The U.S. regulator responsible for prediction platforms such as Kalshi and Polymarket is warning that weak compliance practices around trading incentives could create greater opportunities for market manipulation.
Prediction-market operators, like other trading venues overseen by the Commodity Futures Trading Commission, use incentive schemes to attract high-volume traders and encourage firms to participate as market makers. These programs are designed to increase liquidity, participation and overall trading activity, but the CFTC is increasingly concerned about how they are being implemented.
In guidance released Wednesday, the derivatives regulator said it has seen a rise in filings related to incentive programs. Many of those submissions, it said, have been deficient either procedurally or substantively. Such problems can make it harder for the agency to determine whether platforms have adequately disclosed program conditions and properly assessed compliance.
The CFTC also flagged risks associated with certain trader rewards. Programs that pay participants for reaching high-volume targets could encourage trading solely to meet those thresholds, potentially increasing the risk of wash trading, prearranged transactions and other fraudulent, manipulative or disruptive practices.
Market-maker arrangements have also come under scrutiny. Some platforms use stipends and rebates to guarantee returns or compensate market-making firms for losses while they provide liquidity on both sides of an event contract. The CFTC cautioned that these structures could similarly create incentives for improper trading or market manipulation.
CFTC Steps Up Prediction-Market Oversight
The CFTC has taken an increasingly active role in supporting the development of prediction markets in the U.S. The agency is currently involved in legal disputes with states that have challenged event-contract platforms over alleged violations of local sports-gambling laws.
The regulator introduced its first proposed rules specifically targeting prediction markets in June. Alongside that effort, the CFTC has continued publishing guidance to help operators comply with existing rules for designated contract markets, or DCMs.
In guidance issued last month, the agency also warned platforms against cutting corners when filing standardized contract certifications.
The latest advisory underscores the CFTC’s focus on ensuring that incentive and market-making programs are properly documented, reviewed and structured as prediction markets expand across the United States.
