CFTC warns prediction markets against American odds

The Commodity Futures Trading Commission warned regulated firms not to present event contracts in the sportsbook-style “American” odds format, saying the display can mislead consumers about what they are trading. The agency said odds such as +122 or -117, common in bookmaker pricing, can also deprive users of useful signs of market depth and price impact.

The warning came from the CFTC’s Division of Market Oversight and Market Participants Division in a letter to entities involved in listing, soliciting or accepting event contracts. It said those firms have a responsibility to provide clear, accurate information that does not mislead participants as to the nature of the product being listed.

The commission said direct exchange-style pricing reflects market forces and provides accurate and relevant information about derivative contract prices on a regulated exchange. By contrast, it said bookmaker-style odds can make an event contract look more like a higher-margin, non-market-priced bookmaking product.

The letter grounded that view in the Commodity Exchange Act’s purpose of protecting market participants from fraudulent or abusive sales practices. It also pointed to federal and CFTC rules, including Section 9, Regulation 180.1 and NFA Compliance Rule 2-29, as bars on deceptive conduct and misleading statements.

The CFTC said staff was concerned by reports of potential violations involving American odds in event-contract products. It asked regulated entities to review their pricing displays, marketing material and other information, including material used by partners and affiliates, and to confirm receipt of the letter by Aug. 31.