CFTC Proposes Order Priority and Quoting Rules for Prediction Market Affiliates

The Commodity Futures Trading Commission has proposed rules to address conflicts of interest at prediction market exchanges that maintain affiliated principal trading desks. The agency identified at least six such exchanges with these baked-in arrangements, which allow the affiliates to bet against customers on the same platform. The CFTC determined that internal firewalls alone do not resolve the core tension between self-regulation and commercial incentives.

As reported by Sportico, the proposal stops short of an outright ban, which the agency called the most disruptive option. Instead it focuses on limiting affiliate advantages. Chairman Michael Selig‘s agency wants exchanges to assign last priority to affiliate orders at every price level, require continuous two-sided quotations in all markets where affiliates are active, and prohibit fee discounts or faster technology access.

Required Safeguards and Oversight

Exchanges must maintain separate software systems, separate staff except for limited functions such as HR and accounting, and separate office space. An independent third-party firm would conduct financial surveillance of the affiliate and submit periodic compliance reports to the CFTC. Failure to certify compliance on time would force the trading arm to immediately cease qualifying as an eligible affiliate market maker. The rules also mandate plain-language disclosure of any affiliate presence alongside every betting market.

The proposal references comments received after the 2023 FTX collapse, including a Sept. 20, 2023 submission from CME Group that warned of business pressure to favor affiliates during market stress. It would alter current practices at firms such as Kalshi, whose affiliate may currently place orders on either side at competitive levels. Two-sided quoting would not apply to parlays.

Industry Positions and Next Steps

Jason Robins, CEO of DraftKings, described the proposal as preliminary and said his company would submit feedback. DraftKings had previously urged a permissive approach to vertical integration. Alex Kane, CEO of Sporttrade, which does not plan to use an affiliated trading arm on its own exchange, called for stricter limits such as ownership caps, arguing that complex rules favor bad actors while burdening compliant firms. Jake Benzaquen, co-founder of ProphetX, stated that the best marketplaces avoid competing against customers in the liquidity pool.

The CFTC has set an Oct. 5 deadline for public comments. States and tribal groups are expected to weigh in, given their interest in traditional sports-betting tax revenue. The final rules could reshape liquidity provision and compliance costs for operators that rely on affiliated trading.

Reporting: Sportico

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