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The Commodity Futures Trading Commission has proposed new rules aimed at a key conflict in prediction markets: companies that operate an exchange while also owning an affiliated trading desk that can take positions against customers on that same platform.
According to the agency, the issue is not isolated. The CFTC said it has identified conflicts of interest tied to that structure at at least six prediction market exchanges.
What the CFTC is proposing
The proposal would not ban affiliated trading outright. Instead, the CFTC said it wants to limit the profit potential and reduce the risk that an exchange affiliate could gain an unfair advantage.
Under the proposal, exchanges and their affiliated trading arms would have to keep separate information systems and staff. The rules would also require independent third-party financial surveillance and clear disclosure when an affiliate is participating in a market.
The agency described this as its first effort to regulate affiliates since 2023, after broader concerns about market structure and conflicts drew attention following the collapse of FTX.
Which companies are part of the discussion
Sportico reported that Kalshi was identified as the first known firm to develop the strategy of operating both an exchange and a trading arm. DraftKings was mentioned as supporting a more permissive approach to vertical integration, while Novig was cited as allowing affiliates to operate with strict information barriers.
Sporttrade CEO Alex Kane argued that stronger affiliate limits are needed for a fair marketplace and said ownership stakes should be capped.
What it means for prediction market users
For users, the proposal is mainly about market integrity and transparency. If adopted, the rules would require clearer notice when an affiliated participant is active in a market, along with more formal guardrails between an exchange and its in-house trading interests.
The proposal is not final. The CFTC has opened a public comment period, and the source did not specify the deadline or when any final rule could be adopted.
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Source: As reported by Dan Bernstein.
