CFTC Releases Proposal for Regulations of Prediction Markets

The Commodities Futures Trading Commission is taking another swing at improving public opinion on prediction markets.

The federal regulator has released a 267-page book of proposed regulations for the emerging industry. The goal is to limit markets that can be easily manipulated, an issue that causes many Americans to be wary of prediction platforms. While it does impose some restrictions on sports markets, it does not require operators to comply with state laws.

The proposal will be open for public input over the next 45 days.

Selig Steps Up His Defense of Predictions

Earlier this year, CFTC Chairman Michael Selig appeared on TV and sought to ease concerns about the integrity of prediction markets. He made vague promises, but his message failed to resonate with many Americans.

By releasing an in-depth proposal to regulate the industry, Selig and the CFTC may be able to shift public opinion. Once approved, it will allow the CFTC to begin applying new regulations to all operators across the US. This won’t force them out of states, but will help ease growing concerns from lawmakers.

The proposal made its goal clear to anyone who reads it, according to a snippet released by ESPN. 

The Commission believes that event contracts are more likely to be contrary to the public interest when any meaningful information about whether the underlying event will occur is unavailable to the broader market. This includes events that are entirely random or where insight into the underlying event is highly concentrated -- in a single individual, for example, or only individuals legally prohibited from transacting.

CFTC Addresses Problem Gambling Concerns

The biggest surprise in the CFTC’s proposal is its language regarding easily manipulable markets. It includes in-game player prop bets in that category, meaning platforms would be unable to offer them.

Player props in general have been a massive concern for responsible gambling advocates. They allow bettors a way to place dozens of wagers during an event, which is incredibly dangerous for those struggling with problem gambling habits. 

States have been attempting to curb prop bets, but almost every effort has failed. The money coming in from the wager type makes it too important for states, meaning bans would lead to a significant drop in tax revenue.

Can the CFTC Enforce Its Own Regulations?

While the proposal is a strong step forward for the prediction industry, there is reason to wonder what comes next.

One major concern about the rapidly growing industry is the CFTC's ability to enforce new rules. The regulator is already short-staffed, and President Trump has only appointed one of the five chair positions it is supposed to have. As a result, people have been asking how the commission plans to regulate its new rules.

When Selig spoke earlier this year, he suggested that operators would largely be responsible for self-regulating. He also refused to promise any penalties or actions for operators who violate its regulations.

The CFTC did not include any answers to these concerns, leaving the public with many questions.