The U.S. Commodity Futures Trading Commission (CFTC) has issued a directive for prediction markets to refrain from utilizing American-style gambling odds. This move comes as the regulator addresses legal challenges claiming that these platforms operate as illegal sports betting entities.
The federal agency has cautioned regulated organizations against showcasing event contract prices in the “American” odds format, which is frequently employed by bookmakers. Sports betting applications typically denote bets with a plus (+) or minus (-) sign, followed by a number that indicates the potential winnings based on a specific wager.
In a letter from the CFTC’s Division of Market Oversight and Market Participants Division, entities involved in listing, soliciting, or accepting event contracts were reminded of their duty to provide transparent and accurate pricing information for derivatives products.
CFTC staff indicated that presenting prices in the American odds format could mislead users regarding the nature of the transaction, potentially limiting their access to vital information about market depth and pricing effects. The regulator emphasized that derivatives should be marked in nominal or percentage terms that accurately reflect market pricing.
The divisions advised market participants to present pricing and related information in a manner that distinctly identifies an event contract as a product traded on a CFTC-regulated exchange, rather than as a higher-margin, non-market-priced bookmaking product.
Furthermore, the CFTC reminded registered entities and individuals of their responsibility to uphold regulatory standards and ensure clear communication regarding products available in CFTC-regulated markets. This includes oversight of intermediaries, affiliates, and partners.
The divisions warned that providing misleading pricing information for regulated products might breach federal laws against manipulative practices.
This letter arrives amidst criticism that the CFTC's support for federally regulated prediction markets has enabled betting to flourish even in states where gambling is banned. This situation has sparked lawsuits nationwide, with major platforms like Kalshi and Polymarket allowing users to wager on a wide range of topics, from sports and reality television to geopolitical events.
In court, the CFTC and prediction-market operators have maintained that their event contracts are financial derivatives, fundamentally distinct from traditional gambling, thus falling under the agency's jurisdiction. However, several states have contested this assertion and filed lawsuits against the companies, claiming that the platforms operate as illegal, unlicensed gambling businesses.
According to the letter, introducing brokers, futures commission merchants, and designated contract markets involved in prediction markets must confirm receipt of the regulator’s message by August 31.