FIA filed a comment letter responding to the US Commodity Futures Trading Commission's Notice of Proposed Rulemaking on Prediction Markets. The proposed rulemaking focuses on the process the CFTC will follow in reviewing event contracts that may involve certain activities such as war, gaming or violations of state or federal law. It marks the second time this year the CFTC has consulted market participants on the regulatory framework for event contracts and prediction markets. FIA previously responded to an Advanced Notice of Proposed Rulemaking on Prediction Markets in April.
FIA’s latest response notes that prediction markets can serve important functions, including aggregating information and enabling market participants to manage exposure to a broad range of events, and FIA commits to work with the CFTC to develop an effective and durable regulatory framework for prediction markets.
The letter supports the CFTC’s effort clarify the so-called “special rule” governing review of event contracts in the enumerated categories and to articulate the public interest factors the agency intends to consider when determining whether an event contract subject to the special rule is contrary to the public interest. The CFTC’s actions will increase transparency, promote consistency and provide market participants a clearer understanding of how the CFTC will oversee event contract listings.
FIA’s letter encourages the CFTC to make targeted clarifications in the final rule to ensure orderly operation of the market, including that:
- FCMs may reasonably rely on an exchange’s self-certification when determining whether a listed event contract may be made available to customers; and
- Exchanges listing event contracts must maintain and publish objective procedures governing the treatment of open positions in contracts that may be prohibited by the CFTC.
FIA’s letter continues to urge the CFTC to proactively address other key questions presented by event contracts. Notably, market participants need clear rules for leveraged event contracts (if they are permitted) and conflicts of interests.
