CFTC Tightens Prediction Market Self-Certification Rules

The CFTC Division of Market Oversight issued an advisory on August 12 reminding designated contract markets (DCMs) of their obligations when self-certifying market-maker, liquidity, trading, and incentive programs under CFTC Regulations 40.5 and 40.6. The advisory states that an increasing number of incentive-program filings contain procedural or substantive deficiencies that impede the agency's ability to evaluate whether DCMs have provided adequate notice of program terms and assessed compliance with core principles and other Commission requirements.

Self-certification allows DCMs to launch certain programs without advance SEC approval, subject to regulatory notification and substantive compliance review. The CFTC's advisory addresses concerns particularly relating to event contract products, a category that includes prediction markets.

The guidance outlines staff expectations regarding procedural and substantive content for submissions made under Regulations 40.5 and 40.6, including initial program submissions, amendments, or changes to such programs, and submission procedures. The advisory does not specify what procedural or substantive deficiencies have been most frequently observed, nor does it establish a deadline for DCMs to bring existing programs into compliance or re-submit filings. The CFTC has not indicated whether previously approved programs will be subject to review under the new guidance or whether pending filings will face increased scrutiny.

The timing and scope of enforcement action, if any, remain unclear. The advisory does not address whether the CFTC will reject filings that do not meet the new standard or what remedies it may impose for deficiencies in already-approved programs.