CFTC Says Accurate Filings Could Help Prediction Markets Increase Trading

The U.S. regulator overseeing prediction platforms such as Kalshi and Polymarket has warned that poorly designed incentive programs could create compliance problems and increase the risk of market manipulation.

Prediction-market companies, like other venues regulated by the Commodity Futures Trading Commission, use rewards to attract active traders and encourage firms to act as market makers. These programs are meant to boost liquidity and trading volumes, but the CFTC is questioning how some operators are putting them into practice.

In guidance released Wednesday, the agency said it has seen a surge in filings connected to incentive programs, with many containing procedural or substantive deficiencies. Such shortcomings can prevent regulators from determining whether platforms have adequately disclosed program terms and properly evaluated their compliance.

The CFTC also raised concerns about rewards tied to trading volume. High-volume bonuses could motivate participants to trade mainly to reach specified thresholds, potentially increasing the chances of wash trading, prearranged transactions and other fraudulent, manipulative or disruptive activity.

Market-maker programs have faced similar scrutiny. Some platforms offer stipends and rebates that guarantee returns or compensate firms for losses when they provide liquidity on both sides of an event contract. The regulator cautioned that these arrangements could create incentives for manipulation or other improper conduct.

CFTC Strengthens Focus on Prediction Markets

The CFTC has taken an active role in the expansion of prediction markets across the U.S., including defending platforms in legal disputes with states that argue event contracts violate local sports-betting laws.

The regulator proposed its first rules specifically covering prediction markets in June. It has also issued a series of advisories explaining how operators should comply with existing requirements for designated contract markets, or DCMs.

Last month, the agency warned platforms against using shortcuts when submitting standardized contract certifications.

The latest guidance signals that the CFTC is paying closer attention to the way prediction-market operators structure trading rewards and market-making arrangements, particularly where those programs could encourage excessive trading or create opportunities for manipulation.