation. The DMO framed this as a concern for staff charged with ensuring that individual contract terms and settlement mechanics meet the protections envisioned by the rules.
The guidance offers a concrete illustration: contracts tied to matches in the 2026 FIFA World Cup may, under appropriate circumstances, be self-certified together as closely related event contracts. By contrast, contracts referencing non-World Cup championships that are governed by different organizing bodies or that use different definitions of outcomes should not be bundled with FIFA-related contracts. Treating settlement sources and methods separately allows exchanges and regulators to evaluate manipulation risks specific to each settlement arrangement.
The DMO noted a marked increase in the use of self-certification over the prior 18 months, which has produced an exponential growth in variations of basic contracts being traded on regulated exchanges. The advisory reminds designated contract markets of the self-certification procedures dictated by Commission Regulation § 40.2 and clarifies the DMO's expectations.
Specifically, the guidance states that broad template-style certifications should not be submitted. It also explains when a set of closely related event contracts may be certified as a class under Commission Regulation § 40.2(d) or when separate submission for approval under Commission Regulation § 40.3 is appropriate. The advisory is positioned as a procedural clarification to help maintain reviewability and manipulation protections as prediction market product offerings expand.
Clear summary
The CFTC's Division of Market Oversight warned exchanges and other market operators against filing wide-ranging template certifications that aggregate multiple event permutations with differing settlement sources or methodologies, noting the practice hampers staff review and heightens concerns about meeting anti-manipulation requirements.