Key Takeaways:
The U.S. Commodity Futures Trading Commission (CFTC) is pushing its process forward to clear up the future of prediction markets. On June 10, it published a Notice of Proposed Rulemaking to develop a more transparent methodology for assessing event-based contracts trading on regulated trading venues.
As prediction markets grow rapidly in both traditional finance and cryptocurrencies, more and more traders, institutions and market operators are becoming interested in them.
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According to the proposal, the CFTC wants to establish a formal process for determining whether an event contract involves activities specifically identified under the Commodity Exchange Act.
These categories include terrorism, assassination, war, gaming, and conduct considered unlawful under federal or state law.
The agency said the number and variety of event contracts have grown significantly in recent years, particularly contracts linked to sporting events. Because of this, regulators are looking for a more standard approach in determining the markets that can be listed and those that may need further examination.
The suggested model is one of a pre-determined place for a contract to pass through a review process before assessing if it is desirable in the public interest.
One of the main things about the proposed idea is its approach on sports related markets.
It is not a blanket prohibition, it offers the suggestion of a case-by-case approach for contracts associated with sporting events. CFTC intends to evaluate if certain contract forms pose risk of manipulation, corruption, and/or departure from public policy goals.
The paper also deals with the definitions of some of the more important statutory terms, such as “involve” and “gaming,” that have been hotly contested in the past in various regulatory discussions.
In the hope of offering more transparency to market operators and exchanges interested in introducing a new event-based product, the CFTC will clarify these concepts.
The concept is significant for prediction market sites based on crypto, whose growth skyrocketed in the last two years.
This rulemaking is one of several steps the CFTC is taking in an ongoing review of prediction markets. The agency also issued an Advance Notice of Proposed Rulemaking earlier this year tasked with this sector, indicating more likely rule in this area.
The new one provides for a 90-day review period, and allows for public comments prior to final rules being adopted. The result would have a tremendous impact on the future of event contracts in the United States and would be important for the crypto prediction market business.
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