CFTC Letter Rules American-Style Odds Misleading in Prediction Markets

The CFTC has issued a letter declaring American-style odds misleading for event contracts traded on prediction markets. The guidance, published Friday, applies to designated contract markets as well as futures commission merchants and introducing brokers. DraftKings and FanDuel both default to this odds format on their prediction market apps and will comply by the August 31 deadline, as reported by InGame.

Regulator Seeks Clear Distinction from Sportsbooks

The CFTC cites rules on manipulative or misleading advertising. It states that American-style odds are “likely to mislead market participants about the nature of the transaction into which they are entering and may deprive users of access to indicia of market depth and pricing impact.” Displaying derivative contract prices directly, the letter adds, “provides market participants with accurate and relevant information” and “reflects that the prices of these derivatives products are determined by market forces on a regulated exchange.”

The letter argues that such odds hide liquidity and pricing impact that affect the true value of a trade. It references “nominal or percentage terms that reflect market pricing” as preferable but does not specify whether fractional or decimal odds would comply.

Pushback and Litigation Over Product Resemblance

Benjamin Schiffrin, Director of Securities Policy for Better Markets, countered that the CFTC is trying to mask the gambling nature of these contracts. “The CFTC’s desire to help prediction markets avoid the inescapable conclusion that their event contracts on sporting events involve gambling knows no bounds,” Schiffrin said. He added that the move is “a desperate attempt to dupe people into thinking event contracts on sporting events are not the gambling devices they so clearly are.”

As @BetterMarkets posted on X: “The CFTC is now giving advice to prediction markets on how not to look too much like a sportsbook. Will the cheerleading ever stop?”

The letter arrives while the CFTC takes a larger role in litigation asserting exclusive jurisdiction over event contracts against state gambling laws. It recently issued an emergency order requiring Kalshi to continue trading if New York attempts to shut it down. The agency has also proposed rules for affiliated market makers that limit them to providing liquidity without taking directional positions.

Whether steps focused on appearances will produce more than cosmetic change in court remains to be seen.

Reporting: InGame

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