The Commodity Futures Trading Commission (CFTC) is investigating misleading promotions offered by prediction markets, Front Office Sports reported.
The federal organization in charge of regulating prediction operators will review claims that operators used deceptive offers to entice new customers to register accounts at their platforms. Unspecified “action” is expected this week, a source referenced in the report claimed.
Cloudy promotions at prediction markets
Sign-up bonuses for prediction markets can come in different forms. A common offer is to reward customers with a certain value of funds specifically for trading, not withdrawal, if the customer reaches a minimum threshold for deposits and trades in a given window. For example, win $50 in bonuses by depositing $10 and trading $25 within one month.
According to FOS’ report, an unspecified number of promotions offered by prediction markets aren’t as straightforward — or at least, they haven’t been presented as such.
The CFTC in August sent a notice to licensed platforms reminding them of the requirements outlined by the Commodity Exchange Act and the CFTC. Those include making filings before offering sign-up bonuses that explain the rules behind the promotions, and ensuring that promotions are offered fairly and with integrity.
CFTC Chairman Michael S. Selig has not decided on a course of action, an FOS source claimed. However, “imminent” intervention is still expected.
What’s in store?
It’s unknown which platforms could be on the receiving end of an investigation or possible punishment. Platforms such as Kalshi, Polymarket, and Underdog all offer sign-up bonuses, although that in itself is not a violation of the CFT’s guidelines.
According to FOS, the CFTC in its August notice highlighted “risk-free” trades, unlimited rebates, and guaranteed profits as promotions that could violate integrity standards. A source also claimed that the CFTC was “frustrated” with platforms’ failure to comply.
“[There are a] slew of programs deemed to be misleading,” an FOS source said.
Prediction markets are coming under increasing scrutiny, not just for promotions, but for their offerings in general. The U.S. House this week widened its investigation into potential insider trading as scandals continue to pile up.
Selig is also working to finalize a new set of rules for prediction operators. A June proposal outlined markets that would be restricted for being against the public interest and susceptible to nefarious manipulation.
Additionally, the CFT last week said that mention markets, which allow users to profit based on words or phrases said during an event, presented a “heightened risk” of manipulation. That comes on the heels of President Donald Trump’s former teleprompter operator agreeing to pay over $170,000 in total for using his access to official speech material to predict and profit from what his boss would say.
CFTC ready for next steps
Critically, the CFTC is not reportedly looking to ban promotions for prediction markets — just ensure that companies are transparent with their offers.
The CFTC has largely supported prediction market operators through legal controversy and regulatory disputes. However, it has made several attempts to tighten its regulation, with the unspecified “action” against misleading promotions being the latest example.
This situation closely resembles the one faced by sports betting operators during the early stages of legal sports betting. Operators were reprimanded for various infractions, such as describing their offers as “free,” “risk-free,” “can’t lose,” or similar in nature.
The Trade Handle Prediction Markets Take
Prediction markets are facing the same reality that sports betting operators did with their early promotions. Amid a heated and all-important battle to acquire a larger market share, offers presented to customers cannot distort the truth or nature of the opportunity that awaits users. The CFTC’s continued interest in reshaping rules for operators indicates that it is committed to enforcing basic regulations instead of blindly supporting the booming industry.