CFTC staff sets out what a prediction market may pay for volume

What happened

The Commodity Futures Trading Commission's Division of Market Oversight issued a staff advisory on 12 August 2026, numbered CFTC Letter 26-23, addressed to designated contract markets and running to twelve pages including an appendix. It concerns rule self-certifications for 'market-maker, liquidity, trading, or incentive programs' filed under Commission regulations 40.5 and 40.6, and it opens by saying that staff 'have observed an increase in incentive program rule filings relating to event contract products under Rule 40.6(a), including filings that are procedurally or substantively deficient'. Such filings, it says, hinder staff's ability to judge whether an exchange 'has provided adequate notice of the terms of the program and sufficiently evaluated the program's compliance'. The advisory is addressed to designated contract markets because 'no swap execution facilities currently list event contracts'. It sets out procedural expectations: every material change to a certified programme, including changes to the incentive structure, economic terms, participant obligations, eligibility, the maximum number of participants and any extension or renewal, must be filed as a new regulation 40.6 certification rather than as a modification of an existing one, and a programme giving an exchange 'the discretion to amend the terms of the program without a filing under Rule 40.5 or 40.6 may conflict with Part 40'. It then names structures that raise compliance concerns. 'Volume-based rewards with steep tiers or threshold bonuses can encourage participants to trade solely to reach volume targets, heightening risks of wash-trading, pre-arranged trading, or other fraudulent, manipulative, or disruptive trading practices.' 'Market-maker programs that guarantee net profits or cover participant losses through stipends and rebates may incentivize artificial strategies'. Exchanges should avoid 'disproportionate or unlimited payouts, such as those structured to guarantee profits, offset losses, or significantly exceed transaction costs', which 'may undermine bona fide risk transaction activity', and should avoid 'hidden, one-off, or preferential arrangements, such as secret discount codes or non-cash prizes' and 'informal perks, such as VIP or early access to products or markets'. 'Sweepstakes-like or randomized rewards programs or prizes based, in whole or in part, on pure chance, rather than pre-defined performance metrics, likely run afoul of Core Principle 2', and a footnote adds that rewards 'should not be offered through gamified, casino-style, or other chance-based mechanisms, including spin-the-wheel promotions'. Exchanges 'should likewise ensure that they do not introduce unequal trading conditions through selectively available perks, such as faster market data or enhanced application programming interface access'. A footnote asks exchanges to review programmes already certified and file any amendments by 14 September 2026. The advisory is signed by Duncan Hennes, Acting Director of the Division of Market Oversight, and states that it 'represents only the views of DMO staff', creates no new obligations and provides no no-action position.

Why it matters

Every prediction market venue buys its own liquidity, and this is the first document that says in detail what it may buy and at what price. The economic content is in one sentence: payments 'that exceed what is reasonably necessary to achieve the aim of the program or that lack reasonable limits' are more likely to produce the effects the core principles exist to prevent. That converts a subsidy into a quantity a regulator can question, and it comes with a specific prohibition attached, since guarantees against loss run into regulation 1.56 as well. A venue whose depth is bought with unlimited rebates and risk-free trades is quoting a probability that includes the subsidy, which is the same objection the Commission's staff made on 7 August about showing a price in bookmaker odds and the same one the Commission itself made on 11 August about a legal risk premium: three documents in six days, all of them about the difference between what an event contract price says and what produced it. The conflicts section is the sharpest part and no report carried it. Staff say that 'the Commission preliminarily believes that an exchange administering market-maker incentive programs for the benefit of an affiliate market-maker would compromise its obligation under Core Principle 16', which is the duty to minimise conflicts of interest, 'and its obligation under Core Principle 12 to protect market participants from unfair treatment'. The citation is to Conflicts and Affiliations, the proposed rule published at 91 FR 50926 on 6 August 2026. An exchange that owns its own market maker has a direct financial reason to set the terms of the programme in its favour, and the staff have now written that down as an expectation rather than waiting for the rule to close. The access provisions do the same work from the other side. Regulation 38.151(b) requires comparable fee structures, and the advisory reads that as requiring 'impartial, transparent, and objective criteria' applied without discrimination and 'equal opportunity and uniform application of discounts and rebates for all participants who meet such criteria'. The examples it rules out, secret discount codes, retention bonuses offered selectively, VIP access, and faster market data or better programming interface access for chosen participants, are the ordinary tools of a growth-stage venue, and several of them are things a reader would recognise from a consumer app rather than from a futures exchange. On antitrust, staff say programmes with 'short, fixed, and transparent terms' paired with 'appropriately constrained privileges and rights' are more likely to satisfy the core principle, which prices duration as well as amount.

What is not settled

The advisory names no exchange and no programme. It says filings have increased and that some are deficient without saying how many, which venues filed them, or whether any programme now running would fail the test it sets out, and the staff have no enforcement position behind it: the document creates no obligations, may not be relied on, and represents the views of one division rather than the Commission. What happens on 15 September to a programme whose amendments were not filed is unstated. Two things about the document itself are worth recording because they bear on how carefully it was assembled. Its section numbering runs I, III, IV, V, VIII and X, so four numbers are missing without any text being obviously absent. And section D cites Core Principle 18 for the prohibition on unreasonable restraints of trade, where the advisory's own footnote 8 attributes that prohibition to Core Principle 19 and its footnote 33 gives Core Principle 18 as the recordkeeping duty at 17 CFR 38.950; nothing in the guidance turns on which, but a designated contract market reading section D for the rule it is being held to is pointed at the wrong one. The affiliate market-maker passage rests on a preliminary belief in a rule that is still open for comment, so it describes where the Commission is heading rather than where it is. No venue response appears in any report read here, and neither of the two outlets that ran the advisory read past the press release: the conflicts section, the ban on chance-based rewards, the restriction on selectively faster market data and the September deadline are all absent from both. The Block did not carry it at all.