CFTC Urges Prediction Markets to Fix Incentive Filings to Drive Trading

The U.S. regulator overseeing platforms such as Kalshi and Polymarket is warning prediction-market operators that flawed compliance practices could create opportunities for market manipulation.

Like other trading platforms regulated by the Commodity Futures Trading Commission, prediction-market companies use incentive programs to attract high-volume traders and encourage firms to provide liquidity as market makers. These initiatives are intended to increase participation and trading activity, but the CFTC has raised concerns about how some of them are being structured.

In guidance released Wednesday, the derivatives regulator said it has seen a growing number of filings related to incentive programs. Many of those submissions have been described as “procedurally or substantively deficient,” making it harder for the agency to determine whether platforms have properly disclosed program terms and assessed their compliance with regulatory requirements.

The CFTC also highlighted potential compliance problems with certain reward structures. Incentives aimed at high-volume traders could motivate participants to trade simply to meet volume thresholds, increasing the risk of wash trading, prearranged transactions and other fraudulent, manipulative or disruptive activity.

Market-maker programs have also drawn scrutiny. Some platforms have offered stipends and rebates that guarantee minimum returns or compensate firms for losses when they provide liquidity on both sides of a market. The CFTC cautioned that such arrangements could similarly create incentives for manipulation or other improper trading practices.

CFTC Takes Active Role in Prediction Markets

The CFTC has played a prominent role in the expansion of U.S. prediction markets, including defending the industry in legal disputes with states that argue event-contract platforms violate local sports-betting laws.

The agency proposed its first dedicated prediction-market rule in June. At the same time, the CFTC has continued issuing guidance to help platforms comply with existing requirements governing designated contract markets, or DCMs.

Last month, for example, the regulator warned prediction-market operators against taking shortcuts when submitting standardized contract certifications.

The latest guidance signals that while the CFTC supports the development of prediction markets, it expects platforms to ensure that incentive and market-making programs are properly structured and reviewed for potential compliance and market-abuse risks.