The CFTC has issued regulatory relief for designated contract markets and derivatives clearing organizations handling fully collateralized event contracts. The May 13 no-action letter gives limited protection from selected swap reporting and recordkeeping rules tied to these products across markets.
As per announcement, the relief was issued by the agency’s Division of Market Oversight and Division of Clearing and Risk. Both divisions said they would not recommend enforcement action against exchanges, clearinghouses or any participant that does not comply with certain provisions for these contracts.
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CFTC Relief Covers Swap Reporting Rules
This decision is addressed Parts 43 and 45 of CFTC regulations. The Real-time Public Reporting is part 43. Part 45 dedicates itself to swap data recordkeeping and reporting requirements. The relief also comprises provisions of related regulations under Regulations 38.8(b), 38.10, 38.951, and 39.20(b)(2).
The CFTC said the action came in response to repeated requests from trading venues that list and clear event contracts. However, the future might hinge upon this change with respect to making requests easier, officials said. Another aim is to provide equal regulatory treatment for market participants.
Under the new procedure, firms wanting to list or clear similar event contracts may apply for the same no-action relief. They may then be added to an appendix of the agency if approved. This eliminates the need for multiple case-by-case evaluations of similar products.
This framework facilitates consistency as event-based trading expands, the agency said. It also demonstrates increasing demand for contracts tied to measurable outcomes. The CFTC characterized the relief as a means of consolidating comparable requests into a single process.
Prediction Markets Face Wider Regulatory Pressure
This announcement comes at a time when prediction markets are facing increased legal and regulatory scrutiny in the US. The May 13 action was taken after a four-month policy buildup under CFTC chair Mike Selig.
Prediction-linked products are also under review by other regulators. This month, the U.S. Securities and Exchange Commission has halted the launch of prediction market ETFs for a second time within two weeks. Catastrophic loss disclosures and binary payout structures were the reported concern.
Challenges on the state level have added a second layer to this debate. Selig said he is watching events unfolding in Minnesota due to an increasing amount of legal pressure on prediction market activity. Such disputes have broadened the questions of state and federal authority.
Court rulings have favored federal oversight in certain sectors of the market. These decisions bolstered the role of the CFTC in regulating event contracts. Kalshi wins a few state court fights over contracts tied to sporting events.
CFTC amicus briefs supporting exclusive federal jurisdiction for registered designated contract markets. Future decisions from Washington could further influence how these event-based financial products develop, as institutional interest grows.
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