WASHINGTON, August 12, 2026 — The Commodity Futures Trading Commission’s Division of Market Oversight issued an advisory on incentive programs for prediction markets after staff observed an increase in incentive-program rule filings relating to event-contract products, including filings that were procedurally or substantively deficient.
The advisory reminds designated contract markets of their regulatory obligations when submitting market-maker, liquidity, trading and other incentive programs under CFTC Regulations 40.5 and 40.6. DMO said deficient filings can hinder staff’s ability to determine whether exchanges have adequately disclosed program terms and assessed compliance with the Commodity Exchange Act’s Core Principles and other Commission requirements.
Incentive programs can include payments, credits, rebates or other forms of compensation designed to encourage market participation or trading. DMO acknowledged that properly designed programs can support liquidity, market depth, price discovery and orderly market operation, while identifying several incentive structures that staff said can create regulatory risks.
Filing deficiencies amid growth in event-contract incentives
Designated contract markets must submit rules governing incentive programs to the CFTC before implementing them. Under Regulation 40.6, exchanges can self-certify such programs through a process that provides for a 10-business-day Commission review period.
DMO said it has observed an increase in incentive-program rule filings involving event-contract products under Regulation 40.6(a), including submissions with procedural or substantive deficiencies. According to the advisory, deficient filings often require additional information requests and subsequent resubmissions, adding time for both Commission staff and the submitting exchange.
The advisory says submissions must detail material economic, structural and operational terms, including a program’s purpose and duration, products covered, participant obligations and performance standards, incentives and eligibility criteria. Exchanges must also provide an analysis of compliance with applicable Core Principles and Commission regulations.
Material changes to an existing certified program — including changes to incentive structures, economic terms, participant obligations, covered products, eligibility requirements, the maximum number of participants, or program extensions or renewals — must be submitted as a new Regulation 40.6 rule certification rather than as a modification or supplement to an existing submission, according to DMO.
Trading incentives under heightened compliance scrutiny
DMO identified several incentive structures that staff said can present market-integrity concerns. Volume-based rewards with steep tiers or threshold bonuses, for example, can encourage participants to trade solely to reach volume targets, heightening risks of wash trading, pre-arranged trading or other fraudulent, manipulative or disruptive practices.
Staff also warned that market-maker programs guaranteeing net profits or covering participant losses through stipends and rebates may incentivize artificial strategies or other fraudulent, manipulative or disruptive trading practices. DMO said exchanges should consider whether compensation exceeds what is reasonably necessary to achieve a program’s purpose and cautioned against disproportionate or unlimited payouts structured to guarantee profits, offset losses or significantly exceed transaction costs.
The advisory calls for program-specific surveillance and risk controls tied to the behavior particular incentives could encourage. Measures cited by staff include customized alerts for wash trading or fictitious trading patterns, heightened review of trading clusters associated with threshold-based rewards and monitoring for anomalous price movements linked to rebate-driven strategies.
Equal access requirements for rewards and market participants
DMO also focused on whether incentive programs provide impartial and nondiscriminatory access. Staff said programs involving volume-based discounts, tiered fee rebates, market-maker incentives and similar structures should use impartial, transparent and objective criteria applied in a nondiscriminatory manner, with equal opportunity and uniform application of discounts and rebates for participants meeting those criteria.
The advisory cautions against hidden or preferential arrangements such as secret discount codes, non-cash prizes and undisclosed VIP or early access. Staff also said selectively offered retention bonuses and non-cash incentives of unspecified or varying value are likely to have exclusionary effects inconsistent with Core Principles and a DCM’s obligation to provide fair and nondiscriminatory access to its services.
Sweepstakes-like or randomized rewards based in whole or in part on chance are also likely to conflict with impartial-access requirements, according to DMO. A footnote specifically says rewards should not be offered through gamified, casino-style or other chance-based mechanisms, including spin-the-wheel promotions in which the availability, amount or value of a reward is determined through randomized or game-like features.
Affiliate arrangements and conflicts of interest
The advisory says DCM obligations also extend to situations where incentives are offered or delivered through third-party affiliates or intermediaries. Exchanges should maintain sufficient oversight and safeguards to ensure those parties comply with program terms and uphold their obligations to pass applicable incentives or rewards to customers, DMO said.
Staff separately highlighted potential conflicts when a market maker is a subsidiary or affiliate of the exchange operating the incentive program. DMO said such an affiliation gives the exchange a direct financial incentive to set program terms to advantage its affiliate and pointed to the Commission’s recent proposed rulemaking on conflicts and affiliations.
The advisory also directs exchanges to consider the competitive effects of incentive programs, including their purpose, immediate and longer-term effects on competition, procompetitive justifications and the DCM’s market share. In DMO staff’s view, programs with short, fixed and transparent terms paired with appropriately constrained privileges and rights are more likely to satisfy applicable competition requirements.
September review window for existing programs
DMO recommended that designated contract markets review incentive programs previously submitted under Regulation 40.6(a) for compliance in light of the advisory. Amendments reasonably within its scope should be submitted under Regulation 40.6(a), or Regulation 40.6(d) for notice of non-substantive revisions, by September 14, 2026. Staff said it is available to work with DCMs to determine which revisions are appropriate under Regulation 40.6(d).
The advisory is informational and does not create new regulatory obligations or supersede the Commodity Exchange Act or existing Commission regulations. It represents the views of DMO staff and does not necessarily represent the views of the Commission or another CFTC division or office.
Why it matters
The advisory provides a more detailed view of the compliance issues emerging alongside the growth of incentive programs in prediction markets. By identifying deficient event-contract-related filings and highlighting risks associated with volume thresholds, guaranteed profits or loss coverage, preferential rewards and randomized promotions, DMO is signaling where staff scrutiny is likely to focus as exchanges use incentives to attract liquidity and trading activity.
The advisory also places market growth alongside established exchange obligations involving market integrity, impartial access, transparency, conflicts of interest and competition. For DCMs operating prediction markets, the advisory underscores that incentive structures designed to expand participation remain subject to the Core Principle framework governing federally regulated derivatives markets.
