CFTC warns prediction markets against American-style odds

• CFTC releases new guidance to federally regulated exchanges advising against American-style odds
• The move comes amid a broader debate about the nature of prediction markets’ sports event contracts
• The CFTC maintains that certain phrasing could be misleading or deprive participants of the depth of the experience

While the Commodity Futures Trading Commission (CFTC) has so far been on the side of prediction market platforms, defending them against state incursions tied to local gaming laws, the CFTC has drawn the line clearly as to what these platforms can and cannot do.

American-style odds need to go, says CFTC

For one, the watchdog, through its Division of Market Oversight and the Markets Participants Division, told these platforms to be wary of using what the regulator described as "American" odds format, which is commonly associated with "casino gambling bookmakers."

In essence, this is the (+) and (-) used to denote traditional sports bets, which have drawn a lot of criticism from observers when applied to prediction markets. The reason why these platforms have dabbled in this, however, is simple - familiarity.

While prediction markets argue that they are different than mainstream sports betting, and therefore not subject to gaming laws, the similarity they have drawn on from that vertical has irked attorneys general.

For one, many platforms used the words "bet" in their company descriptions as they were taking off, and that was a purposeful move designed to generate excitement from people who were already sports bettors (not necessarily traders).

This marketing tactic has been changing, with platforms becoming more mature and responsible and, crucially, having the numbers to maintain their operations and scale without necessarily using sports betting language.

Misleading participants, the CFTC adds

The CFTC argued that sports betting language and terminology likely "mislead participants of the nature of the transaction and may deprive users of access to indicia of market depth and pricing impact," maintaining that trading on sports outcomes is different than betting on those same outcomes.

"Registered entities and persons must uphold regulatory standards and foster clear understanding of the products offered within CFTC-regulated markets, including through the oversight of intermediary market participants, affiliates, and partners," the CFTC said.

For good measure, the CFTC reminded federally regulated exchanges that misleading consumers could be the basis for regulatory intervention.

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