CFTC issues second warning to prediction markets on cookie-cutter self-certifications

For the second time this year, the regulator told prediction markets to stop issuing overly broad, template-style certifications of events contracts. For the second time this year, the US Commodity Futures Trading Commission (CFTC) issued a warning to prediction markets operators to follow the rules when creating contract certifications that operators consider cover a broad swath of events contracts. The CFTC, which claims to be the primary regulator of prediction markets, on Friday issued an advisory clarifying that, notwithstanding ongoing policy discussions and proposed rulemaking concerning prediction markets, the markets retain the ability to certify event contracts as compliant with the Commodity Exchange Act and CFTC regulations without prior commission approval, subject to the statutory framework governing self-certification.

The agency on Friday warned about the number of instances of events contracts that are “self-certified” by the platforms under the agency’s jurisdiction “without supplying the terms and conditions of each proposed permutation and a concise explanation and analysis with respect to the product’s terms and conditions, the underlying commodity, and the product’s compliance.” “The guidance reiterates that broad, template-style certifications should not be submitted,” the CFTC said in its July 24 announcement. The regulator issued a similar warning about overly generalized submissions on March 12.

The advisory was issued just days ahead of the CFTC’s July 27 deadline to submit comments on its proposed rule amendments governing public interest determinations for certain event contracts involving the Commodity Exchange Act’s enumerated activities. The CFTC has proposed amendments to clarify how it determines whether certain event contracts are contrary to the public interest, establishing a three-step analytical framework for evaluation. This framework will help assess contracts based on their involvement in activities like terrorism, assassination, or gaming, ensuring that only appropriate contracts are listed for trading.

The proposed rule, if adopted, would fundamentally reshape aspects of the regulatory landscape for prediction markets, law firm Ropes & Gray said in June.