CFTC Modifies Relief for Academic Prediction Market

The CFTC Division of Market Oversight amended a no action letter to modify the conditions under which a not-for-profit academic prediction market may operate in the US.  

The amended relief in Letter 25-20 modifies a prior no-action Letter ("Letter 14-130") that allowed Victoria University of Wellington, New Zealand to operate an educational not-for-profit market for event contracts. (See related coverage.)

Key changes introduced by the amended relief include the following:

• Market Transfer. Victoria University is permitted to transfer operation of its prediction market to the Prediction Market Research Consortium ("PMRC"), a "US-based nonprofit" overseen by a board of US academics. Upon transfer, PMRC "shall be deemed the beneficiary of [Letter 25-20] and CFTC Letter 14-130," with the relief subject to continued compliance and non-transferability.
• Trader Limits per Contract. The amended relief eliminates the 5,000-trader cap per contract, addressing concerns that the limit "can create distortions in the data" and restrict liquidity in popular markets. The Division found that investment caps will continue to ensure a "small-scale" market while supporting data quality for academic research.
• Investment Limit. The relief adjusts the per-participant investment cap to match the Federal Election Campaign Act ("FECA") individual contribution limit—currently $3,500—"as that limit is adjusted going forward," acknowledging inflation since 2014 and aiming to promote liquidity.
• Scope of Contracts Offered. A clarification that the market remains limited to contracts on "political events," including elections and "other significant political questions not involving war, terrorism, or assassination." Covered topics may include government appointments, court decisions, legislative actions, regulatory developments, international agreements excluding war, and actions by international agencies.

The CFTC added that "all terms of CFTC Letter 14-130 not amended by this letter shall remain in effect."