U.S. CFTC: Predictive Market Should Reduce to File Defective Incentive Plan Record to Boost Trading Volume

August 13th, like any exchange regulated by the Commodity Futures Trading Commission (CFTC), a prediction market company is expected to try to incentivize large traders and encourage the company to act as a market maker to deepen participation and trading volume. However, according to guidance issued on Wednesday, the U.S. Commodity Futures Trading Commission (CFTC) has expressed concerns about their practices.

The U.S. derivatives regulator warned event contract platforms that the number of filings for incentive programs is increasing, and these filings often have "deficiencies, either in form or substance." This has hindered the agency's ability to assess whether the platform "has adequately notified plan terms and evaluated the plan's compliance."

The CFTC noted that certain features of these incentive programs "raise compliance concerns." Incentives for high-volume participants may encourage them to "trade solely to meet volume targets, thereby increasing the risk of wash trading, pre-arranged trading, or other fraudulent, manipulative, or disruptive trading practices."

Furthermore, market maker programs (which encourage companies to take either side of the market) safeguard net profits or cover losses through allowances and rebates, the regulatory agency warned that this could also encourage fraudulent behavior and market manipulation.