The U.S. regulator overseeing prediction platforms such as Kalshi and Polymarket has warned that poor compliance practices surrounding trading incentives could increase the risk of market abuse.
Like other trading venues regulated by the Commodity Futures Trading Commission, prediction-market operators use reward programs to attract active traders and encourage companies to provide liquidity as market makers. While these strategies can increase participation and trading volume, the CFTC said it has concerns about how some platforms are implementing them.
In guidance issued Wednesday, the derivatives regulator said it has noticed more filings tied to incentive programs, many of which contain procedural or substantive shortcomings. According to the agency, these deficiencies can make it difficult to determine whether a platform has properly disclosed the terms of a program and adequately assessed whether it complies with applicable rules.
The CFTC also pointed to potential risks within certain reward structures. Bonuses tied to high trading volumes could encourage participants to execute trades primarily to hit specified targets, potentially increasing the likelihood of wash trading, prearranged transactions and other manipulative or disruptive activity.
Market-maker incentives are also under scrutiny. Some programs provide stipends and rebates designed to guarantee returns or offset losses for firms that quote both sides of an event market. The regulator warned that such arrangements could create incentives for fraudulent activity or market manipulation.
CFTC Tightens Oversight of Prediction Markets
The CFTC has become an important player in the growth of prediction markets in the United States. The agency has defended event-contract platforms in legal disputes with states that claim the companies are operating in violation of local sports-betting laws.
In June, the regulator proposed its first rules specifically addressing prediction markets. It has also continued issuing guidance on how these platforms should comply with existing requirements for designated contract markets, or DCMs.
Last month, the CFTC advised prediction-market operators against taking shortcuts when submitting standardized contract certifications.
The latest guidance highlights the agency’s growing focus on incentive and market-making programs as prediction markets expand, emphasizing that platforms need to ensure such schemes are properly documented, compliant and structured to reduce opportunities for market manipulation.
