CFTC exempts prediction markets from swap reporting

On May 13 the Commodity Futures Trading Commission’s Division of Market Oversight and Division of Clearing and Risk issued a blanket no-action letter covering fully collateralized event contracts. The divisions said they will not recommend enforcement action against designated contract markets, derivatives clearing organizations or their participants for failing to report transaction data for covered event contracts to swap data repositories or for not keeping certain records otherwise required under swap rules.

The relief applies only within the terms set out in the May 13 letter. Entities that previously received individual no-action letters on event contract reporting are covered and do not need to reapply. New entities seeking the same relief can request inclusion in an appendix to the letter; if approved, their names will be added to that appendix and they will receive the same treatment as earlier recipients.

The agency said the blanket letter consolidates responses to multiple, similar requests from market operators that sought permission to list and clear event contracts. The appendix mechanism is intended to reduce repetitive administrative work for both the agency and market participants by avoiding separate letters for each new requester.

Fully collateralized event contracts include prediction market products that let users trade outcomes of political, economic or other real-world events. Platforms that offer such contracts have repeatedly asked the CFTC to clarify reporting obligations under existing swap regulations.

The letter does not change the legal classification of these contracts under federal law. It narrows the scope of the CFTC’s active enforcement of swap reporting and recordkeeping for the specific contracts covered by the letter but leaves other legal and regulatory obligations in place.

The divisions said they expect additional requests, including filings to modify earlier no-action positions to reflect changes in DCM designation orders or the entry of new DCOs. Entities that fall outside the letter’s terms must submit a direct request to the agency to be added to the appendix.

The guidance arrives amid state-level litigation over oversight of event-contract activity. Last month CFTC Chairman Michael Selig told lawmakers the agency uses Microsoft artificial intelligence tools to monitor prediction markets. The divisions emphasized that the no-action relief does not affect the CFTC’s broader surveillance or its ability to enforce other federal requirements.