For the second time this year, the U.S. Commodity Futures Trading Commission (CFTC) has warned prediction market operators to follow the rules when creating contract certifications that operators say cover a wide range of event contracts.
The CFTC, which claims to be the primary regulator of prediction markets, issued a notice Friday clarifying that, despite ongoing policy discussions and proposed regulations regarding prediction markets, the markets retain the ability to certify event-based contracts as compliant with the Commodity Exchange Act and CFTC regulations without prior approval from the commission, subject to the statutory framework governing self-certification.
The agency Friday warned on the number of instances of event contracts that are “self-certified” by platforms under the agency’s jurisdiction “without providing the terms and conditions of each proposed permutation or a concise explanation and analysis regarding the product terms and conditions, the underlying product, and product compliance.”
“The guidance reiterates that broad model type certifications should not be submitted,” the CFTC said in its July 24 announcement. The regulator published a similar notice warning about overly generalized submissions on March 12.
The notice was issued just days before the CFTC’s July 27 deadline to submit comments on its proposed changes to the rules governing public interest determinations for certain event contracts involving activities listed in the Commodity Exchange Act.
The CFTC 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 evaluate contracts based on their involvement in activities such as terrorism, assassinations or gambling, ensuring that only appropriate contracts are listed for negotiation.
The proposed rule, if adopted, would fundamentally reshape aspects of the regulatory landscape for prediction markets, according to law firm Ropes & Gray. said in June.
