The Commodity Futures Trading Commission is reviewing the bonuses and incentive programs used by prediction markets, with an announcement of some kind reportedly due by the end of the week. The review comes two weeks after the regulator’s deadline for exchanges to bring those programs into line.
CFTC Readies Action on Prediction Market Promos, Expected This Week
WRITTEN BY
SHARE
Key Takeaways
- The CFTC is reviewing prediction market incentive programs, with action expected this week.
- An August staff advisory gave exchanges until Sept. 14 to bring existing programs into compliance.
- The advisory flagged “risk-free” trades, unlimited rebates and chance-based bonuses.
Two Weeks Past an Unheralded Deadline
The CFTC is sweeping incentive programs offered by prediction market platforms over concerns that some promotions are misleading, Front Office Sports reported on Sept. 29, citing sources. The review covers incentives for both traders and market makers, and could lead to targeted examinations or enforcement investigations. Chairman Michael Selig has not settled on an approach, but an “action” of some kind is expected by the end of this week, per the reporting. The CFTC declined to comment to FOS, and as of Wednesday, no announcement had appeared on its website.
The review makes for a rare move against the burgeoning industry by a regulator that has largely backed it in legal skirmishes: the CFTC has sued nine states over their attempts to block sports event contracts.
It is not clear which companies would be affected. Kalshi, Polymarket and Novig all run incentives that could draw the agency’s attention. One type of offer under review promises to credit a set amount of money to a user’s account after they sign up and make certain trades. Offers like that are standard across the sector: affiliate sites currently list Kalshi and Polymarket US sign-up credits of $25 and $50, respectively.
The CFTC has been “frustrated” that companies have not come into compliance since August, one source said, pointing to a “slew of programs deemed to be misleading.” The agency’s Division of Market Oversight issued a staff advisory on incentive programs on Aug. 12. It asked exchanges that had already filed such programs to review them and submit any amendments by Sept. 14.
The letter set out which designs concern staff:
- Volume-based rewards with steep tiers or threshold bonuses, which it said can encourage wash trading.
- Market-maker programs that guarantee profits or cover losses through stipends and rebates.
- “Unlimited rebates, ‘risk-free’ trades, market-maker stipends.”
- “Secret discount codes” and informal VIP perks.
- “Sweepstakes-like or randomized rewards”; in a footnote, it said rewards should not be offered through spin-the-wheel promotions or other casino-style mechanics.
Exchanges also remain responsible for incentives delivered through affiliates or other intermediaries. The advisory is staff guidance and creates no new rules, but it also gives no protection from enforcement.
The randomized-reward language has a recent example. In July, affiliates were advertising a Kalshi offer to “Trade $25, Get Up to $500” that paid a randomly determined bonus, Event Horizon reported. Per the odds affiliates published, 70% of users received $15 and 0.35% received $500. The current offer listed by affiliates is a fixed $25 credit.
Incentives aimed at market makers are also under the spotlight. After reports that the CFTC was examining lopsided trading on Kalshi’s ether perpetual, Kalshi published a rebuttal of the wash trading claims on Sept. 22. It said the repeated trades came from market makers paid a monthly fee to keep orders resting on the book, and from a temporary rebate that refunds perpetuals fees for self-clearing members. Neither program appears to be part of the current review.
