SIFMA and FIA Urge CFTC to Clarify Regulatory Approach to Prediction Markets

SIFMA and the Future Industry Association ("FIA") called on the CFTC to establish clearer regulatory standards for prediction markets.  

In a comment letter responding to the CFTC Advance Notice of Proposed Rulemaking on how prediction markets should be regulated, (see prior coverage,) SIFMA raised concerns about (i) the lack of clarity around product categorization — event contracts could qualify as futures, swaps, securities, or security-based swaps, creating significant legal uncertainty for market participants; (ii) the risk of conflicting obligations for firms dually registered with both the CFTC and SEC, warning that absent coordinated oversight, members could face duplicative compliance burdens and inconsistent enforcement; (iii) market integrity risks, including the potential for prediction market activity to spill over into correlated markets such as equities and listed options; and (iv) cross-border complications that could arise depending on how products are ultimately classified.

SIFMA called on the CFTC to pursue a deliberate, principles-based regulatory approach that builds on existing frameworks rather than introducing fragmented or duplicative requirements. SIFMA urged enhanced coordination between the CFTC and SEC — including joint guidance or rulemaking where appropriate — to establish clear and harmonized jurisdictional boundaries.

In its comment letter, the Futures Industry Association explained that unlike traditional derivatives, event contracts often have binary payoff structures, short trading windows, limited historical data, and no underlying spot market — all of which make conventional risk management techniques difficult to apply. The FIA noted that Designated Contract markets ("DCMs") certified approximately 1,600 such contracts in 2025 alone, leaving the Commission with little practical opportunity to evaluate them under the current one-business-day product self-certification review window. FIA raised additional concerns about market integrity risks specific to prediction markets, including insider trading, conflicts of interest in vertically integrated business models, and ambiguity around how existing market conduct rules apply to contracts tied to government actions or political events rather than traditional financial instruments.

FIA recommended the CFTC: (i) retain the established three-party structure of DCMs, futures commission merchants, and derivatives clearing organizations ("DCOs") for any leveraged event contracts, while allowing streamlined requirements for fully collateralized, pre-funded contracts that involve no extension of credit; (ii) permit leveraged event contracts only where a DCM and DCO can affirmatively demonstrate compliance with existing risk management core principles on a product-by-product basis; (iii) consider requiring a separate, ring-fenced default fund for leveraged event contracts to prevent losses in these novel markets from spreading to participants in unrelated traditional derivatives markets; and (iv) revisit the product certification process — including extending review periods and strengthening evidentiary requirements — and to establish clear, prospective standards governing contract design, market conduct, and conflicts of interest in prediction markets.