The U.S. Commodity Futures Trading Commission issued a six-page memo to prediction market operators late last week, clarifying self-certification requirements for event contracts. Duncan Hennes, acting director of the Division of Market Oversight, signed the document.
The memo states that operators have been filing template applications for contracts across multiple markets with different data sources for settlement. That prevents the CFTC from assessing whether the core principles of the Commodity Exchange Act have been met and whether settlement methodology is sound. Market participants also lack access to that information. The memo follows four months after an earlier CFTC directive reminding operators of two dozen core principles, including protection against manipulation and fair trading rules.
Self-certification came up at a House subcommittee hearing on commodity markets. Chris Cylke of the American Gaming Association urged Congress to bar federally regulated prediction markets from self-certifying contracts on sports and casino wagers. Carl Kennedy of Katten Muchin Rosenman pushed back: the CFTC has 10 days to request public review of a contract, then 90 days for full review. The commission can pull a contract if it fails the public interest test. 'This is not a loophole, it's real oversight with teeth,' Kennedy said.
Robert Schwartz, former CFTC general counsel, noted that the June draft of new rules makes clear that single-player contracts are unlikely to meet the public interest threshold. The real problem is that commission headcount has dropped 20% since 2011. The public comment deadline for the new rules closed on Monday.
