CFTC Notes Certain Sports Event Contracts May Pose Heightened Manipulation Risk

• The Commodity Federal Trading Commission Division of Market Oversight today published prediction market advisory
• The advisory included specific guidance for designated contract markets self-certifying sports event contracts
• Sport event contracts including individuals or small groups may be susceptible to manipulation

---

The Commodity Federal Trading Commission Division of Market Oversight today issued prediction market advisory regarding the listing for trading event contracts, underscoring the obligation for designated contract markets to only trade event contracts that are not readily susceptible to manipulation.

According to the Commodity Federal Trading Commission Division of Market Oversight (DMO), the majority of sports event contracts offered by designated contract markets (DCM) where the settlement depends on the performance of multiple participants over an extended period of play have been consistent with the core obligation to avoid potential manipulation.

However, the DMO also reported that sports event contracts based on the outcomes of a “single individual or a small group of individuals” may be subject to heightened manipulation or price distortion risks.

DCMs Need to Be Proactive

Commodity Futures Trading Commission Chairman Michael Selig reported two weeks ago at the Milken Institute Future of Finance 2026 conference in Washington, D.C. the CFTC would be issuing the prediction market advisory for DCMs.

The DMO issued advisory reminds DCMs they have self-regulatory obligations for the contract markets they operate.

“As front-line regulators, DCMs should be proactive, ensuring proper surveillance and oversight of trading in all of the products that they list, accounting for the particular characteristics and attributes of each product,” the advisory notes.

The DMO pointed to DCM Core Principle 3, which requires that each DCM list for trading only derivative contracts that are not readily susceptible to manipulation. According to the DMO, while the majority of sports event contracts depending on the performance of multiple participants over an extended period of play are consistent with this core principle, those that deal with single individuals or a small group of individual may be subject to heightened manipulation.

“Sports-related event contracts and event contracts more generally have often been shown to be consistent with DCM Core Principle 3 where the settlement outcome depends on the aggregate performance of multiple participants over an extended period of play. The breadth of the outcome, in the typical case, reduces the ability of any single actor to manipulate the settlement value without material cost or substantial risk of detection.”

However, sports event contracts involving those that resolve or settle based on injuries to participants, unsportsmanlike conduct, or physical altercations between participants, or those that resolve based on the action of a single individual or a small group of individuals, such as officiating actions occurring during an event, may be at more of a risk for event manipulation, the DMO noted.

The DMO advised DCMs to engage with staff in the early phases of designing these contracts to determine if “any heightened manipulation or price distortion risks exist,” and if so, whether they may be reduced with appropriate controls.

Communication with Leagues is Key

The DMO staff recommended that DCMs consider four strategies to lessen the chance of event manipulation for these types of sports event contracts.

1. Engage in pre-self-certification communications with relevant sports governing bodies or leagues when developing terms and conditions, compliance and market oversight programs for sports event contracts
2. Include as part of the self-certification submission an explanation of whether the contract is consistent with the league’s integrity standards
3. Establish information-sharing and data arrangements with the relevant sports integrity monitory orgnaization
4. Rely on official data provided by the relevant league as the settlement source

The DMO also encouraged DCMs to consider league integrity standards or guidance around markets, contracts, and restricted or insider participants lists in order to protect against manipulation and insider trading, as well as protecting the integrity of the league and sporting events it administers.

Additionally, the DMO also recommended that DCMs cooperate with any league-run investigations into potential manipulation or insider trading investigations.

Keeping the lines of communication open with sports league and their respective governing bodies can only help a DCM’s ability to comply these specific obligations, the DMO reported.

“In the view of DMO staff, engagement with the sports leagues and other sports governing bodies may further a DCM’s ability to comply with their obligations under DCM Core Principle 3 with respect to sports-related event contracts by enhancing access to information about the nature and dynamics of underlying events (e.g., information about categories of individuals who should be restricted from trading in certain sports-related event contracts as an informed participant),” the DMO wrote.

The DMO also warned DCMs to avoid “overly broad or general contract specifications” when self-certifying markets. These overly broad offerings may impact a DCM’s ability to provide “a clear explanation and analysis of compliance in the DCM’s product submission to the commission.”

“DMO staff would expect a product submission to include, among other things, a description of the settlement methodology that accounts for differing potential permutations of the contract, including identification of the specific data source(s) on which settlement will be based, and an assessment of the reliability, objectivity, and manipulation resistance of such sources,” the DMO reported.