The U.S. Commodity Futures Trading Commission (CFTC) has issued a cautionary note to operators of prediction markets regarding the self-certification of event contracts. The regulator highlighted that this practice could undermine its ability to evaluate whether these contracts adhere to federal regulations, especially those designed to prevent market manipulation.
In an advisory released on Friday, CFTC staff pointed out that some exchanges have been self-certifying broad event contracts that combine various potential contract variations with different settlement sources or methodologies under a single certification.
The CFTC emphasized that this bundling of contracts restricts its capacity to thoroughly review each contract's compliance with regulatory standards, particularly concerning their vulnerability to manipulation.
According to the agency, contracts should only be grouped together if they share similar settlement characteristics. For instance, contracts related to matches in the 2026 FIFA World Cup could be certified collectively, whereas contracts for different championships governed by various organizations or employing distinct outcome determination methods should not be included in the same certification.
The CFTC believes that requiring more specific certifications would help exchanges better understand the risks associated with each settlement source and methodology.
Over the past 18 months, the CFTC has noted a significant increase in self-certified contracts, leading to a dramatic rise in the number of contract variations listed on regulated exchanges.